The sustainability future is coming at us faster than we know

Environmental, social and corporate governance (ESG) has become a topic on everyone’s lips, but at the same time we’re in an ambiguous space with many contested terms. We’ve had prominent figures like Elon Musk describing ESG as “a scam” that is being weaponised by “phoney social justice warriors”. There has been a police raid on the asset manager DWS in Germany amid whistle[1]blower allegations of “greenwashing”. Meanwhile, oil and gas valuations have rocketed by around 66% due to current geopolitical and economic issues.

So, is ESG just a matter of “woke capitalism”? There’s no doubt that it fundamentally matters – but we’re still in the volatile stages of defining the lexicon and the rules of the game.

Nevertheless, things are moving fast and we’re going to see some rapid paradigm shifts that CIOs and other executives will need to respond to. At the moment, we’re very much in the territory of what I call ‘badges’: policies, pledges, commitments and ratings on various ESG ratings indexes. But the policies and pledges are as yet largely untested, while ratings indexes are blunt and not consistent with each other: a study from Massachusetts Institute of Technology recently found a 56% divergence in the scores given by the top six.

As more granular and rigorous data becomes available and gets reported, this will change. An organisation’s real impact on issues that are material to the future of the planet and the people that live on it will become clearer. Carbon will be very important, but our focus will expand to understand climate change as a biosphere health issue – water, air quality, biodiversity, waste, impacts on communities and people will also be prominent. This will be part of a movement away from ESG and risks managed through policies to talking more broadly about real impact and sustainability. In fact, I believe we could see the term ‘ESG’ fading away over the next few years or so. Just as the term ‘CSR’ (corporate social responsibility) has now become almost unused. The terms of reference will move on.

Tech opportunity

The emphasis on data will mean that technology has a key role. There is a huge opportunity for the tech sector, devising software and tools that enable businesses to capture, measure, analyse and report. Just as fintech is playing a key role in financial services, so what we could call ‘sustaintech’ will be central to sustainability in the coming years. Technology will also play a vital part in energy generation and efficiency – finding ways to make renewable energy generation more predictable and constant, for example, across climates and geographies. It will increasingly be used to measure and audit information, such as the satellite technology and algorithms that are being used to audit carbon credits from forests and mangrove swamps.

Rising requirements

At the same time, however, there are rising requirements and standards that tech firms and businesses across sectors will have to meet. For example, for access to capital – around 30 stock exchanges globally already mandate ESG reporting in order to be listed with them. Carbon taxes are slowly spreading, while the EU is planning a carbon border adjustment mechanism which would see a carbon cost levied on goods or services coming into the region. Governments are beginning to shift from voluntary to mandatory disclosures for a growing number of organisations. And companies are increasingly rating their suppliers and asking them for sustainability and carbon-related information. They need to do this for their own Scope 2 and 3 emissions. So if you’re a tech firm doing business with a large corporate, you may find yourself ‘off the list’ before long if you don’t have a strong ESG profile.

A key role for tech leaders

What of the CIO’s role in all of this? The first thing to say is that it can’t just be left to the ‘ESG team’. The CIO and other digital leaders have an instrumental role to play in ensuring that their organisation is able to produce the data that’s required – the right data, in the right format, at the right time. They need to enable the business to embrace connectivity tools and shared platforms that reduce the need for physical travel and so push the organisation’s carbon footprint in the right direction. They can also add real value by working with the business to implement early warning systems (utilising artificial intelligence to scan news sources, social media and publicly available information) that pick up on signals around emerging trends, best practice and regulatory requirements.

Another key area is the organisation’s own energy usage. Servers are a big part of this. Running a data centre can be a significant proportion of an organisation’s electricity usage. So, it should be the CIO that front-runs a review of where the organisation’s servers are, what grids they are on, and what type of electricity they use. If they are not running on renewable energy, then the CIO should be using their voice to lobby their data centre provider to make the transition. The more demand there is from the market for this, the more that provision will increase.

The Nash Squared Digital Leadership Report found that while 58% of CIOs were using tech to reduce the need to travel, only 22% were looking at improving the carbon footprint of their technology itself – so this is an area where more action is needed as a priority.

Educate and learn

As I said at the outset, this is still an emerging area. It’s also complex and fast-moving. Business leaders need to educate themselves and learn about it. As a CIO or other digital leader, ask yourself: what does sustainability really mean for our business, and what’s my role in helping to support, understand and improve it?

There’s no time to waste. The future is coming at us faster than we know. Leaders in tech must make it a priority to start looking through the sustainability lens and putting the tools and systems in place that the business needs to embrace it.

This article was originally published in The State of Digital 2022 and is part of the Digital Leadership Report series. Other articles in the publication discuss a CIO's remit, cyber security, diversity, and ESG in IT.

Biggest Challenge, biggest opportunity

Big Tech business models have primarily been based on providing services that are free to consumers, with other businesses paying to advertise to them – selling people’s attention so that organisations can sell to them. This leads to people buying or being encouraged to buy things they don’t want. This needs to change. It’s not an appropriate model anymore. So the challenge for tech is to create a new business model where people are willing to pay for the services they want.

The biggest opportunity, in my view, will be new revenue streams arising out of the voluntary carbon market. There will be a massive opportunity for tech as the facilitator or provider of tools that are used. It may sound niche, but it’s a market where I think we will see phenomenal growth.

This article was originally published in The State of Digital 2022 and is part of the Digital Leadership Report series. Other articles in the publication discuss a CIO's remit, cyber security, diversity, and talent attraction in IT.

Download The State of Digital publication here.

Crimson is an IT consultancy, an IT solutions provider, an IT recruitment agency, and a Microsoft Gold Partner with offices in Birmingham and the City of London.