There is need for organizations to start publishing their Sustainability Reports due to Regulatory mandates and also due to Competition. IT plays a crucial role in enabling Sustainability in Business.
In this article I highlight about the challenges of Sustainability Reporting. We also see a large number of organizations falling into the Greenwashing trap and some even leading to legal suits. I then look at the factors leading to Greenwashing.
Now comes the part on how to help the business to tide through the Challenges and also avoid and reduce Greenwashing through Information Technology Enablement. We give a couple of examples of what some organizations like ERP product vendors and other Sustainability Tool Vendors doing to address these challenges.
We see that there are many regulations coming up in many countries for companies to mandatorily report on ESG. There are only a handful who are reporting today. Many of those who are reporting are found to be Greenwashing.
Let us examine the challenges in Sustainability Reporting that the companies are facing today.
Challenges of Sustainability Reporting:
Awareness: First of all there is lack of awareness on the topic. Even many of the Chief Sustainability Officers are taken up from existing organization and have no knowledge of Sustainability.
Data Accuracy and Quality: Gathering accurate and reliable data for sustainability reporting can be challenging due to various factors, such as inconsistent measurement methods, lack of standardized reporting frameworks, and limited availability of data from suppliers.
Scope and Boundaries: Defining the scope and boundaries of what to include in sustainability reporting can be complex. Companies need to decide which environmental, social, and governance (ESG) factors are material to their operations and stakeholders. This relates to lack of knowledge.
Integration of ESG into Business Strategy: Aligning sustainability goals with overall business strategies can be difficult, especially when there’s a lack of understanding about how ESG factors directly impact financial performance. Even Board members are not clear on Sustainability and ESG.
Engagement and Stakeholder Communication: Effectively engaging stakeholders and communicating sustainability efforts and progress requires clear and transparent communication. However, striking a balance between providing detailed information and avoiding information overload can be challenging.
Consistency and Comparability: With a lack of standardized reporting frameworks, comparing sustainability performance across different companies and industries can be complicated. This hinders investors and stakeholders from making accurate assessments.
Dynamic Regulatory Landscape: The regulatory environment for sustainability reporting is evolving rapidly. Companies may struggle to keep up with changing reporting requirements across various jurisdictions.
Materiality Assessment: Identifying and prioritizing material ESG issues relevant to a company’s industry and operations can be subjective and challenging.
Let us also look at why there is Greenwashing. We see many organizations removing their sustainability claims from their advertisements. We see many organizations withdrawing published ESG Reports and bringing back after removing a few pages from the document.
Factors Leading to Greenwashing:
Greenwashing refers to the practice of conveying a false impression of environmental responsibility. It can mislead consumers and stakeholders into believing that a company is more sustainable than it actually is. Here are some factors that contribute to greenwashing:
Lack of Clear Definitions and Standards: The absence of universally accepted definitions and standards for terms like “eco-friendly” or “sustainable” allows companies to use vague language that may not accurately reflect their practices.
Inadequate Verification and Third-Party Oversight: Without rigorous third-party verification of sustainability claims, companies can make unsubstantiated assertions about their environmental efforts.
Selective Reporting: Companies might highlight positive aspects of their operations while downplaying or omitting negative practices, giving a skewed impression of their overall sustainability.
Misleading Metrics: Manipulating or selectively presenting data and metrics can distort the true impact of a company’s activities on the environment.
Focus on Low-Impact Aspects: Emphasizing small, low-impact changes (e.g., packaging redesign) while ignoring more significant issues (e.g., carbon emissions) can create a false perception of overall sustainability.
Symbolic Gestures: Making superficial changes or symbolic gestures, such as changing a logo’s color to green, without making substantive changes to operations can create a misleading image of commitment to sustainability.
Exaggerated Marketing Claims: Overhyping minor improvements or using grandiose language to describe modest initiatives can inflate the perception of a company’s environmental efforts.
Lack of Transparency: Companies that do not disclose their methodologies, data sources, or progress in detail can raise suspicion about the authenticity of their sustainability claims.
Not all people are bad. A lot of it is due to various factors like Data. IT can help in solving these challenges and help in reducing Greenwashing. There are 2 parts to it. First of all, we can use IT to take data from the system and/or by entering data and generating report.
The other part is by ensuring that each of the IT Systems which enables the business process collects the Sustainability related data which can then be used by the Reporting Tool.
We also need to understand that it is not just about reporting. We need to improve also, and improvement needs to be reported in the next report.
IT plays a crucial role in enabling sustainability initiatives within organizations by integrating sustainability-related aspects into Enterprise Resource Planning (ERP) systems and Sustainability Reporting. This integration not only helps organizations manage their environmental, social, and economic impacts but also supports informed decision-making and accountability. Here’s how IT can facilitate this process:
Data Collection and Integration:
IT systems, including ERP, can gather and integrate data from various departments and processes, allowing organizations to track sustainability-related metrics such as energy consumption, waste generation, water usage, and carbon emissions. This data can be collected automatically through sensors, IoT devices, and manual inputs. Integrating this data provides a comprehensive view of the organization’s environmental and social performance.
Customized Sustainability Modules:
IT can customize existing ERP systems or develop new modules specifically designed to handle sustainability-related data. These modules can track sustainability metrics, set goals, and provide real-time monitoring. For example, within an ERP system, a sustainability module can monitor the usage of raw materials and energy, helping in resource optimization and waste reduction.
Automated Reporting:
IT can automate the generation of sustainability reports by extracting data from the ERP system and other relevant sources. This reduces the time and effort needed for manual data collection and reporting. Automated reporting also ensures accuracy and consistency in data presentation, making it easier to comply with sustainability reporting standards.
Standardized Metrics:
IT can help standardize sustainability metrics and reporting frameworks, such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) standards. By aligning data collection and reporting with these standards, organizations can provide credible and comparable sustainability information to stakeholders.
Real-time Monitoring and Alerts:
IT-enabled systems can provide real-time monitoring of sustainability metrics and trigger alerts when predefined thresholds are breached. This proactive approach allows organizations to take immediate corrective actions to minimize negative environmental impacts and operational inefficiencies.
Predictive Analytics:
Advanced analytics and machine learning algorithms can be employed to predict future sustainability trends based on historical data. These insights help organizations make informed decisions and strategize for sustainability improvements, such as forecasting energy demand or identifying potential areas for resource conservation.
Stakeholder Engagement:
IT systems can facilitate engagement with stakeholders by providing transparent access to sustainability data. This can include creating dashboards or web portals that display key sustainability metrics, demonstrating the organization’s commitment to transparency and accountability.
Supply Chain Management:
Integrating sustainability aspects into ERP systems can extend to supply chain management, ensuring that suppliers adhere to sustainable practices. This includes tracking suppliers’ environmental certifications, ethical sourcing, and compliance with sustainability standards.
Regulatory Compliance:
IT systems can help organizations stay compliant with evolving sustainability regulations by tracking and reporting on relevant data. This reduces the risk of non-compliance penalties and ensures that sustainability-related legal requirements are met.
Continuous Improvement:
Through data-driven insights provided by IT systems, organizations can identify areas for continuous improvement. This iterative process of setting goals, measuring progress, and optimizing practices is central to achieving long-term sustainability goals.
To enable Sustainability in Business, on one side we see ERP product companies like SAP incorporating various new features to capture Sustainability related data in their products and some reporting out of it. However, we still need to have an external system to sit on top of this data and present real time dashboards and also generate Sustainability Report. This Sustainability Report can be taken and few more additional areas can be added which are more textual like MD’s address.
Everyone is not using SAP. There are a greater number of organizations using various ERP solutions or homegrown ones. For them we need a separate solution with connectors to collect the data from the underlying system. One such example is ASUENE (Previously Asuzero).
As you can see that Scope 3 Emission for both Upstream and Downstream requires data from outside the organization; from partners. This can be challenging and requires trust between the 2 parties, regulations, and a good Data Governance.
To conclude, we can say that there is a serious need for IT to gear up and help enable Sustainability in Business. There is a need of an ecosystem of organizations cutting across, geography, industry, organizations, and department. IT needs to help by providing the single platform for such data collaboration. While we see, it has started, there is a huge scope to have more good products in this space to meet the ever growing need for such platforms.
Author: Dr. Niladri Choudhuri