Sustainability journey

How can data build the roadmap for a sustainability revolution

Organizations must analyze data on ESG with the same rigor as business data to leverage it in their sustainability journey.


In brief

  • As ESG concerns become increasingly relevant, businesses are undergoing a shift from awareness to competitive differentiation in enterprise value creation. 
  • However, the sustainability journey to net zero will involve trade-offs, investments and building underlying business cases. Therefore, there is a need to present data-led performance.

At the EY Convene Digital Roundtable – “How can data be the telescope and microscope for the sustainability revolution?” – Piyush Jha, Head of Climate and Sustainable Finance at Tata Steel Group and Rahul Awasthi, Global Head of Operations and Supply Chain and Management Committee Member of the Dabur Group, shared insights from their ESG journeys with Nitesh Mehrotra, EY Consulting Partner (Sustainability and ESG).

As ESG becomes part of business as usual, organizations will have to build traceability and manage risk, which will involve building trust. Emerging data models are complex as they need to include internal as well as external data, in addition to external intelligence.

While financial reporting developed over many years, developments in ESG reporting have taken place very quickly and many industries are playing catch-up. To enable robust decision-making, it is important that organizations report on environmental and social parameters with the same frequency as financial reporting. Most industries need to bridge this gap urgently.

Global companies, especially those in hard-to-abate sectors, must meet different regulatory parameters of specific geographies. While some companies may be a step ahead of others, the differentiation is becoming less important because any company with global ambitions and access to global capital has to stay in step with international best requirements or practices. Companies must adopt best practices even if it is challenging.

Analyzing information for actionable insights 

 

To have a view of where an organization is today and where it wants to be, an organization must have a clear understanding of its data. Any sustainability journey depends entirely on data. 

 

In a complex industry like FMCG, proliferating a data methodology from Scope 1 to Scope 2 and Scope 3 implies a multifold increase in data points. To put this in context, a big FMCG organization has 40-50 manufacturing sites and respective co-packers; 30-50 depots; and thousands of stock lists. 

 

Generating data from many points is a rigorous task because the data must be accessible as well as granular. Various business processes and ERPs must be utilized in this direction. 

 

While the overall progress is slow, organizations are at different maturity levels, mostly due to quality data being the differentiator between mature and less mature systems. Therefore, one must have high quality, decision-centric data available that can withstand scrutiny. 

 

A steel company, for example, would measure profitability and course-correct if there is a change in, say, raw material costs. Some mature organizations may be in a position to look at CO2 numbers monthly, but can this data be broken down in such a way that an intervention is possible? Organizations should aim for that level of detail, which will need digital solutions. It would not be possible to intervene without a comprehensive IT platform that is geared toward ensuring that high quality and robust ESG and sustainability data is captured.

Embedding sustainability into business

 

Capital expenditure is one of the biggest hurdles in achieving ESG goals. Taking measures such as holding vendors to ESG standards and selecting those that meet such requirements would go a long way in achieving ESG goals without the need for a large capital expenditure. 

 

Similarly, traceability can be enhanced using existing tools. Dabur, for example, is using GPS to track the movement of primary and secondary suppliers to optimize service. The company also uses load optimization data to improve the efficiency in fuel consumption and logistics as a whole. With suitable adjustments, the same tool can be used to determine the distance that supplier vehicles travel. Considering the type of fuel used, this can be the basis of calculating CO2 emissions. While certain initiatives will require investment, they would also add value in the long term. 

 

Along with investments, organizations must also investigate product development. Packaging and product differentiation will change in the coming years. EY’s Future Consumer Index Survey indicates growing demand among customers for sustainable products and services. 64% consumers have said they are willing to change their behavior to help the environment and society. Consumers are, therefore, paving another path for ESG to be a business opportunity. This is already manifesting in the world; as Piyush Jha shared, European car manufacturers are willing to pay steelmakers a premium for ‘green steel’.

 

Key takeaways from the session:

  1. Governance and data are key to sustain sustainability
  2. All leading companies need to be on a net zero transformation roadmap led by digitization and analytics
  3. Mapping of interdependencies and trade off is key for balancing the journey – we need a holistic ESG Compass for 360-degree view and direction
  4. Communication framework is key with focus on business outcomes and value creation across stakeholders
  5. Sustainability learning and capacity building is critical from boardroom to classroom.

Summary

Organizations that are moving forward on their ESG journeys will need to build well-articulated business cases as they will undoubtedly face trade-offs as well as interdependencies. Collaboration will be an important factor in generating, sharing, and understanding data. To serve its purpose, data must be meaningful enough to present a single version of truth and provide near-to-real-time monitoring to clients. At present, data is the most efficient way to meet the challenge of having the scale of an industrial revolution at the speed of a digital revolution.

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