How To Trust Business & How To Trust AI
16 August 2021 - By Marjella Lecourt-Alma, Datamaran CEO.
We are at a turning point for Environmental Social Governance (ESG). The topic is surging on the news, and almost every day we hear about net-zero commitments or new sustainability strategies. Stakeholders have learned the hard way about the threat of greenwashing, where businesses are willing to exploit these issues as solely a marketing opportunity. This has contributed to a trend of increased accountability, alongside which we have seen huge increase in demand directly from the C-suite for understanding and action in this area.
Failure to meet the growing demand for action on ESG risks can expose an organisation to huge reputational damage. So the key question corporate leaders should ask themselves is: what does it mean for companies to truly care and commit to sustainability? And how do you build trust as a corporate leader in today’s era of accelerated risks and opportunities, where talk is cheap but inaction is costly?
What does it take to build lasting trust as a business leader?
Business leaders should make full use of internal ESG knowledge available to them. In-house experts in the area should not be siloed, as has been the case historically across corporates, professional services firms, and within the investment community. To effectively address this company-wide issue, these individuals should instead be integrated and elevated throughout the business.
“Integrate ESG into the heart of an organisation. Focus on the foundation first, and then push out externally.”
Marjella Lecourt-Alma - CEO, Datamaran
To facilitate the transmission of this expertise to the top, we are also seeing collaborations taking place between more business functions, such as corporate sustainability, investor relations, risks, strategy and legal. Furthermore, expertise in this area should not continue to be considered niche, but a crucial voice within the boardroom. This ties also with the language used in discussions around sustainability, which should not solely focus on the risks, but also the opportunities it presents, to resonate more effectively with business leaders. Throughout the pandemic we’ve witnessed sustainability-inclined companies be more resilient, demonstrating how ESG has the potential to drive value creation and protection, as well as threaten a company’s value.
The demand for more education from the top-down is also on the rise. Recent research revealed that US corporate Boards in particular suffer from inadequate ESG risk expertise and senior executives are working hard to close this gap and deepen their understanding of external and emerging risks - for example, by taking part in Business Schools’ programs on ESG.
By combining both bottom-up and top-down flow of expertise in ESG, businesses can harness more effectively the resources and insights at their disposal, providing them with the information they need to communicate on these issues and make better strategic decisions.
How can AI technology enhance the contribution of business leaders?
A common challenge faced in the ESG space, particularly within the investment community, was a lack of comparable information. ESG typically covers a vast arena of topics, and in order for it to really find its way into C-suite discussions, there is a need for evidence.
Here technology acts as an enabler for businesses, offering C-suite executives access to new sources and insights that were not previously available.This meets the common demand from business leaders and external stakeholders for better and more reliable data.
“Through technology, we can find ways to uncover insights that will help business executives make the right decision and help them build the trust that they're trying to get to.”
Jérôme Basdevant - CTO, Datamaran
AI and Natural Language Processing (NLP) have transformed what once was not measurable into actual data - for example, by analyzing unstructured information and by identifying and quantifying how companies are taking ESG issues into account. Using Datamaran, for example, it is possible to see:
- How do companies disclose ESG information in their financial disclosure?
- What type of issues are mentioned in their risk section?
- How are they talking about it? Are they disclosing actions or just reporting?
With the volume of data that digital technologies can process at rapid speed, they enable business leaders to make better, evidence-based decisions more rapidly. By keeping a pulse on these ESG issues as they evolve and emerge, businesses can adapt their strategies, operations and messaging before a potential reputational liability appears.
Building credibility starts with governance
Back in 2008, ESG was rarely mentioned in 10k filings. Today, the situation is completely different. External issues have conquered their way in companies’ financial statements, showing that ESG issues are now taken very seriously by corporate leaders; and that the path to credibility and trust starts with governance.
When a business and its leadership are fully informed on the topics they are disclosing on, and where these topics are truly being monitored and addressed within a business, they can then be communicated with transparency and credibility. Only after ESG has been fully integrated into the heart of business strategies, messaging in this area can be pushed outwards. This is how you build credibility as a corporate leader.
On the path to fully integrating ESG and generating trust, executives should also consider who is signing off reporting and whether the data is being audited. By seeking third-party assurance on non-financial information, businesses can help to mitigate the huge reputational liability that comes from being accused of overstating or misrepresenting your actions or impact.
Whilst currently assurance over non-financial disclosures is voluntary for all, this is soon to change. In April 2021 the European Commission launched the Corporate Sustainability Reporting Directive (CSRD), which will make limited assurance over non-financial information mandatory for over 50,000 of the largest companies in Europe as of 2023. This increased regulation over non-financial information looks only set to increase, and companies that are proactive in adapting their budget and business functions to adapt to this will benefit.
A tipping point for ESG
To conclude, we are now at a juncture and it is clear that, for many businesses, a journey of education needs to take place. The events of 2020 put both ESG and digital transformation on an accelerator program, and the role and demands of corporations, as well as the technologies available to them, are not what they once were. It’s an exciting moment, where businesses have the opportunity to build this trust and make full use of the technology available to them, to bring sustainable value to both business, society, and the planet.
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