By Johan Steyn, 6 September 2022
The concept of environmental, social and governance (ESG) reporting and investing refers to a set of guiding principles that outline how a business should operate concerning the wellbeing of society and the planet. Investors, business boards and government officials have raised their expectations for climate commitment progress in 2022 as a result of the extraordinary market and policy momentum behind ESG in 2021.
In addition to climate change, environmental concerns, social issues such as diversity, equity and inclusion, as well as worker welfare, are likely to continue to command the public’s attention. This is especially important given the increasing frequency with which these issues are discussed in the context of ESG in general.
Socially responsible investors use ESG concepts as a filter. The environmental standards evaluate a company’s concern for the natural world and resource management. Social standards scrutinise how a company interacts with its employees, vendors, customers and surrounding communities.
S&P Global predicts that in 2022, governments and business leaders will be under greater pressure than before to demonstrate that they are aware of and managing issues such as climate change, human rights abuses and civil unrest. This burden will be increased by the expectation that they will fully comprehend and responsibly manage ESG issues.
Traditionally, corporate reports have published financial information, while sustainability reports have published environmental information. As it has become evident that sustainability challenges can impede an organisation’s ability to generate enterprise value over time, investors are increasingly anticipating the disclosure of ESG information about business value creation in conventional corporate reporting.
The global technology corporation Oracle reported that 94% of business leaders had difficulty promoting ESG standards. Manual tasks and locating progress data are two obstacles. Obtaining the information required for goal-setting and performance monitoring is difficult for most businesses. To gather, validate and update ESG data, firms around the globe should use cutting-edge technology tools.
The majority of CEOs surveyed by Oracle concur that artificial intelligence (AI) algorithms are more dependable than humans when making decisions about sustainability and social responsibility. These software tools can collect data more reliably, conduct objective evaluations, forecast outcomes based on measurements and historical performance, and provide innovative problem-solving strategies.
Companies are capitalising on AI’s potential by recognising the risks and leveraging them to promote the adoption of safe, ethical procedures for the creation, acquisition and application of the technology.
The goals of ESG and responsible AI partially overlap; that is, their fundamental beliefs are congruent with those that help minimise risk and maximise opportunity.
In addition, many employees’ requests to use technology for social good are being met through the use of AI to find sustainability improvements in many business aspects, such as managing data centre cooling and enhancing supply chain operations to reduce waste.
It is essential to implement systems, policies and standards for governance. It also aligns with the objectives of those on the development team who favour technology-enabled governance over technology-first governance. Effective AI governance manages impact by taking into account evolving legislative constraints and new organisational approaches.
ESG is no laughing matter. It should not be a tick-box exercise. The future of our planet and therefore our children depend on all of us, collectively, taking it seriously and abiding by its principles. Despite all its potential dangers, AI technology could help us achieve this.
• Steyn is on the faculty at Woxsen University, a research fellow with Stellenbosch University and the founder of AIforBusiness.net