Thursday, June 20, 2024

What IT Leaders Should Do Now to Prepare for ESG Standards

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Corporate investors are increasingly applying non-financial criteria like environmental, social, and governance to their evaluation of companies. It’s not far-fetched to see that these elements will start turning up in future IT audits, either.

Although companies are not required by law to disclose ESG initiatives and results in their financial reports, more companies are disclosing their ESG activities in their annual reports because their investors are asking for it. In part, this new ESG focus has been driven by concerns about climate change, but there is also new-found investor interest in corporate workforce diversity initiatives and in how companies treat their human workforces, their customers, and their customer data.

Depending upon the investor, what could be important is whether the company’s workforce (and board) is diversified, the employment conditions for foreign labor forces, what the company does to reduce its carbon emissions and carbon footprint, or how well the company protects the confidential information of its customers.

IT’s Role in ESG
IT plays a pivotal role in company attainment of ESG, because data centers, information handling, customer-facing processes, and employee hiring practices are all integral to IT.

When sustainability grew in relevance, the first thing that large enterprise purchasers did with their smaller company suppliers was to ask suppliers for annual sustainability reports.

To show the biggest gains in sustainability, suppliers immediately took aim at their IT data centers, figuring that by rapidly virtualizing servers and storage they could show tangible reductions in data center floor space and power usage. By doing so, they would satisfy their large enterprise buyers and ensure that their contracts and revenues would stay in place.

Since then, corporate IT’s role in sustainability and ESG has widened.

More automated systems are in place for e-commerce and for the follow-up phases of sales purchasing cycles, like the need to return or exchange an item, or to speak to someone at the company about a billing or a product problem. Corporate functions like sales, the warehouse, billing, etc., might technically be “in charge” of these processes, but the actual processing (and glitches) often involve systems, and that’s IT. Because so many problems that can be linked to ESG inevitably end up in IT, CIOs and IT leaders need to be actively involved.

What IT Can Do Now About ESG
If the CEO, the board, a major investor, an investment company, or an IT auditor hasn’t knocked on IT’s door yet, that day is coming.

Here are four important steps IT can take to prepare for ESG:

1. Integrated IT sustainability
Most companies already have virtualized servers/storage and have optimized their data centers for energy efficiency — but with IoT and edge technology expanding into end business processes, new IT sustainable fronts are opening up.
For example, transportation and logistics companies are now required to track mileage and driver habits on trucks, and IT uses IoT sensors and devices to do this. These assets communicate with an IT network so driving statistics can be tracked, monitored, and acted on. Sensors also monitor the environmental health (e.g, temperature, humidity) of meats, produce, medicine, computer components, etc., while they are in transport. All these systems contribute to sustainability — and IT should track, quantify, measure, and report on them.

2. Digitalization
A major (and easily measurable) sustainability goal for digitalization has been the elimination of paper documents and the floor space reductions for paper document storage. Both contribute to energy savings.

Digital automation in manufacturing, oil and gas exploration, mining, etc., has also reduced in-the-field work hazards for employees, since drones and automated assembly line equipment can do much of the work humans formerly did.

The more IT can do to reduce employee exposure to safety hazards, the better it can actively contribute to ESG. CIOs should track these safety hazard reduction gains and report them regularly to the CEO, the board, and investors.

3. Diversity in hiring
Most of us remember Amazon’s failed AI hiring algorithm that discriminated against female job candidates because the algorithm was trained by looking at past Amazon hires who had mostly been male.

If your organization is using AI in hiring, it’s important to work with HR to vet AI hiring software for bias, and to ensure that you don’t inadvertently introduce biased training data into algorithms and rules.

The other area of diversity is IT itself. How diversified are your IT staff and your IT management team?

4. Governance
In April 2021, the personal data of 533 million Facebook users was made public on a Facebook online forum. Data breaches like this alarm customers and can cause major damage to a company’s brand and worth.

A data breach inevitably comes down to IT, so it is the CIO who ends up facing the CEO, the board, and investors as he or she is called upon to explain what happened. This is an unenviable and potentially career-threatening position to be in — which is why every CIO should make customer data security and privacy an utmost ESG priority.

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