Embedding ESG into IT strategy: Insights for IT leaders

CIOs have become key players in advancing environmental, social and governance (ESG) goals.

Technology strategy underpins many aspects of ESG, including how organizations track greenhouse gas emissions and report progress to regulators and investors. IT leaders must find ways to reduce the environmental footprint of their own infrastructure and embed sustainability data into day-to-day business workflows and systems.

Anuj Shah, head of responsible investing at Grant Thornton Stax consulting firm, works with enterprises to operationalize ESG through data management, technology modernization and AI-driven analytics. In the following interview, he explains how IT leaders can make ESG measurable and meaningful -- and why aligning sustainability with business outcomes is often the most effective approach.

Editor's note: This transcript was edited for length and clarity.

How can IT leaders align their technology strategy with ESG and sustainability goals?

Anuj Shah: IT managers will be responsible for the hardware and software within the organization. IT operations consume a lot of energy, so there's that level of greening IT operations -- that's one level.

On the other side, there is a level of integrating ESG factors -- or sustainability data -- into workflows. If a company identifies financially meaningful ESG KPIs for its business, it must track that data. Let's say it's something related to a supply chain -- then you want to look at your supply chain software and determine whether those KPIs can be tracked through your existing software, whether you need an upgrade, an add-on or a different vendor.

What are the most common IT-led ESG and sustainability initiatives you see across industries?

Shah: I'm noticing a trend this year that I call 'connecting the dots around ESG.' ESG starts with disclosed data from a company. Investors sit downstream from that, consume that data and can introduce it into an investment process. For companies themselves, just disclosing that data is not very useful.

However, there are regulations across the globe. For instance, if you operate in the EU, there's the corporate sustainability reporting directive that requires companies to make almost 900 data points of disclosure. If you just disclose that information, it may be decision-useful to investors, but the company still needs to put a strategy around it to advance the needle on sustainability.

We're seeing more companies ensure their third-party or supply chain risk management software includes features that drive measurable ROI, improve workflow efficiency and save employees' time.

Why is measurable ROI becoming more central to ESG initiatives?

Shah: Under the current U.S. administration, there is little support for ESG measures. In Europe, there is a heavy-handed approach to regulations. These two polar opposites are present, but there is the same narrative within the two geographies.

In the U.S., ESG advisers tell clients to focus on the business case of sustainability. In Europe, you hear the same thing because it's overly regulated. However, its regulations are not necessarily moving the needle because people see sustainability as a check-the-box exercise. It's an interesting paradox between these two geographies -- polar-opposite approaches, but both are focused on the business case.

What is AI's role in ESG reporting?

Shah: AI can certainly make this a lot easier. It can simplify the handling of large amounts of ESG data and turn it into actionable insights. A lot of what's held the sustainability space back is that it can be confusing when you're talking about scope 1, scope 2 and scope 3 emissions disclosures. AI can make a lot of that easier to understand. It can compress workflow so you can get decision-useful information much quicker than in a pre-AI world. To me, this is exciting.

We have developed a few proprietary tools within Grant Thornton Stax to help our clients with analysis. As little as three years ago, I used to do a type of workload for clients that would take my firm about four weeks. I can now do that exact same analysis with AI in 30 seconds.

How should CIOs prioritize ESG projects when their budgets and resources are limited?

Shah: CIOs should start with where money is already being spent. If you are already spending on third-party software, I would see whether that software has sustainability reporting capabilities already built into it. This approach doesn't require you to ask for an additional budget or for some new software or process that would require a brand-new workflow.

What are the biggest challenges that IT teams face when implementing a sustainability program?

Shah: The biggest challenge is making sure that sustainability becomes business as usual -- not just a pet project. When you focus on areas where the company is already spending money, such as existing software or processes, it's easier to add sustainability practices there rather than starting something completely new. If you are trying to convince the powers that be within your organization to spend a lot of money to get this done, there's a higher likelihood of failure.

Focus on the business case and really try to determine how you can narrow your focus. If you take a broad approach to sustainability, you probably will end up losing support within an organization. People change roles every couple of years, and someone will look at it and say, 'We're spending money on this, and I don't see the ROI. Let's kill this program.' Focus on the two to three things that matter the most -- where the business case is very clear.

How can IT teams ensure that ESG data is accurate and reliable for reporting purposes?

Shah: For ESG data to have credibility, we want to get it assured by a third party. ESG data that has been verified by a third party is much more credible in the marketplace.

The challenge with that is there's a cost involved. That means bigger firms can afford to do it, and smaller firms may disclose data, but it's not assured.

Do you recommend any governance or compliance frameworks for managing ESG data across multiple regions or business units?

Shah: We think about it more in terms of best practices. For instance, it must be discussed in the appropriate meetings, on the agenda and on the C-suite's radar.

Investors certainly do look at the governance models around sustainability within an organization. It's not uncommon, particularly in firms in certain industries, to see the role of a chief sustainability officer within the C-suite of an organization. That's instant credibility, because it shows that there's someone who's accountable for the performance within an organization.

How should IT leaders collaborate with other executives, such as chief sustainability officers, to ensure the success of their sustainability initiatives?

Shah: They must cooperate to set clear targets and define what they want to achieve. It sounds basic, but it often goes overlooked. Companies can jump very quickly to the data and to improving performance on the data. However, it's worth taking a step back and ensuring that everyone is on the same page in terms of what they're trying to accomplish. Then, set the strategy around achieving those goals, and make sure you have governance around that, and people are accountable.

Tim Murphy is site editor for Informa TechTarget's IT Strategy group.