Operationalizing ESG – How Can Organizations Move Up the Sustainability Maturity Ladder?
ESG has become more than a buzzword: it is now an imperative for any organization to infuse sustainability into every part of their organization. Vague promises and “checking off boxes” are no longer enough to meet stakeholder expectations and to take adequate action on the most pressing environmental and social global issues.
There is plenty of empirical evidence that operationalizing on organizations’ most material issues can not only enhance their risk profiles and lower their cost of capital, but also increase their operational efficiency, improve innovation potential, and help attract and retain new talent. In short, raise organizations’ enterprise value. Doing good for the planet and society and doing well financially do not have to be an “either/or.” In fact, for the most sustainably advanced organizations, they go hand in hand.
The Foundation of ESG Value Creation
IDC assesses organizations’ sustainability-related maturity across four dimensions: sustainable business and IT strategy, technology use, organizational adjustments, and the operationalization of these strategies. All four are critical in themselves but even more powerful when addressed together, as their combined power is required to allow organizations and industries to truly transform themselves toward more sustainable business models. We currently see organizations spread out across various maturity levels. Apart from the few most advanced organizations, most companies are currently somewhere between setting their sustainability targets and identifying material issues, getting their ESG reporting right, and (at least from an aspirational perspective) moving from reporting to considering ESG information in their operational decision making. According to IDC’s survey data, nearly 30% of organizations worldwide have embedded sustainability into their business model and overall strategy. Improvements in operational efficiency, improved brand perception/customer loyalty, and improved employee engagement have been named the most frequent benefits in value creation as a result of ESG initiatives.
The Growing Importance of Social Sustainability Topics
While addressing climate change through decarbonization and energy efficiency measures remains one of the top priorities for organizations’ sustainability initiatives, the scope of topics addressed is broadening. Many organizations realize that their industry specific, material ESG issues can be very multi-faceted and complex, and they often time include several environmental issues (e.g., circularity, biodiversity impact, water efficiency, etc.) and social sustainability topics (DE&I, human rights management, community impact, etc.).
Recent IDC survey data shows that social topics in particular are growing rapidly in importance. This includes human capital topics, such as DE&I and employee safety, but also social capital topics that extend across value/supply chains, such as community impact, customer well-being, modern slavery, and child labor. Tracking some of these issues has been difficult due to a lack of visibility and accountability; and making lasting improvements can be even harder. But with the help of new technologies, such as advanced supply chain software, tackling these issues will be more feasible and enable organizations to address their ESG issues more comprehensively.
Leveraging IT for Sustainable Transformation
This brings us to the final section of this series overview: the role that IT plays in enabling sustainable transformation. While corporate sustainability strategies are typically formulated at the executive level, involving IT early in the strategy formulation process, and developing an IT strategy that supports the corporate mission is critical. Data is at the heart of any sustainability initiative. Once sustainability goals and objectives are established, organizations need access to data to baseline performance in key sustainability areas, develop metrics to monitor and manage ongoing performance, and report corporate sustainability metrics to internal and external stakeholders.
While reporting and compliance mandates drive much of the need for sustainability data today, operationalizing this data and embedding it in ongoing business operations will ultimately enable organizations to drive business value beyond reporting and compliance purposes. For many organizations, however, collecting the data needed to support sustainability initiatives, and ensuring the quality of the data represents significant challenges. By engaging IT early in an organization’s sustainability journey, an effective data management strategy can be developed that allows companies to analyze sustainability data and produce actionable insight for key decision makers.
As forward-looking organizations start viewing sustainability as a lever for driving business value, there will be a range of use cases in various functional areas of the business that will rely heavily on digital technologies. A few examples of technologies used for sustainability purposes include: blockchain technology for tracking and tracing components and materials across the value/supply chain, digital twin technology for sustainable product design, and AR/VR for predictive product support. As an organization’s sustainability ambitions evolve over time, so will their need for IT to support those ambitions.
This IDC Blog post is the first in a series of sustainability research content which will explore how organizations can create business value through ESG, the rise of social sustainability, and the need for IT to enable sustainable transformation. For an overview of IDC’s sustainability/ESG research, our global analyst team, and more complimentary content, please visit IDC’s sustainability research showcase.
