Businesses that doubt ESG and sustainability trends will be left in the dust as the world revolves around conscious consumerism. As many investors and stakeholders are looking at companies that incorporate environmental, social, and governance criteria (ESG), sustainability has become a necessity. The world is going through a rapid pace of change in how we think about and address sustainability and other socially conscious investing areas. The question is, how will your business address this need? Will it be through demonstrating leadership or through regulations and company culture? Enterprises are on the pathway to net-zero whether they have decided this for themselves at this point or not.
We’ve researched the most recent ESG and sustainability trends for business in 2022. Here is what we have found.
Impact Measurement and ESG
Many companies are just starting on the sustainability journey, and this involves steps on measuring sustainability impacts. Moving forward, the top sustainability categories to examine include greenhouse gas emissions and energy. Does your business have a positive or negative impact on society, the environment and the economy? Sustainability is a component of a company’s broader ESG efforts. That is why mapping all potential ESG issues helps prioritize initiatives based on the level of impact.
Although ESG impact is hard to measure, it is not impossible. Companies can measure their CO2 emissions, and the impact created by the greenhouse gases. Therefore, CO2 emissions are an example of ESG impact that companies can measure in the form of a carbon price. Much harder to capture and compare are impacts on biodiversity and habitat.
Companies should measure their impact on sustainability and the environment. However, they should also take a step further and focus on deeply understanding the issues of their core activities. As an example, when Nike was critiqued for its suppliers’ labour practices in the 1990s, it took the time to interview 67,000 workers to explore the issues through their experiences. From this, the company was able to create a longer-term strategy involving disclosure, partnering with other brands to improve working conditions, and mobilizing community support.
Companies and their leaders should explore how to incorporate circular economy into their product lifecycle. That said, CIOs should take a closer look and rethink their product strategy, vendor choices and end-of-life disposal process. In terms of environmental impact, a product has a production cost linked to the choice of raw materials, therefore – in a circular perspective – it will be necessary to certify its origin and the ethics of its production.
With respect to the circular economy, design thinking has an impact on product development. Product designers are asking how to provide value to consumers using a minimum amount of material. Understanding the possibilities associated with circular economy requires the expertise of many company departments as well as business partners.
Companies should rethink their impact and how their product fits into the circular economy, not only to meet consumer needs but also to think of their financial opportunity. Research by Ellen MacArthur Foundation, Towards the circular economy, suggests that each year some $2.6 trillion worth of material in fast-moving consumer goods—80 per cent of the material value—is thrown away and never recovered.
The organizations and companies who successfully incorporate circular economy into their product strategy stand to capture considerable value for consumers.
Supply chain sustainability
While conventional supply chain management focuses on the speed, cost and reliability of operations, sustainable supply chain management adds the goals of upholding environmental and societal values. Creating a more sustainable supply chain will be a critical initiative for most companies – and a complex and difficult challenge. The supply chain plays a great role in the ESG and sustainability trends. Increasingly, companies will need to connect the data gaps to help achieve sustainability goals across the supply chain. As an example, if the company wants to improve their supply chain sustainability, it should have several goals in mind such as; shipping finished goods more efficiently, proactively predicting logistics challenges and improving on-time performance. That will require building AI algorithms and logistic apps that could predict supply chain sustainability.
There are various expected and unexpected benefits of applying sustainability across the supply chain. As an example, back in 2009. Walmart announced the creation of a sustainability index. They rolled out in three phases including a sustainability index for suppliers, a life cycle analysis database, and a labelling system. This provides the consumer with the environmental measurement of the product they are purchasing (Bustillo 2009; Walmart n.d.). In the end, the various sustainability initiatives at Walmart have been positive public relations, and activities such as energy reduction have resulted in significant cost savings.
Research by Iowa State University on Supply Chains suggests, that the sustainable agriculture initiative requires the company to maintain a close relationship with
its raw-material/food suppliers.
Innovation has and will drive supply chain sustainability in the years to come. Two ESG and sustainability trends that will keep the momentum going in this area are the circular economy and data-driven supply chains.
Carbon footprint – ESG and sustainability metric
The dilemma facing companies is how and what to disclose about their carbon footprint and other ESG metrics. Furthermore, emerging frameworks for greenhouse gases are asking companies to be thorough in capturing the full extent of their emissions. In addition, some of the largest banks are starting to explore how they can channel indirect investments out from more carbon-intensive industries toward industries that are actively reducing emissions.
How can companies present these results across various indicators? Although, emissions may be more tradeable on carbon exchanges, making meaningful changes on other Scopes could also help improve relationships with regulators, investors, employees and citizens. There are three scopes of emissions and each company can define the scopes they choose to offset. Therefore, your company can choose any of the Scopes, such as using recycled plastics, meat deduction etc. American Express, for example, recently revealed their plan to roll out a credit card made from recycled ocean plastic.
To sum up, companies need to assess their entire value chain emissions impact. That said, companies should identify where to focus their reduction activities in order to get a truly meaningful outcome.
ESG and Sustainability trends – Green IT
IT structures and services that prioritize sustainability are important as part of the larger climate action movement. Companies should prioritize Green IT as more stakeholders are seeking ways for businesses to migrate to more sustainable energy solutions. Therefore, many companies are working to consolidate data centres and migrate to the cloud. Meanwhile, others are investing in autoscaling workloads to minimize their energy footprint or building AI systems.
On the other side, the government in Europe is giving companies a push towards sustainable and greener IT. As an example, EU Commission has proposed new regulations since 2021 for batteries, given their important role in net-zero emissions.
Sustainability is a critical aspect of a company’s ESG efforts, but it’s not the only one. Addressing workplace bias and creating better diversity, equity and inclusion strategies has become a critical focus for many organizations. Those require programs for gender and racial diversity, to include people with disability or others who face challenges in the traditional hiring process.
In the companies, the HR department should help with this process and advise on how they can support this program. These programs may include but are not limited to include people without a degree, or with a lack of credit scores. Therefore, the programs should include training programs, and support to new hires to be successful in their job.
Companies can benefit from impact sourcing by gaining talent, and an engaged workforce. In many cases, impact workers have higher motivation levels than the traditional workforce which leads to lower training costs. For example, there are over 155,000 unemployed graduates in South Africa. Over 35 per cent of graduate youth (age 15-29 years) in rural India are unemployed. Through impact sourcing companies tap into this alternate pool to augment talent supply.
To sum up, ESG and sustainability trends are here to stay and are already adapted by companies worldwide. Undoubtedly, IT teams will turn to technology in an effort to tackle sustainability and other ESG concerns. However, IT can also lead to high amounts of energy use, as is the case with supply chain challenges. Still, with helpful ESG measures and frameworks, and advice from the consulting companies these challenges can be overcome. It is time for your company to take action, and make progress.