Corporate Investors are applying increasingly non-financial criteria such as governance, environmental, and social to evaluate companies. These elements are likely to be included in future IT audits.
Although companies are not legally required to disclose ESG results and initiatives in financial reports, more companies are doing so because investors ask for it. This new ESG focus is partly driven by climate change concerns, but investors are also interested in corporate workforce diversity initiatives, how companies treat their employees, customers, and data.
Depending on the investor, it could be important to know if the company has a diverse workforce and board, whether there are employment opportunities for foreign labor force, how the company reduces its carbon footprint or what it does to reduce carbon emissions, or how secure the company keeps customers’ confidential information safe.
IT’s Role in ESG
IT is a key component in achieving ESG for companies, as data centers, information handling processes and employee hiring practices all form part of IT.
When sustainability became more important, large enterprise buyers asked their suppliers to submit annual sustainability reports.
To show the greatest gains in sustainability suppliers immediately targeted their IT data centers. They realized that they could reduce data center floor space as well as power consumption by quickly virtualizing storage and servers. They would be able to satisfy large enterprise customers and keep their revenues and contracts intact by virtualizing their IT data centers.
Since then, the role of corporate IT in sustainability and ESG has expanded.
E-commerce is facilitated by more automated systems. These include the return and exchange of products, as well as the communication with company personnel regarding billing issues or product problems. Although corporate functions such as sales, warehouse, billing, and other related areas may technically be in charge of these processes, the actual processing (and sometimes glitches!) often involves systems. IT is responsible for them. Many problems that are linked to ESG will eventually end up in IT. This is why IT leaders and CIOs need to be involved.
What IT can do now about ESG
If the CEO, board, major investor, investment company or IT auditor have not yet knocked at IT’s door, it’s coming.
Here are four steps IT can take in preparation for ESG:
1. Integrated IT sustainability
Most companies have already virtualized storage and optimized data centers for energy efficiency. But with IoT and edge technologies expanding into business processes, there are new IT sustainable options.
Transportation and logistics companies must track the driving habits and mileage of their trucks. IT uses IoT devices and sensors to do this. These assets can communicate with an IT network to track, monitor, and act on driving statistics. While they are being transported, sensors also monitor the environment (e.g. temperature, humidity) for meats, produce and computer components. All of these systems are important for sustainability. IT should be able to track, quantify and measure them and provide reports.
A major and easily quantifiable sustainability goal in digitalization is the elimination of paper documents, as well as the reduction of floor space for paper document storage. Both of these contribute to energy savings.
Digital automation has reduced the risk of injury in the field for workers in industries like mining and oil and gas exploration. Drones and automated assembly lines can perform much of what humans used to do.
The more IT can reduce employee exposures to safety hazards, then the better it can contribute to ESG. These safety hazard reduction successes should be tracked by CIOs and reported to the CEO, board and investors regularly.
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 company uses AI in hiring, it is important to consult HR to check for bias in AI hiring software and to make sure that biased training data is not introduced into rules and algorithms.
The other area of diversity in IT is itself. Is your IT staff and IT management team diverse?
In April 2021, the personal data of 533 million Facebook users was made public on a Facebook online forum. Customers are alarming and data breaches like these can lead to major damage to a company’s brand and value.
A data breach is inevitable. The CIO is often called upon to answer questions from investors, the board and the CEO. This is a difficult and potentially dangerous position for any CIO. It is also a risky one. Every CIO should ensure customer data security and privacy is a top priority.
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