5 Keys to Unlock Healthy ESG and Business Transformation
Can business transformation and ESG goals be attained together?
Data intelligence will play a pivotal role in achieving ESG goals by providing actionable insights and facilitating transformation. Michael Ochi, head of sustainability and senior product marketing at QAD, shares why companies must strategically deploy data intelligence by platforming paper, shifting to the cloud, demanding efficient upgrades, focusing on outcomes, and utilizing practical AI (artificial intelligence).
A recent collaboration between Bain and Company and Ecovadis adds yet another research paper that indicates ESG (environmental, social, and governance) doesn’t have negative correlations with financial outcomes. In fact, their assessment of the 100,000+ companies that EcoVadis tracks suggested that ESG activities are associated with encouraging revenue growth and EBITDA margins. Though this is good news, business and societal demands will not permit a celebratory rest. Most organizations have achieved positive results by tackling the low-hanging fruit. Fully operationalizing the first rounds of improvements will provide lasting benefits to corporations, investors and society, but operational excellence is far on the horizon. Hitting long-term goals will require even more innovation, and data intelligence will play a pivotal role in every organization’s ability to evolve with speed and efficacy.
Why Will Data Intelligence Play a Pivotal Role?
What differentiates ESG from sustainability is the corporate governance aspect of it. As such, the voices of investors are part of the fabric of ESG. Deloitte’s 2023 CXO Sustainability Report affirms this, with two-thirds of the 2000+ surveyed executives saying they feel pressure from investors to act on climate change. A PwC Global Investor Survey (covering investment as a whole, not just ESG) asserts that “Sustainability outcomes have become too important to investors for companies to treat them as mere add-ons. Instead, sustainability should be embedded into business strategy and processes for making decisions about capital allocation, investment, and other activities involved in strategic execution.”
Governments are responding, too, with major supply chain due diligence regulations in Germany (LkSG) and the US (UFLPA) and environmental reporting mandates in the EU (CSRD) with a similar proposal in the US (SEC).
This should be enough to answer the question of why data intelligence will play a pivotal role. The stakes are simply too high for us to depend on dispersed spreadsheets. Information is not enough. We need reliable and actionable insights delivered at Wall Street-worthy speed.
But before we rush to insights, we should have a better understanding of what sustainability and ESG are transforming. Just because new compliance rules only cover investor-grade information doesn’t mean your business can limit itself to reporting. A perfectly-formatted 10-K doesn’t say anything about the financial health of your company, nor do branded SASB (Sustainability Accounting Standards Board) and TCFD (Task Force on Climate-related Financial Disclosures) reports indicate how healthy an organization’s long-term ESG strategies are. We need data to fill out reports, but we also need actionable data intelligence to tell us where to focus our transformation efforts.
See More: 3 Steps To Consider For Digital Transformation Success
What Does ESG-driven Transformation Look Like?
A 2023 ESG & Climate Survey by Nasdaq found that 62% of executives regard product stewardship as very important to their business, followed by supply chain sustainability for 58% (the leading theme amongst North American companies). The focus on product and supply chain is logical but also a double-edged sword. There are tremendous business opportunities and perils in product stewardship because it sits at the core of every product-oriented company. Disruption runs the gamut from supply chain design and sourcing to manufacturing operations, even evolving customer relationships to include reverse logistics and circularity.
Leaders have already explored one or multiple of these avenues for adapting their business models. New companies will emerge as winners, and old enterprises that fail to transform may unknowingly be in their last days already.
How Can You Strategically Deploy Data Intelligence?
Needless to say, none of us want to be on the Titanic. The same Nasdaq survey stated, “as the pressure to report and meet ESG goals ramps up, organizations are beginning to turn to digital tools and technologies to help bridge the gap in knowledge, capabilities and resources.” This tells us that you (and your competitors) see the need for software and IoT-enabled hardware, but Nasdaq stops short of providing recommendations.
If your company is involved in the design, production, or distribution of products (raw, component, or finished), then you likely have myriad systems attempting to manage your data: CRM, ERP, LCA, MES and MOM, PLM, QMS, SCP, SRM, TMS, WMS, uncontrolled SQL and Excel repositories, and paper. Your data will continue to swim in an alphabet soup, but continuing with the same approach won’t deliver new intelligence. Long-term, healthy ESG will require alignment in every part of your business. To accomplish this, ESG practices need to be operationalized into everyday practices, and your everyday business systems must contribute to data-driven ESG improvements and reporting. Let’s look at five ways you can do this:
1. Platform your paper: This includes SQL and Excel. As a former engineer, my experiential data allows me to reject the null hypothesis that you don’t have secret data repositories with 99% confidence. If you’re not a statistics nerd, that means you have offline “systems,” whether or not you’re aware of them. Why? Engineers do not accept IT, saying they can’t tweak SAP to get the data they need to do their jobs, so they engineer a workaround (that was me and all of my friends). IT isn’t wrong to protect the monolith, and engineers aren’t wrong to get creative, but the organization can never be right when data is kept in silos. No/low-code platforms can be win-win alternatives that allow IT to maintain governance, engineers to be engineers, and your company to have visibility into data (a natural precursor to intelligence).
2. Shift to the cloud: Embracing cloud software provides two advantages. First, SaaS providers are improving how their products support ESG. Second, progress against your environmental and governance goals can be accelerated by partnering with providers that excel in energy efficiency and security.
3. Demand faster, cheaper upgrades: Assuming you’re not working at a unicorn startup, most (if not all) of your systems were implemented before ESG or data intelligence became mainstream. This means your current software may not help you. However, the latest versions might pleasantly surprise you. Companies go years, even decades, between major uplifts because they’re known for being painful. Challenge your vendors to provide an efficient upgrade, and if they can’t then consider changing your vendor.
4. Be outcome-driven: ESG progress requires business progress. Though current and proposed regulations only focus on ESG reporting, this aspect cannot be the only focus. Sustained ESG will require buy-in from Operations, and, in order to hit their existing targets and new ESG outcomes, they will demand data intelligence native to their systems.
5. Use practical AI: ML (machine learning) and AI are finally delivering benefits to industrial enterprises through solutions that focus on business problems rather than technological capabilities. Process mining and process intelligence are examples of growing SaaS vendors. They can ingest log files from mission-critical systems like ERP to inform you of where processes are breaking down, constantly monitor flows, actively alert you on path deviations, and suggest process enhancements even where KPIs are green. This type of intelligence is imperative to making continuous progress once the low-hanging fruit has all been picked.
Now What?
If you don’t already have a plan, it’s time to create one. If you already have plans, make sure that reporting is approached in parallel with operational advancements. Everybody wins when the most accessible improvements yield results, but those will neither close the whole gap nor will they stay easy to access. Corporate sustainability is only increasing, and in order for your organization to maintain ESG (and overall) health, you must sustain it with data intelligence.
How are you enabling ESG-driven business transformation? Share with us on Facebook, Twitter, and LinkedIn. We’d love to hear from you!
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