Consumer commitment to environmental sustainability and social responsibility is intensifying with people voting with their wallets. Businesses are increasingly realising that ESG and profitability are not mutually exclusive. In fact, the recent study The ESG data conundrum, conducted by the IBM Institute for Business Value (IBV), has found that ESG leaders are 43% more likely to outperform their peers on profitability. In addition, according to the World Economic Forum (WEF), most of the risks executives expect to face in both the short and long term fall under the ESG umbrella.
Companies that view ESG as a driver of business value rather than a chore – in other words, a carrot rather than a stick – have an edge over their competitors, as they will be better prepared for the marketplace of tomorrow.
However, while 95% of organisations across Middle East and Africa (MEA) have ESG goals in place, only 36% have made significant progress toward meeting them. It’s no wonder that consumer skepticism and suspicions of greenwashing are on the rise. The study also finds that globally only about 4 in 10 consumers feel they have enough data to make environmentally sustainable purchasing or employment decisions, and only 1 in 3 consumers say they have sufficient information to make sustainable investing and saving decisions.
Companies must balance their ESG promises with their bottom line. A strategic approach can deliver higher revenue, profitability, and customer engagement. However, a well-thought-out strategy may fail if implementation progress is not accurately measured. To reach their goals, businesses must first understand their current standing and the distance to their destination.
The power of data
According to the findings of the IBV report, inadequate data has emerged as the biggest obstacle to making headway on ESG, cited by 41% of executives worldwide and 44% in the MEA region.
Reliable, real-world data is the lifeblood of ESG. It provides visibility into an organisation’s operations – from assessing its carbon footprint to measuring the gender pay gap – and informs real-time decision-making. Without the right information, it’s impossible to evaluate the company’s impact, identify opportunities for improvement, or showcase achievements.
Without the ability to access, analyze, and understand ESG data, it’s also difficult to predict which measures will boost sustainability and improve financial outcomes at the same time. In fact, six in 10 executives say they still make tradeoffs between financial and ESG objectives. This highlights the importance of a data-driven approach for meeting corporate ESG targets.
To achieve progress in ESG, businesses and governments must integrate sustainability into their daily operations, products, and services, with ESG data embedded in core functions. This requires sustainable choices by employees, citizens, and consumers. Governments must incentivise sustainable practices and products to ensure progress. ESG data must be shared internally to empower employees and externally for market opportunities.
Using ESG as a catalyst, companies can drive transformational growth and better outcomes. ESG data should flow in two directions: internally to improve performance and support decision-making by employees, and externally to build trust and create new market opportunities.
In MEA, 67% of executives struggle with manual data overload, while 70% face challenges in consolidating or manipulating data. To address this challenge, businesses can leverage cutting-edge technological solutions, such as AI, automation, Internet of Things, environmental simulation, hybrid cloud, advanced analytics, and quantum computing, to make the most of their ESG data.
With advanced analytics, companies can take a deep dive into their performance, identify opportunities for improvement, and conduct modelling that informs more sustainable decisions. In addition to reducing costs, automation enhances the efficiency, accuracy, and impact of ESG efforts by eliminating manual processes. Meanwhile, AI transforms operational and environmental data into insights that stakeholders can understand.
Building an ESG ecosystem
Collaboration is key for impactful ESG efforts. By engaging with ecosystem partners, businesses can amplify their achievements, fast-track progress, and maximise efficiencies. This involves aligning on ESG metric definitions and standards and establishing common ESG data governance principles. Integrating ESG efforts with the partner ecosystem makes it easier to initiate collaborations, exchange insights and support open innovation.
Coordinating efforts toward a common goal
However, companies can’t just be left to their own devices when it comes to ESG, as many sustainability challenges are transboundary in nature and can only be overcome by coordinated action among countries. Global governance plays a crucial role in facilitating international cooperation. It ensures that decisions are made with a long-term view and with the interests of future generations in mind. AI can aid global governance by providing data-driven insights, identifying patterns and connections across data sources to develop targeted solutions for complex ESG challenges.
The pursuit of ESG goals is a journey of continuous improvement, and smartly used data is a valuable tool that can enable companies get to the finish line faster. With the right information, businesses can be part of the solution to the world’s most pressing problems. Executives can finally stop making tradeoffs between ESG and profitability and start finding ways to drive sustainable development.
By Shukri Eid, General Manager of IBM Gulf, Levant, and Pakistan