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The New Wave Of Enterprise Sustainability Technology Investments

Forbes Technology Council

Sandeep Kumar, Sr.VP & Head Global Consulting, ITC Infotech.

The capitalist economy is tuned to a profitability model, in which companies strive to maximize margins by adding more to their catalog of offerings and aiming to attract untapped customers. Until a few decades ago, organizations turned a blind eye to the environmental repercussions that were growing in intensity due to capitalism. Today, sustainable business practices are considered a corporate obligation, and companies are taking sincere initiatives to measure and minimize environmentally unfriendly operations. A KPMG study supports this needle-moving trend, highlighting that sustainability reporting in G250 companies has grown from 64% in 2005 to 96% in 2020.

Consumers' desires to associate with conscientious and ethically rooted companies have led to an accelerated shift to sustainable business models. Companies are rigorously assessing their carbon footprint, energy consumption and climate risk metrics to drive the necessary action in integrating sustainability as one of the critical corporate goals. But sustainability has historically neither been a revenue-generating function nor a cost-containment function. It is a function that is led by either voluntary or, in some cases, mandatory disclosure requirements as per government or corporate policies.

The disclosure norms are also moving to cover a value-chain orchestrator model, looking beyond the company's environmental impact and emphasizing the inclusion of trading partners for reporting, such as suppliers, vendors and other partners, who also contribute to the carbon footprint on account of the company. A survey by Deloitte found that 46% of companies now require suppliers and business partners to meet specific sustainability criteria.

Implementing policies for sustainability is one thing, but to source relevant data as per standards like the GRI (Global Reporting Initiative) and the CDP-Carbon Disclosure Standards Board, companies need robust data integration and analytics platforms. This is a challenging feat because, traditionally, data collection, aggregation and reporting have been confined to the four walls of an enterprise. Beyond that, gathering data from partner entities adds an additional layer of complexity.

For this reason, companies are chasing new approaches to tackle sustainability management challenges and reform sustainability auditing and reporting.

1. Third-Party Consulting To A System-Driven Approach

In a Deloitte research study, about one-third of CxOs said measuring their company's environmental impact was a significant challenge. I believe it is because sustainability assessments have traditionally been done through third-party consulting firms. The consulting firms hold a treasure trove of data for assessing multiple sustainability factors.

Companies are moving away from their historical reliance on consulting firms and are setting up integrated systems for sourcing and validating sustainability-related data within their internal environments. This enables companies to procure data directly from their partners and create a trusted source of information that can power the measurement of sustainability metrics.

2. Growing Investments In Sustainability Tools And Technologies

Companies need sophisticated technologies with predictive capabilities to track, monitor and deduce ESG (environmental, social and governance) risks and opportunities. Sustainability reporting tools are taking center stage as one of the instrumental ways to collect reliable data and gain investor as well as customer trust. However, the usage of technology infrastructure itself raises questions about energy consumption. According to a Deloitte study, if firms continue to use fragmented, legacy data centers, then the power usage could grow to a substantially higher rate of 20%.

Technologies for measuring carbon footprint and emissions and IoT-powered sensors to track energy consumption are already widely used by companies across industries. But these technologies can also help spot high energy-consuming data infrastructures or systems and recommend alternatives like cloud solutions, which report energy savings of 80%.

3. Sustainability Technology Strategy

Sustainability as a business focus has been largely underinvested in. Given the movement toward integrating sustainability into core business operations, products and services of an organization, it is important that digital and technology strategies have a lens on sustainability at two levels: one, conceptualizing, designing and implementing a sustainability tool stack, and two, driving technology investments on sustainability that are anchored to new products and services of an organization. One example would be integrating sustainability/ ESG scores into lending rate determination for a bank's corporate customer. I foresee larger corporations taking a strategic view on developing mid- to long-term tools and technology strategies to support enterprise sustainability needs in the next one to two years.

4. Moving To A Brand Orchestrator-Led Value-Chain Focus

Building sustainable initiatives is becoming a collaborative effort between businesses and their value-chain partners, such as distributors, suppliers and the like. A McKinsey report states that about 18% of surveyed companies help suppliers improve their sustainability performance. By going a step further and working with partners to enhance their sustainability initiatives, companies can demonstrate their hands-on action toward creating environmentally conscientious operations. They can also make stricter policies to only work with partners holding good environmental ratings. Such practices are driving many companies to rethink their sustainability ideals and create meaningful partnerships rooted in strong ethics.

In Closing

I foresee a radical change in how technology investments flow into the enterprise sustainability space, making room for the adoption of highly sophisticated and automated tools. Many of the tools used by consulting firms will become mainstream within companies and be used in a SaaS or licensed model. Consulting interventions are gaining massive traction across industries and will remain relevant. According to Verdantix, the ESG and sustainability consulting market is expected to grow at a 17% CAGR from 2022 to 2027, and the global market will reach $16 billion by 2027.

Sustainability reporting and ancillary technology capabilities have spurred a new wave of increased corporate accountability to society and the environment at large. Companies are becoming more cognizant of building products, services and systems centered around sustainability. In contributing to this reformation, businesses can improve the world economy while also improving the lives of individuals and, above all, the ecosystem we belong to.


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