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The term ESG (environmental, social and governance) was first coined in 2005 in a landmark study titled Who cares wins, which consisted of specific recommendations by members of the financial industry on how to integrate environmental, social and governance-based investing into their activities.
Some 15 years later, ESG criteria have become an established way for financiers to evaluate companies in which they might like to invest – or not, as the case may be, due to the heightened risk their business practices might pose.
So influential have such ideas become, that two years ago, Larry Fink, chairman and chief executive of investment management house BlackRock, wrote in an annual letter to his CEO clients that their companies needed to start making positive contributions to society or risk losing the support of both the public and the investor community.
Although the move led to growing numbers starting to publish reports based on their ESG performance, according to Brian Kropp, head of research at Gartner’s HR practice, “the prominence of ESG in discussion still vastly outweighs the amount of investment behind it”.
Last summer, however, the entire ESG debate moved up a notch when the leaders of 181 of the US’s largest companies, including Jeff Bezos, founder and chief executive of Amazon, came up with a revised definition of what constitutes a corporation’s ultimate purpose.
These bosses, who were all members of the Business Roundtable, a group that includes some of the most influential leaders in corporate America, declared that simply making money for shareholders and maximising profits were no longer top priorities, but must instead be supplemented by a parallel focus on stakeholders and improving society. In other words, such improvement would take place by providing value to customers, investing in employees, dealing ethically with suppliers, supporting local communities and protecting the environment.
A key driver here, says Kropp, has been the “dramatically increased transparency in the digital era”, which has led to a “big rise in employees demanding that their organisations make progress on ESG issues – and speaking out themselves when it doesn’t happen”. Such organisational ethics are also becoming a factor when trying to recruit the best talent in a tight labour market, although they still rank far behind enticements such as compensation and work-life balance, says Kropp.
Meeting ESG goals
So what can IT leaders do to help support the business in meeting its ESG goals? The first thing, says Kropp, is to work with members of the C-suite to understand what such goals comprise and what internal and external processes, such as those relating to the supply chain, may need to change to get there. For example, he points out that if one of the aims is to cut carbon emissions, IT could help by “designing nudges for employees to book travel via rail instead of flying, or by implementing new technologies to facilitate remote work”.
But another key consideration, says Daniel Quelch, corporate social responsibility and sustainability manager at printer and imaging equipment manufacturer Epson UK, is to evaluate the entire lifecycle of a given product in environmental terms before making a purchase.
Whereas in the past, most organisations bought IT equipment based on price and technical specification, over the past year or so, more and more questions have been raised over issues such as the raw materials used in a product’s manufacture, or how recyclable it is, which is a step in the right direction, says Quelch.
“It’s the Greta Thunberg effect, and the government has been a driver in some areas too,” he says. “IT departments are doing more than they have in the past as a result, but ultimately, there’s still more they could do.”
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As for organisations using their data more ethically, Kropp recommends that they bring in ethics experts to identify and address potential challenges resulting from the introduction of new technology, such as artificial intelligence (AI) software. He also suggests that each organisation draw up a statement setting out how it could use its data in a more ethical way, particularly in terms of employee information.
Kropp explains: “Right now, organisations can use employee data to make promotion decisions, set compensation levels, target and evaluate recruiting candidates and plan reductions in staff. But there’s no consistent way they can test and identify biases in that decision-making, which creates a big risk for IT departments, and organisations generally.”
As a result, the first scandals in this area are likely to appear soon, he says, which could ultimately have a knock-on effect on employers’ wider ESG efforts. As Kropp points out: “No employee will trust their organisation to do the right thing for society if they can’t trust it with their own data.”
Case study: Agility Logistics
Agility Logistics started on its sustainability journey about 10 years ago, with the initial aim of reducing costly paper usage in an industry that has traditionally been heavily paper-based.
As a result, the company, which has 500 offices in more than 100 countries around the world, spent three years rolling out OpenText’s document management software – known at the time as EMC’s Documentum applications – across the business in a bid to automate workflow and cut the number of printouts required.
Ultimately, with the help of a robotic process automation technology implementation that began last year, the aim is to move to entirely paperless offices, with sites in Barcelona, Hong Kong and Malaysia currently leading the way.
Deepak Sharma, Agility’s global IT director, says: “While reducing the amount of paper that has to be printed out is a goal for everyone, removing the need for it altogether is something much more complex. Each document produced has to be saved for seven to 14 years, for example.”
Opting to store such information digitally not only helps the bottom line, however – it also makes a big difference in sustainability as large, expensive, physical warehouses, which use a lot of power and resources, are no longer required, says Sharma.
Agility is also in the process of deploying a range of other technologies to help reduce its carbon footprint still further. For example, its aim is to complete rolling out an internet of things-based system this year to enable customers to track their goods online without requiring printed documents for proof of delivery.
AI software will also be implemented by the end of 2020 to support the optimisation of the company’s cargo shipping routes. Shipping companies are already asked to provide data relating to their carbon emissions, and all the firm’s branches are also required to clarify their energy and water usage, based on utility bills.
Rather than simply rely on historical data, as is currently the case, the aim in introducing an AI system is to undertake predictive analytics to forecast how shipping routes could be improved.
Another goal this year, is to explore, then trial, how blockchain technology could be used to ensure the integrity of data, not least in terms of carbon emissions reporting, at all stages of the shipping process.
But while such initiatives are intended to boost organisational efficiency, effectiveness and, ultimately, customer satisfaction, Sharma says meeting the company’s ESG goals also makes it easier to hit overall business goals.
“It helps our customers to move faster and more efficiently, helps reduce both our and their carbon footprint, and it also helps the bottom line,” he adds. “But all of the technologies we’re introducing are just pieces in a jigsaw – there’s no big bang here.”
Case study: Hewlett Packard Enterprise
There are three main areas in which most organisations produce carbon emissions – internal operations; upstream activities, which equate to their supply chain; and downstream activities, which relate to their customer base.
In Hewlett Packard Enterprise’s (HPE) case, the split between the three is 4%, 38% and 58% respectively, with the IT equipment supplier having promised to take action to cut its supply chain emissions by 15% and operational emissions by 55% by 2025 from 2016 levels.
Mateo Dugand, HPE’s technologist for IT efficiency and sustainability in Europe, the Middle East and Africa, explains the rationale: “Corporations don’t exist separately from their stakeholders, but because of them, and over the last few years, their influence over the ESG agenda has grown. Investors are more aligned to ESG considerations, customers are pushing for suppliers to be more responsible, and aligning with ESG goals is now necessary to attract the top talent.”
Therefore, as part of its three-year HPE Next plan to cut operating costs by $1.5bn, which is now in its final phase, the company has attempted to make its internal operations more efficient and effective. For example, in the case of its website, it has cut the number of server racks it uses from 10 to a half by introducing more efficient servers.
Likewise, the supplier set up technology renewal centres in Andover, Massachusetts, and Erskine, Scotland a couple of years ago, to which it now sends 80% of the IT equipment that has been retired from its datacentres for refurbishment. It has also made the most of its investment by creating a new revenue stream after it opened the centres up to customers, too.
In terms of its supply chain, HPE has set itself a target that by 2025, 80% of its manufacturing expenditure will go to suppliers with a science-based carbon reduction target. It has also set up an internal team to help them design such targets based on a number of criteria, including the industry in which they operate.
Finally, to help reduce the carbon footprint of the products consumed by its customers, HPE is working to make them more energy-efficient, for instance by making its entire product portfolio private cloud-ready by 2022.
Dugand concludes: “The IT sector is responsible for 6% of worldwide energy consumption and for a big portion of carbon emissions, which is 3.8% compared with the aviation industry’s 2.5%. So the industry has a big impact on the planet, which means we have a responsibility to do something about the problem, too.”