Environmental and social governance, or ESG, is a growing concern for business leaders—and for government regulators, investors, and standards bodies. Recent events have only increased the business world’s focus on ESG: worker wellness has become a major concern during the COVID-19 pandemic; social justice protests have drawn attention to gaps in diversity, equity, and inclusion; and the impacts of climate change and the importance of environmental sustainability are becoming harder, if not impossible, to ignore. It’s time that IT organizations and digital technologists recognized the role they can and must play in supporting their companies’ ESG efforts.

The critical thing to understand about ESG is that it is a strategic concern of businesses, not just a nice-to-have activity that occasionally pops up on a C-suite agenda. A business’s long-term survivability depends on a broad range of stakeholders in addition to its shareholders, just as it depends on the business’s ability to master the digital economy. In fact, a company’s medium-term (and even short-term) success in our fast-paced environment depends on making good decisions around environmental and social considerations. For this reason, focus has shifted from just doing good—what we call corporate social responsibility (CSR)—to setting up governance processes to build these activities into the fabric of the corporation’s activities. ESG is CSR raised to a strategic priority, bringing transparency and accountability into the company’s environmental and social impacts.

Why ESG Is an Important Board Concern
According to a Fortune 500 company board member, “companies are recognizing that taking care of broader stakeholders in the business over the mid- to long-term is a good thing for the long-term sustainability of the business.”1 Forty-five percent of board directors now say that ESG is a regular part of the board’s agenda (up from 34% in 2019).2 Eighty-two percent rank being a fair employer and good corporate citizen as “extremely” or “very” important.3

Environmental and social governance directly affects business performance: companies on the S&P 500 ESG Index outperformed, suffered fewer losses, and recovered faster than the S&P 500 during the pandemic.4

When a company’s board members are focused on a topic, senior executives are as well: 56% of US-listed companies whose market capitalization is over $25 billion have put ESG measures into their incentive plans.5 No surprise, then, that 48% of CEOs are implementing sustainability into their operations.6 ESG initiatives get translated into concrete business objectives: Verizon, for example, aims to spend at least $5.2 billion of its supplier spending on minority- and women-owned businesses. Verizon also plans to reduce its carbon emission intensity by at least 10%.7

Investors rightly consider ESG in making investment decisions, acknowledging that the long-term returns from a business depend on it. And this, in turn, leads to new efforts to set standards and promote transparency. The Business Roundtable, of which Amazon is a member, has revised its governance principles to include corporate stewardship. The SEC now requires disclosure of material human capital metrics. Rating agencies such as S&P Global, MSCI, Institutional Shareholder Services (ISS), and Sustainalytics provide ESG data on companies. And the AWS Open Data Initiative and AWS Data Exchange make ESG data easily available to investors. A number of organizations are setting standards, including the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), and the Task Force on Climate-Related Financial Disclosures (TCFD). In 2019, 90% of the companies in the S&P 500 index published a sustainability report, up from only 20% in 2011.8

Boards must oversee ESG because of its importance for the long-term survivability of the company. The board’s audit committee must see to ESG disclosures and transparency and ensure that appropriate processes and controls are in place. The compensation committee must set incentives, ensure accountability, recruit and retain diverse talent, and look after the company’s ESG culture. The nominating and governance committee must address the composition of the board and ensure that it stays engaged and educated on ESG matters.

How IT can and must further the company’s ESG efforts

Governing for environmental, social, and ethical impacts, like many of the other goals we set ourselves in the digital age, starts with data. And it’s IT, of course, that makes data available to the rest of the enterprise. For data to serve ESG governance, it must be continuously available, rather than ad-hoc and patchy. IT needs to think through the best data model to support ESG planning and measurement, source the data, and make it available in dashboards, reports, and operational intelligence that drives immediate process adjustments. ESG data can then be used both in the company’s improvement efforts and in disclosures to the public, and should include critical measures of workforce diversity and environmental impacts.

Engineering for Sustainability

Working in the cloud has tremendous sustainability advantages: on average, Amazon Web Services (AWS) runs workloads with a carbon footprint that 88% lower than when a company datacenter runs workloads. We can do this because we achieve a higher capacity utilization of our servers; because we design our infrastructure for low energy consumption; because we work with our power vendors to use renewable energy; and because we generate our own renewable energy through wind and solar farms.

The environmental consequences of each piece of code depend on (1) the design of the code, (2) the number of times it is executed, and (3) the energy efficiency and carbon footprint of the datacenter. In other blog posts we’ve circled around the idea of treating the financial cost of running a piece of code as an engineering parameter to be optimized1 (this is the main idea of FinOps). Companies can likewise treat sustainability as an engineering parameter to be optimized. Simply put: they can design their code to be sustainable.

The role IT plays in sustainability goes much further. Companies use energy in many of their day-to-day operations. Some have fleets of vehicles to deliver goods. Some have manufacturing equipment. Most have climate control in their facilities. Digital technology can help reduce the resulting environmental impacts. For example, technology can optimize the routes of vehicles and use sensors and machine learning to ensure that equipment operates correctly and minimizes its energy needs.

As for the “governance” aspect of ESG, IT departments should measure and disclose the environmental impacts of running their infrastructure, incentivize teams to design sustainable code, and prioritize features that will help reduce the environmental impacts of day-to-day business operations.

Workforce Diversity, Equity, Inclusion (DEI), and Wellness

Let’s face it—technology organizations are not and have not been diverse and inclusive enough. And in technology organizations the stakes are especially high: I previously wrote about the importance of diversity and inclusion when it comes to making IT teams innovative and successful. In addition, since technology is so central to everything companies do today, and since the IT organization touches so many parts of the enterprise, diversity in IT can have a ripple effect through the rest of the enterprise. IT systems, for example, play a role in HR’s efforts to measure and manage diversity. IT can enable workforce diversity by making sure its systems are accessible for people with disabilities and by making it easier to work remotely (so that parents who need to care for children, people in remote and underdeveloped areas, and people with disabilities can work as equals within the company).

How, specifically, can IT govern itself to support DEI? Systems should be designed from the ground up with accessibility in mind—not just in compliance with a set of accessibility requirements, but based on a user experience design that incorporates a broad range of users. The culture of the IT department—historically set by a nondiverse IT workforce—must become more inclusive. IT and the rest of the company must do better at hiring candidates from historically underrepresented or unrepresented groups, particularly with new capabilities technology has given us. Specifically, we need to hire in underdeveloped locations, allow work-from-home options, and make accommodations for employees with disabilities. IT must look after its employees, developing their skills and coaching them in their long-range career planning.

I’ve just learned of an interesting option to increase diversity: although IT organizations often resist hiring for entry-level skills, doing so expands the potential labor market considerably. Entry-level skills are perfectly appropriate for some IT roles, and the company can then further develop these employee’s skills. As a more general point, IT organizations should review their job descriptions to make sure their prerequisites do not unnecessarily exclude groups of potential employees who could do the job (for example, is a college degree really necessary for some technical roles?). AWS re/Start is a program that trains unemployed or underemployed populations with entry-level cloud skills and then places them with companies that continue their training. Please consider becoming a re/Start employer.

The COVID-19 pandemic has focused attention on employee wellness, and IT plays an important role in this sphere as well. Beyond supporting a healthy work-life balance through remote working and collaboration tools, IT can ensure that its systems are high-quality, usable, and appropriate for the job to be done—important factors in increasing employee satisfaction and reducing stress.

Product Safety and Inclusiveness

Businesses are responsible for ensuring that their products are safe for customers to use. More than that, their products must be able to be used equally and inclusively by all users.

This is another reason that having diverse employee teams is critical: diverse teams are more likely to understand the needs of underserved customer segments and ensure that products are designed for inclusivity and equity. In his book Humans vs Computers, Gojko Adzic tells stories of IT systems that didn’t consider all the usage scenarios they would face. It becomes clear that some of what we typically think of as “edge cases” are actually matters of inclusivity, such as “name” fields in IT systems that can’t accept names from certain cultures. His examples include the following:

IT systems that can’t handle people with a single name, like U Thant, the Burmese Secretary-General of the UN, where “U” is not a name but an honorary title, and Sukarno, the first president of IndonesiaIT systems that impose arbitrary length limits on names; one system was unable to handle a 35-letter Hawaiian last nameIT systems that reject through “validation” single-letter names, like O Rissei, the Japanese go playerIT systems that refuse names with certain accent marks, including the Hawaiian ‘okina2

To these I’d add the challenge of names that don’t fit neatly into the first name–middle name–last name structure, like some Hispanic surnames and hyphenated last names.

The safety of a product often depends on the safety of the software embedded in it and in the digital interactions purchasers have with the company. During the pandemic we’ve seen many “unsafe” digital interactions—for example, vaccine appointment-scheduling software that makes it too difficult for vulnerable populations to get vaccinated. The Healthcare.gov rollout was plagued by scalability problems that made it difficult for people to get health insurance. This is as much a safety issue as defective software that controls medical devices, or—especially—critical systems that are vulnerable to security breaches, like the recent hack of a water supply system in an attempt to poison the local population. To act responsibly on behalf of customers, companies must keep their technology secure.

Software quality control, resilience, and design inclusivity are all ESG concerns.

Privacy and Data Security

Customers entrust businesses with their personal data; businesses then have an obligation to keep that data private and secure. This obligation goes beyond compliance with standards and formal frameworks. In an earlier article I talked about the importance of creating a culture of security in which everyone across the enterprise considers safeguarding customer data to be their personal responsibility. That’s so; but IT still plays a critical role in implementing privacy practices and advising the rest of the company on data protection.

Companies that successfully secure data don’t do it just by bolting on security to existing systems; they do it by designing for privacy and security. Just as DevOps teams need to design and build their code with operations in mind, they also need to address privacy and security concerns throughout their software development processes as well. Access to data should be carefully controlled and data should always be encrypted at rest and in transit. I can’t go too much deeper into good contemporary privacy practices in a short blog post—plenty of material is already available on that subject—so I’ll just say that security and privacy enforcement are obligations of any socially responsible business, and a key element of ESG.

Vendors and Partners

I mentioned before that environmental and social improvements in IT can have a ripple effect through the rest of the enterprise. They can also have a ripple effect throughout the entire supply chain. IT organizations should insist that the vendors they work with also have effective ESG measures in place (including, by the way, their cloud providers…more on that it an upcoming post). Companies throughout the supply chain need to be told by their customers that ESG is important, just as your company needs to be accountable to its customers for your own ESG performance. IT’s ability to meet its ESG goals depends on the performance of its vendors; it’s no use to say that you’ve reduced your carbon footprint within your company if you’ve started using a new vendor with a bloated carbon footprint.

This update has been authored by Mark Schwartz, AWS Enterprise Strategist. Read more about IT and Environmental, Social, and Corporate Governance (ESG) on the AWS Cloud Enterprise Strategy Blog.

The Nairobi Declaration on Sustainable Insurance is a declaration of commitment by African insurance industry leaders to support the achievement of the UN Sustainable Development Goals (SDGs). ARC Limited is among the signatories taking action on their commitment.

The Nairobi Declaration was launched by the UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI) during the virtual 4th PSI African Market Event on 22 April 2021. Its importance lies in the key role that the African insurance industry members have to play in promoting all forms of sustainable development on the continent.

ARC Limited, due to its strong presence in Africa where it helps member countries recover from natural disasters, is committed to leading by example. It has stressed that other insurance leaders also have a critical role to play in promoting the declaration's values.

The hope is that many more companies headquartered on the continent will follow suit not only in signing but also by actively promoting economic, social, and environmental sustainability.

The need to step up the pace

While the declaration ties in strongly with the UN SDGs of a shared global vision to “end poverty, rescue the planet and build a prosperous and peaceful world”, it is generally understood that humanity is not advancing in these goals at the speed or scale required.

However, ARC Ltd has welcomed the attainment of 50 signatories within half a year, as a “tremendous achievement, demonstrating how high this topic is on the agenda of most African insurers”.

While the declaration is a tangible first step towards increasingly more sustainable business, in which stakeholders will strive to better integrate ESG into their business models, in alignment with the goals envisioned by the Net Zero Insurance Alliance, it is also important for leaders to engage with other signatories and support them.

ARC Ltd points out that more than a signature on paper, companies that become signatories need to understand the full impact of this declaration on their operations. The journey now is towards activities and adjustments that will eventually add up to make sustainable business a reality. However, everyone must play their part.

UL 360 Sustainability Essentials maintains its status as a customer data platform (CDP) Gold accredited provider of ESG reporting software. This is the highest level of recognition CDP offers for reporting software.

Read more here.

Trane Technologies' 2021 ESG Report, Transform Tomorrow, Today, details how the company has met or exceeded annual targets toward its 2030 Sustainability Commitments.

The 2021 Environmental, Social and Governance (ESG) Report highlights notable progress toward ambitious, science-based greenhouse gas emission reduction targets, diversity and inclusion commitments, and other sustainability goals.

“In 2021, we continued to set the pace in our industry for what’s possible for a sustainable world,” said Dave Regnery, chair and CEO of Trane Technologies. “We exceeded or met our annual targets for nearly all our 2030 Sustainability Commitments, demonstrating tangible progress on our glidepath toward significant reductions in carbon emissions, energy use, and waste and water, while increasing representation of women in leadership, and workforce diversity reflective of our communities. Through the power of our people, we continue to innovate, take bold action and transform the world for a better tomorrow.”

An organization that decides to report ESG metrics simultaneously invests in environment, social, and governance performance improvement and in the organization’s longevity.

Reporting sustainability data has become increasingly essential for investors, but navigating the details can be complex and overwhelming. Here’s an overview of some common ESG reporting standards and frameworks and how to simplify the process of reporting.

Effective environmental, social, and governance (ESG) reporting needs to be tailored to a company’s organization type, industry and operating regions. This helps determine which reporting standards or frameworks to use. For instance, a computer hardware manufacturer will have drastically different reporting needs than a chain of restaurants.

While some sustainability standards and frameworks segment their reporting by industry, others assess specific ESG topics e.g. carbon emissions. As a result, figuring out which reporting standards to use can be a difficult task for sustainability-driven executives and managers. To help you through the process, we have outlined a few differences between three leading ESG reporting standards and frameworks:

Read more here.

CDP, a globally recognized nonprofit, conducts environmental, social and governance (ESG) reporting with the goal of sustaining economies and the health of the globe. By disclosing ESG data, reporting to CDP helps companies increase their accountability and transparency. The organization emphasizes environmental leadership with a scoring system that ranks companies from D- to A. Each grade corresponds to the company’s level of progress, with the goal of improving toward leadership:

D score begins with disclosure.C score signals a move to awareness.B score suggests a transition to managing environmental impact.A score culminates in environmental leadership.

Read more here.

Today the members of the Executive Committee of the World Economic Forum's International Business Council published a joint statement to welcome the announcement on the establishment of the International Sustainability Standards Board (ISSB) under the governance of the International Financial Reporting Standards (IFRS) Foundation.

The ISSB will enable global financial markets to have high-quality and comparable disclosures on climate and other sustainability issues through a set of international standards. Public-private dialogue and cooperation, facilitated by the World Economic Forum and other convening bodies, have helped to build momentum for this historical milestone.

In the statement, the Executive Committee encourages regulators and policy makers to review and consider the global sustainability disclosure standards to be delivered by the ISSB as they are intended to provide a comprehensive global baseline for companies to report on and will be developed to facilitate compatibility with reporting requirements that are jurisdiction-specific or aimed at a wider group of stakeholders.

The Forum was part of the working group that was formed to undertake preparatory work to give the ISSB a running start and contributed its work from the cross-industry Stakeholder Capitalism Metrics, which were launched over a year ago and have been supported by over 100 global organizations worldwide. The metrics will provide a basis for the technical work of the new board, along with other major technical standards and frameworks.

Today, 60 organizations have released an open letter to the European Commission, the European Parliament and the Council of the European Union, encouraging them to be a key force behind alignment on a global baseline set of ESG disclosure standards.

As businesses still struggle with confusing and inconsistent ESG reporting frameworks, these signatory companies encourage the European Commission to promote a global baseline set of standards through supporting the IFRS Foundation on the launch of the International Sustainability Standards Board (ISSB). Close cooperation will be key to ensure future European sustainability standards complement the global baseline and are aligned and interoperable.

Signatories of the letter also re-affirm their support for the European Green Deal and for the aims of the proposed EU Corporate Sustainability Reporting Directive (CSRD). They commit to playing their role to build corporate resilience and enhance their license to operate through greater commitment to long-term, sustainable value creation as well as by considering the needs of all stakeholders.

Read the full letter and list of signatories here.

SEDCO Capital has published its latest research report “Climate Change Considerations in Portfolio Management - Not Just an Ethical Checkbox, but a Fundamental Driver of Returns”, authored by Chief Risk Officer, Christian Gueckel.

The company believes in the imperative for asset managers to integrate climate risk considerations into their asset allocation strategies - in terms of investment theses, geographies, and industries.

This paper explains the integration of climate considerations into investment decision making and risk management processes. It also includes insightful information on investment opportunities in carbon reduction, as well the benefits from the integration of blockchain into clean resources and energy technology.

Key sections include: (1) Climate-related risks, (2) Possible response scenarios for climate change, (3) Climate investment and risk analysis, and (4) Investment opportunities in carbon reduction.

Joint Statement: Global Data and Analytics Providers

Global data and analytics providers have released a joint statement today to endorse the establishment of a Sustainability Standards Board by the IFRS Foundation as a significant step towards global convergence on sustainability reporting.

The companies have been regularly convening over the past year at the invitation of the World Economic Forum and FCLTGlobal to share insights on how they may ensure the consistent flow of information to support the global economy’s transition to a more sustainable path.

Signatories are:

David Craig, Group Head, Data & Analytics, and CEO Refinitiv, LSEG

Henry Fernandez, Chairman and Chief Executive Officer, MSCI

Peter T. Grauer, Chairman, Bloomberg

Douglas L. Peterson, President and Chief Executive Officer, S&P Global

Philip Snow, Chief Executive Officer, FactSet

The Executive Committee of the World Economic Forum's International Business Council has released a statement this week, endorsing the possible establishment of a global Sustainability Standards Board by the International Financial Reporting Standards (IFRS) Foundation. Such a move would be crucial to promoting global consistency and comparability of the ESG information disclosed by issuers across capital markets.

The signatories include:

Brian T. Moynihan, Chairman and Chief Executive Officer, Bank of America, USA; Chairman, International Business Council, World Economic Forum

Ana Botfn, Group Executive Chairman, Banco Santander SA, Spain

Victor L. L. Chu, Chairman and Chief Executive Officer, First Eastern Investment Group, Hong Kong SAR, China

Lubna S. Olayan, Chair of the Executive Committee, Olayan Financing Company, Saudi Arabia

Klaus Schwab, Founder and Executive Chairman, World Economic Forum, Switzerland

Jim Hagemann Snabe, Chairman, Siemens, Germany; Chairman, AP. M0ller-Maersk, Denmark

Michael K. Wirth, Chairman of the Board and Chief Executive Officer, Chevron, USA

The members say, "We recognize that these commitments need to be supported by consistent and comparable metrics and disclosures, to enhance decision-making, trust and accountability."

Read the full statement here.

Trane Technologies (NYSE: TT), a global climate innovator, announced today that it has revised its executive and senior leader incentive plan to link directly to Environmental, Social and Governance (ESG) metrics that align with the company’s bold 2030 Sustainability Commitments.

The company’s revised annual incentive plan, which starts this year, holds top executives and approximately 2,300 company leaders accountable for meeting the company’s ambitious social and environmental sustainability goals. In addition to tying leaders’ annual cash incentives to ESG metrics, all salaried employee performance plans now must include at least one goal tied to the company’s 2030 sustainability commitments.

“We are leading with a bold purpose to challenge what’s possible for a sustainable world, and have embedded leading environmental, social and governance practices into our strategy and operations,” said Mike Lamach, Trane Technologies chairman and CEO. “Solving major global challenges like climate change and creating a more diverse and inclusive workplace requires courage, innovation, and accountability. Having everyone pull in the same direction toward our sustainability goals reinforces the right behaviors and decision-making to build a sustainable future for our customers, communities and the planet.”

Amid widening recognition of how environmental issues such as climate change create business opportunities and risks, results from a McKinsey Global Survey show that companies that generate value from their sustainability programmes follow a distinctive set of management practices.

Survey respondents say these companies are more likely than others to make sustainability a strategic priority and to set out specific aspirations and targets. Responses also suggest that value-creating companies are more likely than others to make sustainability an element of their corporate culture and train employees on how to integrate sustainability into their work.

Continue reading here.

Carmine Di Sibio talks to Fortune Magazine about stakeholder capitalism and ESG metrics.

"The COVID-19 pandemic has made very clear the importance of prioritizing the well-being of customers, communities, and workers. But this isn’t just a moral imperative. The truth is that it’s always made good business sense to have a stakeholder-focused long-term strategy. Companies that invest in their employees and communities are better able to weather crises, understand where their future success lies, and build in resilience.

Earlier this year, nearly 70 companies and global business leaders committed to disclose a set of universal metrics to measure their performance in terms of environmental, social, and governance (ESG) factors. It was the culmination of a years-long initiative led by EY and fellow Big Four organizations, in conjunction with our colleagues at Bank of America and the World Economic Forum’s International Business Council, to help businesses align their own strategic goals with society’s. EY works with companies to implement the principles of stakeholder capitalism in the workplace..."

Read the full article here.

JD.com has released its first ESG report, stemming from its mission of “Powered by Technology for a More Productive and Sustainable World".

The report highlights JD’s long-term approach to ESG initiatives. It captures the company's corporate social responsibility strategic framework, which is centered on using digitally intelligent supply chain to cover three pillars: boosting the real economy, improving social efficiency and enhancing environmental friendliness.

Areas addressed include: Green supply chain, green data centers, poverty alleviation and giving.