Introduction
Every year since the Industrial Revolution has seen substantial increases in environmental awareness and activism, and in 1987, the term sustainability was officially defined by the UN, simply as:
“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
With a firm definition in place, the next course of action was to practically integrate this, and in the 21st Century, ESG was formally recognized as having the potential to do so. Yet, despite this, it faces trouble properly taking effect in certain parts of the world, leading to anti-ESG sentiments, messages, and even anti-ESG laws being passed. This stems from the all-too common misconceptions that we at Impactree have experienced in our years of working in this field:
· A belief that ESG consists of simply reporting, without understanding its real value and impact
· Focusing solely on the environmental (E) pillar of ESG, sidelining the social (S) and governance (G) pillars, sometimes entirely.
These surface-level misunderstandings are causing organizations to practise sustainability out of a sense of obligation, which has deep-rooted consequences for everyone involved. Each pillar of ESG is deeply interconnected. So, while organizations are right to focus on climate change mitigation, they must do so with the understanding that societal and behaviour change is a major factor in driving climate sensitivity and action. Industries must make these changes in how they operate in order to extract true value from their work, which is where the S and G pillars of ESG come into play.
Thematic 1: Industry and sector specific sustainability journeys need to be mapped
True sustainability does not work as a general practise, and as such, industries need to focus on specific areas which can affect their performance. For instance, due to their nature of operating in environments of intense heat, we have seen auto-ancillary industries placing a higher weightage on safety practises and performance management than environmental indicators in terms of sustainability. Since the technology needed to reduce said heat is still in development, such high-risk environments pose challenges for their workers’ safety and well-being, and ineffective measures pose an immediate and present danger to their performance, in turn affecting their business.
If ignored, these crucial non-financial indicators can have a lasting impact on the brand of the company. Other non-financial indicators such as customer experience also ensures company growth by providing statistics for which they can improve. Hence by looking at granularity on what is more applicable to them and from a materiality perspective, companies can understand which indicators affect their performance to what degree, and make improvements where necessary to retain or further their standings.
Thematic 2: Cases of Unlocking Value Through Sustainability
One question asked at the panel was whether or not sustainability has helped companies before, to which we answered: yes, it has. When viewed as risk intelligence or performance management, there have been cases where sustainability has proven to be a great driver for risk assessment and performance management of non-financial metrics (even the ones companies may dismiss as an easy fix), improving business value. Two key aspects of this include:
Cost reduction: On a smaller level, employees and ground-level workers must be conscious of their actions and their repercussions at all times, so as to not accidently increase their bills and carbon footprint. Starting small by turning off air conditioning when unnecessary, or relooking at work spaces for better energy use, this can transition into more complex measures like reviewing machine level optimization and heat system management. In our experience at Impactree, most manufacturing entities across India operate on 1.28 days of Diesel-Generator sets, using fuel that has been bought out. While investments in solar replenishment is ongoing, machine and production optimization are small yet effective ways companies can enhance the impact of solar.
Managing Supply Chains: It is the responsibility of companies to be aware of the sensitivity of their supply chains, which are constantly under risk of disruption. Through implementing ESG, and primarily an effective social and governance infrastructure, such impacts can be measured and the required plans to manage them can be drafted. It is important to keep in mind that such measures must also be able to adapt to changing circumstances. For many companies, their path to sustainability could be to look at the carbon and risk profile of their suppliers and focus on increased localization.
While ESG can help avoid internal supply-chain disruptions, those caused by external factors need more careful consideration. The COVID-19 pandemic is the perfect example of supply chain disruptions at a macro-level, forcing everyone into remote working, which increased demand for electronics whose manufacturing and shipment had to be halted. In case of such unforeseen and uncontrollable events, full transparency and communication at every level is required to navigate them in safe and ethical ways. The same logic used for internal disruptions apply here, but organizations can extend this by ensuring financial security as well as easy access to health and safety facilities, or diversifying their supply chains in case their main one gets compromised through localization. By implementing such practises, they can stay afloat even under the most extraneous circumstances.
Thematic 3: How does CSR enter the conversation?
Coming into effect in 2014, Corporate Social Responsibility (CSR) is involved in the social pillar of ESG, and was made mandatory for all companies by law. At its core, it is about the ability to distinguish right from wrong, the basis of any good decision-making. By incentivising responsibility at the ground level, employees and stakeholders don’t have to feel contractually obligated to do their duties, which in turn avoids greenwashing and increases company performance and productivity.
A company practising CSR develops its surrounding area and communities by aligning their mission statements with their values, which in turn provides said company with the manpower and resources needed to grow. An example of CSR in action can been seen here at Impactree, where we worked with organizations that specialize in micro-finance loans to provide subsidized healthcare and education for low-income families and communities. We deployed our platform, connecting 1000 customers in 5 days, and realized that 98% of them were one health expense away from default. We helped the company co-develop a CSR program which provided preventive health care services on a subsidized rate to their customers. Through CSR, they could track cases where defaults happen, and ensure customers get good discounts with network hospitals. The company further invested in providing training in communities by increasing ticket size and reducing the risk of default. By integrating CSR with ESG where it’s impact can be effectively measured, this can be made into a regular practise, as opposed to a one-time charity event, creating a circular chain where everyone involved can grow and prosper. Social enterprises can also be integrated here to provide better solutions for people, planet and profit.
Thematic 4: Role of Technology and People
A major discussion at our panel, one raised by students and those new to the workforce, was about the balance of technology and human intelligence in the field of sustainability. Indeed, as technology advances and new developments are made, it is important to remember not to sideline the people, who offer just as much, if not more. By equipping themselves with the necessary knowledge beforehand, students can provide fresh new ideas and integrate them with technology to drive innovation in a way technology cannot on its own. Despite having intelligence in their names, AI tools like ChatGPT are not capable of free-thinking, and as such, cannot improvise and adapt to changing circumstances; a quality innate to humans. It also, according to this blog (https://piktochart.com/blog/carbon-footprint-of-chatgpt/), “generate 8.4 tons of CO2 annually—double an average person’s output” And this is just the base estimate.
Now, this isn’t to dismiss the value of technology altogether, as it has made great strides in advancing sustainable development. Whether through creating advanced sensors, drones, and satellite imaging for the collection of real-time data on biodiversity, habitat loss, and environmental pollution, or early warning systems capable of detecting health problems years in advance, technology is best used in completing tasks that we are physically incapable of doing. It is in these ventures, and pursuing these goals which have a positive, real-time impact where the true capacity and the limits of technology can be observed.
Concluding Thoughts:
True sustainability has the potential to positively transform a company’s performance as well enhance an individual’s lifestyle. In order to have that effect, fresh new ideas and perspectives that look beyond compliance and traditional box-checking are needed. Once found, they must be given the adequate space to organically grow and nurture in order to have the desired effect, something ESG and CSR have the capacity to provide.
(If you are interested in joining our community, DM @growth@impactree.ai).
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