Your ESG Measures Need An Overhaul

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It is a foregone conclusion that ESG considerations are critical to a business’s success. Responsible companies thinking about their impact on the environment and society are more likely to attract and retain investors, employees, and customers – and future-proof themselves for regulation that monitors ESG factors. However, in our tech-driven world, adhering to common understandings of ESG measures will leave companies falling short of marketplace expectations.

Current studies estimate that technology contributes between 2-3% of global emissions, on par with the airline industry. End-user devices alone – laptops, tablets, smartphones, and printers -are responsible for one-third of technology direct and indirect emissions[1][2] Emerging technology like AI, blockchain, and quantum computing – and the functions these advanced technologies enable – also incur heavy processing needs and energy costs. In fact, as of 2021, it was estimated that within a year, the process of creating Bitcoin consumed more electricity than is used by Finland and created more electronic hardware waste than most midsize countries.[3][4]

In addition, the social impact of technology cannot be understated. Bias in algorithms can be pernicious and far-reaching, affecting individuals’ access to housing, employment, and credit. Overuse of technology can have a negative impact on mental health and engagement. And these are just currently recognized harms; the creative uses of emerging technology will inevitably unveil both amazing advances and unanticipated damages to individuals and society.

We need a new way of thinking about ESG.

Today’s ESG should incorporate the impacts of technology – the backbone and driver of nearly every business – where environmental and societal effects may be less obvious, but no less severe.

In addition to community volunteer programs, companies adopting or developing new software, or designing tech-enabled products should ask, have we consulted all stakeholders? And, who could this harm? Rather than just focusing on the environmental impact of business travel and offices’ energy consumption, corporations should be thinking about the entire impact of virtual meetings on individuals and teams. Consider this use case for virtual meetings:

For a team of four people with an average commute, virtual meetings have a smaller carbon footprint than in-person meetings. However, there are other factors to consider: “Zoom fatigue” negatively impacts mental health – increasing anxiety and even reducing productivity – affecting women twice as much as men[5] In addition, studies have shown that collaboration is more productive in person. If a virtual meeting is still the best option, using video sparingly is something to consider: a standard video call can generate up to 50 times as much carbon emissions as an audio-only call[6]

This is a fundamental shift in how we think about technology, our decisions around technology, and the impacts they have. And it’s a shift we’re all capable of.

We already have ESG measures in place. Aren’t we covered?

There’s no shortage of current measures for ESG: our research uncovered over 125 different ESG frameworks[7] However, these ESG measures lacked consistent metrics and scoring systems. A recent study found a 38-56% divergence in the scope of measurements across six well-known scoring systems. In lieu of any government-implemented rating mechanism, organizations are free to grade themselves on their cherry-picked rating system or requirements.

The takeaway is not that companies should ignore ESG measures because they lack consistency. Rather, companies must teach their people the skills to identify and critically evaluate potential ESG risks to serve a constantly changing and evolving technology-enabled future. There isn’t a universal standard for how much bias an algorithm can have or a solid understanding of when it becomes more energy efficient to refresh computer hardware. However, there are skills that individuals and organizations can develop to help them anticipate, identify, and mitigate potential negative impacts.

The good news: investment in ESG will yield returns.

Aligning business strategies to ESG measures can have a range of positive business outcomes, including increasing top-line growth by attracting new customers and retaining socially conscious ones; reducing energy costs; gaining strategic flexibility through regulatory alignment and government subsidies; better retainment and attraction of talent; and improving economic outlooks with long-term sustainability investments.

A real commitment to ESG creates value for a company, and weak ESG approaches can have negative financial impacts: loss of customers and employees, less strong community and labor relations, unnecessary energy costs, strategic restrictions, and non-compliance with regulations – factors that may sour potential investors.

So… how do I start?

With technology so interwoven into our businesses, it may be difficult to know where to begin. The good news is there are high-risk areas you can investigate for unintended ESG impacts. And, once you train your people to look for and think about these impacts, it’ll be easier to identify new and unintended impacts in the future. Here are a few places to begin:

  1. Innovation. Anywhere you’re doing something cutting-edge with technology, it’s a great opportunity to ask yourself, what could go wrong? If this solution were adopted at scale, would there be any unfavorable consequences? Have I included the perspectives of a diverse group of potentially affected stakeholders in my design? Because we are still finding creative uses for emerging technology like AI and blockchain, those are areas where organizations should put an extra emphasis on looking at potential impacts during development, testing, and deployment.
  2. Tech governance and risk management. Technology ESG risks should be treated like any other business risk and embedded into the corporate risk management processes and standards to help track and evaluate how well your organization is detecting and resolving potential risks.
  3. Green hardware and software. The carbon footprint of upstream and downstream hardware refreshes and energy use of software and cloud use is often not included in an organization’s path to net zero admissions. Organizations can consider how often hardware is refreshed, and if that timeline can be extended. Major cloud providers are also now looking at decarbonizing their data centers’ electrical supply and giving users visibility into carbon consumption based on cloud regions[8] Taking an account of these less obvious footprints is the first step towards mitigating their impact.
  4. People impacts. Technology should support and advance your workforce, not hinder them. Anchoring conversations around technology adoption on the business need and desired outcomes and including those who will be using the technology in these conversations can prevent the adaption of technology that does not serve the business.

Gone are the days of “move fast and break things.” Technology can enable our businesses to scale, serve more people, and solve incredibly hard problems. Let’s make sure we are thoughtful in how we leverage technology to build a better, more prosperous, and inclusive future.

About Liberty Advisor Group

Liberty Advisor Group is a goal-oriented, client-focused, and results-driven consulting firm. We are a lean, handpicked team of strategists, technologists, and entrepreneurs – battle-tested experts with a steadfast, start-up attitude. We collaborate, integrate, and ideate in real-time with our clients to deliver situation-specific solutions that work. Liberty Advisor Group has the experience to realize our clients’ highest ambitions. Learn more at libertyadvisorgroup.com and on LinkedIn and Twitter.

[1] http://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-green-it-revolution-a-blueprint-for-cios-to-combat-climate-change

[2] http://techmonitor.ai/leadership/sustainability/tech-industry-carbon-emissions-progress

[3] http://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html

[4] http://digiconomist.net/bitcoin-electronic-waste-monitor/

[5] http://news.stanford.edu/2021/04/13/zoom-fatigue-worse-women/

[6] http://support.zoom.us/hc/en-us/articles/201362023

[7] http://carbon-view.com/esg-a-brief-history-of-it-development-part-2/

[8] http://cloud.google.com/blog/topics/sustainability/sharing-carbon-free-energy-percentage-for-google-cloud-regions

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