ESG has been rising up the agenda of organisations, with the aim of better valuing sustainability, social responsibility and accountability. Investors often examine this area of operations heavily, and for many consumers, no longer is it enough for businesses to have a good product; they need to show that they are making a wider positive impact, and this entails efficient measurement strategies. This article will delve into how organisations in the tech sector can measure ESG impacts.
Citizen and sustainability reports
For measurement of ESG impacts to be a true success, organisations should not only consider environmental impact, but also social ethics and internal governance. One way of doing this is by publishing regular reports on activities and progress.
“For many years, organisations created social impact through corporate social responsibility (CSR) and sustainability initiatives,” said Karen Alonardo, vice-president of ESG solutions at NAVEX Global.
“These impacts would focus on philanthropy, community engagement, and environmental stewardship, typically reported through annual Global Citizen or Sustainability Reports.
“Now, many investors and businesses are measuring the social – and financial impact – through the lens of Environmental, Social, Governance (ESG). ESG factors include not just environmental data like greenhouse gas emissions or water use, but also equitable human capital management, board composition, and ethical governance.
“ESG focus has grown in recent years due to shifts in the global regulatory landscape, investor priorities, and influence from up-and-coming generations.”
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Looking forward, rather than backwards
Andrew Duncan, partner and UK CEO at Infosys Consulting, believes that tech sector organisations need to publish reports that are forward-thinking, as opposed to focusing on past achievements.
Duncan explained: “There is a level of increased urgency around global sustainability that mean businesses can no longer ‘greenwash’. Simply reporting on past performance will no longer be sufficient.
“Leaders should consider forward-looking impact measurements to report on the financial and non-financial ESG performance – not only because it is quickly becoming part of the standard reporting package, but because shareholders will expect it.
“Furthermore, consumers are demanding more traceability and to know the full lifecycle of product. Reporting on ESG KPIs can prove a differentiator amongst these customers, who look to do business with an organisation that has tangible green credentials.”
Incorporating ESG into financial reporting
Another way to ensure that ESG impacts are properly measured and presented is through incorporating an ESG dimension into financial reporting.
Renaud Heyd, CFO UK&I at SAP, identified the benefits that this can bring, while drawing off SAP’s experience in combining these components: “In a post-COVID-19 world and with stakeholders increasingly demanding transparency surrounding the ESG agenda, organisations in both the commercial and public sector need to introduce a whole new way of accounting — one that transitions from profit maximisation to measuring their positive and negative societal impacts across their complete value chain.
“The simplest way to improve social impact measurement is by adding an environment and social dimension to traditional financial reporting. Organisations need to integrate economic, environmental, and social performance promoting the evolution of impact measurement and valuation to drive better business decisions
“Building on our experience in connecting financial and non-financial measures, we co-founded the Value Balancing Alliance (VBA) in 2019 to support the development of a standardised methodology that helps companies, investors, and other stakeholders understand and compare non-financial performance. These insights enable companies to create business value beyond revenue or profit growth, while taking into consideration the long-term impacts of business operations on the environment and society as a whole.
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“Organisations need to undergo the significant task of simplifying, aligning and optimising enterprise reporting, and take responsibility for the impact of their actions on the whole of society. Their customers will demand it, and so will their staff.”
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Focusing on viable measurements
Finally, Christian Hernandez Gallardo, founder of urban sustainability venture capital fund 2150, explained the importance of focusing on initiatives that can be clearly measured, commenting: “Those that are making social impact a priority in their organisations are committed to both the internal and external impact that the business may have.
“This could be anything from diversity in recruitment, business practices and policies to ensuring the organisation aligns their goals with local or national initiatives that relate to wider social and environmental issues, plus forming partnerships with community organisations. A method of measuring social impact is through quantitative and qualitative metrics that demonstrate the positive change attributed to each goal.
“At 2150, we create social impact by only investing where sustainability can be measured. Each of the companies we’ve invested into have potential of becoming a ‘Gigacorn’ – a commercially successful company with the potential to reduce or mitigate a Gigaton of CO2 equivalent.
“For example, our first investment in the fund was CarbonCure Technologies, a Canadian company lowering the CO2 footprint of concrete, accounting for 8% of all global CO2 emissions. The company has stored 90,000 tons of captured carbon dioxide to date, and aims to remove 500 megatonnes annually by 2030.”
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