Corporate investors are increasingly applying non-financial criteria such as environmental, social and governance to their assessment of companies. It’s no exaggeration to see that these elements will start to show up in future IT audits either.
Although companies are not required by law to disclose ESG initiatives and results in their financial reports, more and more companies are disclosing their ESG activities in their annual reports because their investors request it. In part, this new ESG focus has been driven by concerns about climate change, but there is also new investor interest in corporate workforce diversity initiatives and how companies treat their workforce. – of human labour, their customers and their customer data.
Depending on the investor, what might be important is whether the company’s workforce (and board of directors) is diverse, the employment conditions of the foreign workforce, what what the company is doing to reduce its carbon emissions and carbon footprint, or how well the company protects confidential customer information.
Role of IT in ESG
IT plays a central role in the company’s achievement of ESG, as data centers, information processing, customer-facing processes and employee hiring practices are all part of integral to computing.
When sustainability became more relevant, the first thing large enterprise buyers did with their smaller enterprise suppliers was to ask suppliers for annual sustainability reports.
To show the biggest gains in sustainability, vendors immediately took aim at their IT data centers, believing that by rapidly virtualizing servers and storage, they could see tangible reductions in floor space and data center power consumption. By doing so, they would satisfy their big business buyers and ensure that their contracts and revenue would stay in place.
Since then, the role of business IT in sustainability and ESG has expanded.
More automated systems are in place for e-commerce and for the follow-up phases of the purchase cycles of sales, such as the need to return or exchange an item, or to speak to someone in the company about billing or product problem. Business functions such as sales, warehouse, invoicing, etc., may technically be “responsible” for these processes, but the actual processing (and issues) often involves systems, and that is the ‘computer science. Since many issues that can be linked to ESG inevitably end up in IT, CIOs and IT managers need to be actively involved.
What IT can do now about ESG
If the CEO, board of directors, major investor, investment firm, or IT auditor hasn’t knocked on the IT door yet, that day is coming.
Here are four important steps IT can take to prepare for ESG:
1. Built-in IT sustainability
Most enterprises already have virtualized servers/storage and have optimized their data centers for energy efficiency, but with the expansion of IoT and advanced technology in end business processes, new sustainable computing fronts open. For example, transportation and logistics companies are now required to track drivers’ mileage and habits on trucks, and IT uses sensors and IoT devices to do this. These assets communicate with a computer network so that driving statistics can be tracked, monitored and acted upon. Sensors also monitor the environmental health (eg temperature, humidity) of meats, products, medications, computer components, etc., while in transit. All of these systems contribute to sustainability — and IT must track, quantify, measure, and report on them.
2. Digitization
A major (and easily measurable) sustainability goal for digitization has been the elimination of paper documents and the reduction of floor space for storing paper documents. Both contribute to energy savings.
Digital automation in manufacturing, oil and gas exploration, mining, etc., has also reduced field work risks for employees, as drones and automated assembly line equipment can perform much of the work that humans used to do.
The more IT can do to reduce employee exposure to security risks, the better it can actively contribute to ESG. CIOs should track these security risk reduction gains and report them regularly to the CEO, board, and investors.
3. Diversity in hiring
Most of us remember the failure of Amazon’s AI hiring algorithm which discriminated against female applicants because the algorithm was trained by looking at former Amazon hires who were for the most men.
If your organization uses AI for recruiting, it’s important to work with HR to check AI recruiting software for bias and to make sure you’re not inadvertently introducing biased training data into algorithms and rules.
The other area of diversity is computing itself. How diverse is your IT staff and IT management team?
4. Governance
In April 2021, the personal data of 533 million Facebook users was made public on an online Facebook forum. Data breaches like this worry customers and can cause significant damage to a company’s brand and value.
A data breach inevitably comes down to IT, so it’s the CIO who ends up facing the CEO, board, and investors as they’re called upon to explain what happened. This is an unenviable and potentially career-threatening position, which is why every CIO should make customer data security and privacy a top ESG priority.
What to read next:
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