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Overarching ESG challenges will require working together to address many questions related to people, technology, processes and metrics.
Questions to ask:
- What is the process or mechanism to collect ESG data from third parties so you can report accurately?
- How do you monitor traceability, immutability and auditability of the data?
- How can you generate new revenue models by creating transparency in the market and developing a circular economy?
Environmental, social and governance (ESG) commitments are at the core a data problem. To measure change and accelerate transformation in areas such as emissions, governance and diversity, equity and inclusion, organizations need access to data from outside the organization. And once we gain access, what do we even begin to measure? What’s important? By shaping the discourse around these systems and metrics, chief information officers (CIOs) play critical roles in enabling ESG-related programs across their enterprises.
We’ve seen headlines as companies around the globe announce ambitious efforts to remove their carbon footprint. Leading airlines, investment banks, telecommunications and tech organizations have pledged to become carbon neutral or “net zero” within a matter of years. President Biden has set the same target for the federal government by 2050. The EY organization has achieved carbon negative status by reducing total emissions by 40% and is aiming to reach net zero by 2025.
How will businesses meet their objectives? To become net zero, an organization must first offset its environmental impact by reducing the greenhouse gases it produces and offsetting the remaining emissions, including through investments. These measurements prove especially difficult considering that there are differing standards across regions. Nevertheless, corporate responsibility is commended, and climate change is a challenge that information science, environmental science and the business world are united in fixing.
To make a measurable impact on the environment, tackling emissions is key. Many companies are willing to make the commitment and follow through but are not able to collect data from third parties to help them calculate the extent of their emissions footprint and document their progress over time. Emissions are classified into three scopes: Scope 1 emissions refer to the emissions produced directly through owned or controlled sources and Scope 2 emissions refer to indirect emissions generated from energy that is purchased. However, Scopes 1 and 2 combined account for only about 10%–20% of total emissions, depending on the sector. The other 80%-90% of emissions fall under Scope 3, which are all indirect emissions that occur within the value chain, upstream and downstream. Scope 3 data extends into multiple categories for which CIOs can determine what data to collect, such as employee commuting, transportation and distribution of assets, and use and disposal of products.
80%–90% of emissions fall under Scope 3, which are all indirect emissions that occur within the value chain. Scope 3 data extends into multiple categories for which CIOs can determine what data to collect¹.
Many environmentally conscious companies have found innovative methods for reducing their Scope 1, and even Scope 2, emissions by examining their controls and reporting mechanisms of the factors controlled within their enterprise. Some enterprises have expanded this investigation across their supply network. However, to make a tangible difference in combating climate change, we must address the total picture with Scope 3 emissions. This will require parties to exchange trusted information across secure channels. From the perspective of third parties and suppliers, there is little incentive for them to feed their data into another party’s enterprise resource planning system on a voluntary basis (disclosures for investors are not yet required, although many are watching regulatory developments.)
Summary
The bottom line is that organizations will need to understand the ESG metrics across their value chain and it won’t be easy. Not only does an organization have to determine what to measure and how to access it, but also, how do they trust that the information is accurate and not just telling part of the story that the third party or supplier wants to tell?
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