Environmental, social, and governance (ESG) goals have become integral to the agendas of numerous enterprises worldwide, especially when it comes to compliance and reporting.
The adoption of new regulations in Europe (CSRD) and the USA (Climate Corporate Data Accountability Act) has expanded the list of companies that need to report on their operations’ environmental and social impact and the business implications of their ESG initiatives.
However, with various data points and fragmented data sources, ESG reporting has become a major challenge for many organizations. To remain compliant, businesses revise their tech infrastructure and launch digital transformation (DX) initiatives to reach their ESG goals faster and improve data reporting capabilities. Let's discuss how businesses can do it and where N-iX can help.
What is ESG?
ESG criteria represent the three fundamental categories for assessing the sustainability and societal influence of an investment or business:
- Environment (E): a company's impact on environmental factors such as climate change, water and marine resources, biodiversity and ecosystems, circular economy, and pollution;
- Social (S): a company's impact on all people factors over the whole scope of the entity’s ecosystem, including workforce, value chain workers, affected communities, consumers, and end users;
- Governance (G): a company's leadership, business and ethics, executive compensation, internal control mechanisms, shareholder rights, stakeholder relationship quality, accountable corporate practices, and brand management.
Where do ESG and digital transformation align?
ESG and digital transformation are mutually reinforcing, each driving the other's success. Digital tools and technologies empower businesses to minimize environmental impact, enhance data security, and foster stakeholder engagement. Conversely, the organizations must align their digital transformation strategies with ESG priorities, ensuring that adopted tools and policies uphold both initiatives' principles and objectives.
We understand that the adoption of any technology should have a justifiable business value. Here's how integrating ESG and digital transformation solutions can help your business thrive.
Benefits of digital transformation for ESG initiatives
For those companies striving to create more sustainable business models, adopting tech solutions is not only about improving business operations. Let’s review five commonly reported benefits the companies achieve when their digital transformation strategy encompasses both performance and sustainability.
DX helps businesses comply with ESG requirements
The tools to collect and process data digitally enable a company to report on the required metrics. This way, the company can see how it contributes to the sustainable future envisioned in the Green Deal or other sustainability programs.
DX helps reduce negative environmental impact
Digital solutions provide companies with visibility into their impact on the environment. This information makes the business better equipped to create ESG-friendly growth strategies.
DX helps collect data necessary for measuring ESG performance and create audit-friendly reports
The digital solutions implemented across the company help businesses track specific metrics and turn the raw data into visualized reports.They simplify business analytics for strategy development, allow auditors to assess performance, and help the company estimate the effectiveness of its sustainability practices.
DX improves the company's investability
While there's no direct prohibition on investing in non-sustainable businesses, investors will be more likely to fund projects that comply with ESG practices and disclose them. Why? Having sustainable projects in their portfolio gives them more credibility. Moreover, it will be easier for investors to report ESG on the investee companies as the latter can simply share data that has already been collected. As a result, it can lead to more sustainable, investor-friendly business models.
DX has an extensive social impact
The right digital tools help companies improve transparency, facilitate stakeholder engagement, and ensure accessibility. They also enhance team collaboration, especially along the supply chain and with third-party vendors. Moreover, they allow various employees to participate in sustainability initiatives, contributing to a more inclusive workforce. Providing digitalization and eliminating the need for human input also helps prevent corruption and cultivate strong corporate ethics.
These benefits span beyond improving the company’s financial performance. So, let's review what technologies can help you reach the benefits and enable business-wide digital transformation for ESG practices.
Read more: Digital transformation: Top case studies
Top 6 technologies for ESG and digital transformation
The choice of tech stack and solutions will depend on factors such as existing tech infrastructure, industry, ESG goals, and reporting requirements. However, there are a few technologies that should be included in the business's DX strategy regardless of the industry. From our experience of working with various-sized organizations from finance, manufacturing, logistics, and other domains, these are the technologies to help you achieve effective ESG and digital transformation of your business.
1. Artificial Intelligence (AI) and Machine Learning (ML)
AI and ML help businesses collect, analyze, and report ESG data efficiently, facilitating informed decision-making and meeting stakeholder expectations. There are plenty of AI/ML use cases that benefit digital transformation and ESG, such as:
- Data collection and processing automation;
- Climate risk assessment;
- Eco-friendly product design;
- ESG training courses;
- Chatbot-based ESG scoring system for evaluating the ESG performance of companies;
- Pattern analysis of machinery, human behavior, and resources to identify where the resources could be used more efficiently;
- Automated ESG score assessment platforms;
- Trend identification;
- ESG data validation for further audits;
- Business-wide process automation to reduce the use of resources;
- Green investing.
Organizations can use AI and ML to improve their ESG initiatives, make data-driven decisions, manage risks, and promote sustainability and responsibility. Plus, it helps businesses operate more efficiently.
For example, we used Generative AI to help our client from the financial industry automate manual tasks. We custom-created an internal AI-based portal that served as a single source of truth for the company's policies and a platform for automated email writing, JIRA task creation, and application description. This portal helped the company decrease employee workload, reduce errors, and improve productivity.
2. Cloud
Switching from on-premises to cloud or hybrid environments helps businesses use their infrastructure more efficiently, reduce the tech team's workload, and manage idling resources better. With the cloud, companies can start their GreenOps operating model to improve the efficiency and financial performance of cloud computing infrastructure while minimizing the environmental impact of cloud usage.
Cloud is useful for various sustainable practices and activities, such as:
- Smart grid setup and management;
- Resources optimization;
- Real-time data analysis, visualization, and reporting with cloud-based SaaS;
- Democratized access to ESG measuring tools;
- Improved integration and decentralized management;
- Managing idling resources and services in the industrial and private setting.
Major cloud providers, such as Microsoft and AWS, already have solutions for Azure and AWS users seeking sustainable cloud solutions. For instance, Microsoft has Cloud for Sustainability SaaS that helps its users deliver sustainable IT systems, enable ESG data intelligence, improve ESG performance, and ensure sustainable scaling and growth. AWS offers a Data Exchange program that allows integration with third-party reporting software into the AWS cloud, resulting in a streamlined data processing and reporting process.
At N-iX, we also have a case in point that proves cloud usability for large-volume data processing and analysis. For our client, a tax service provider operating in over 100 countries, we developed a custom module for the client’s platform to automate the property tax calculation process and speed up tax analysis. It allowed platform users to extract data and generate reports automatically, helping the company reduce calculation errors and avoid reputation damage associated with them.
Read more: Digital transformation in retail: benefits, challenges, and implementation
3. Internet of Things (IoT)
IoT allows companies to improve the connectivity of their devices and systems across the value chain. IoT is critical for collecting and processing data from sensor-based devices to measure GHG emissions, water, and energy consumption. It's also used for the following activities:
- Environmental monitoring and weather forecasting;
- Supply chain tracking and visibility;
- Waste management;
- Employee health and safety;
- Data collection;
- Product lifecycle tracking.
Paired with cloud solutions and AI/ML, IoT facilitates precise data measurement, collection, and processing, which is necessary for quality ESG reporting.
4. Robotic Process Automation (RPA)
ESG and digital transformation should also include company-wide adoption of Robotic Process Automation. RPA is essential to decreasing manual labor across the facilities, automating routing processes, and improving data collection. RPA can improve the company's performance regarding such activities as:
- Data aggregation, compilation, and processing;
- Data validation and cleansing;
- Waste management;
- Processes digitization;
- Paper usage reduction;
- Customer support optimization;
- Workload reduction.
Automating data collection and processing ensures your business can source and report qualitative and quantitative information according to the ESG reporting requirements.
5. Computer vision (CV)
Computer vision involves processing images retrieved from camera-based devices, such as CCTV cameras and scanners. With an integrated CV, the company can enhance its risk management, expand its data reporting capabilities by adding visual information, and automate facility monitoring. In addition, it helps businesses with:
- Real-time monitoring;
- Accelerated image processing;
- Resource and inventory optimization;
- Natural disaster management;
- Environment protection;
- Visual reporting;
- Satellite data processing;
- Threat identification;
- Automatic data conversions (from image to text and vice versa).
Adopting CV-based solutions for ESG purposes would help businesses improve the working conditions for their employees, monitor the facility's safety and environment, and access visual data for ESG reporting. It can also improve the company's operations.
For example, we helped our client, a Global Fortune 100 multinational engineering and technology company, to streamline inventory management across its 400 international warehouses by integrating CV into its logistics management platform. The cameras track and identify packages, enhancing inventory visibility and providing the company with real-time tracking and delivery data.
6. Blockchain
Blockchain can help CSRD-compliant companies improve GHG emissions' transparency and traceability. By utilizing smart contracts, companies can monitor real-time carbon footprint reduction across their value chain and track their progress toward achieving Net-Zero goals. Blockchain can streamline and improve:
- ESG data tokenization;
- Identity verification;
- Data traceability;
- Peer-to-peer energy and carbon token trading.
By leveraging blockchain, organizations can boost the visibility, traceability, and responsibility of their ESG and digital transformation initiatives. They can also prevent greenwashing (deceptive marketing to make their products seem environmentally friendly) and bluewashing (misleading marketing that exaggerates a company's dedication to responsible social practices).
These are just a few examples of technologies used widely across the industries. However, when you create a digital transformation strategy for ESG reporting, the choice of tech stack will depend on your existing tech infrastructure, business needs, and reporting requirements.
Let's see the most common examples of digital transformation for ESG.
Read more: Digital Transformation in Finance
Top 10 use cases of digital transformation and ESG
ESG reporting requires retrieving quality data, so the digital transformation should focus on adopting solutions and processes that enhance data processing and visibility. From a long-term perspective, the business should also adopt tools that will help optimize its resources along the value chain.
Here are a few industry-agnostic examples of DX that businesses can adopt to streamline their ESG reporting and make their environments more sustainable.
1. ESG data analytics and reporting software
With analytics software, companies can process vast amounts of ESG-related data from various sources, such as sustainability reports, legal news, and publicly available sites. It will help assess investees' ESG performance and reputation and make informed investment decisions. Such software can also streamline the collection of ESG data and on-demand report creation for regulatory compliance and investor disclosure.
2. Stakeholder engagement and management platforms
These tools help build more effective stakeholder engagement plans, improve stakeholder relationships, and facilitate two-way communication and feedback on sustainability initiatives.
3. Cybersecurity and ESG data protection tools
Some ESG data, such as employees' records or partner information, is sensitive and requires bank-grade protection. With robust cybersecurity, companies reduce the risk of data leaks and the consequences it can have for their reputation and budget.
4. IoT and smart sensor tools
These solutions help companies monitor their water consumption, CO2/GHG emissions, energy consumption, emissions, and resource usage in real time. This data helps optimize operations for sustainability, reduce waste, improve energy efficiency, and report resource usage according to the CSRD and ESRS.
5. Resource management platforms
Manufacturers implementing digital energy management systems to monitor and control energy and water usage in their processes have better visibility into resource consumption. These systems help reduce resource waste and lower energy costs.
6. Software with predictive maintenance algorithms
Businesses can improve their machine health analytics with algorithms that proactively predict equipment failures and schedule maintenance. It reduces downtime, prolongs equipment lifespan, minimizes resource waste, and cuts repair costs.
7. Supply chain management platforms
AI-powered algorithms optimize supply chain logistics, reducing transportation emissions. They also improve supply chain transparency, enhance traceability of raw materials, and ensure partners' adherence to ESG standards.
8. Single source of truth (SSoT) repository
ESG data will come from internal and external sources. The tools that help create SSoT dashboards will provide a comprehensive view of the organization's ESG metrics. They enable stakeholders to access real-time data and track ESG performance against sustainability goals, KPIs, trends, and targets in a user-friendly format.
9. Employee wellness tech
Manufacturers can improve employee well-being by investing in digital tools like wearable health monitors and safety tracking systems that ensure a safe and socially responsible work environment. In addition, the companies can develop integrated employee wellness apps to help workers reduce stress, engage in social activities like yoga or training, and receive health consultations.
10. Employee training and development platforms
Global initiatives, such as the Green Deal Industrial Plan, stress enhancing employees' skills, thus encouraging manufacturers to utilize e-learning and digital training platforms to achieve this goal. The companies may use learning platforms and resources to promote ESG responsibility among the workforce.
Adopting these solutions will improve the financial company's reporting and due diligence. In addition, they'll help choose sustainable businesses to invest in and form long-term partnerships.
How can N-iX help you transform your business and ensure ESG compliance?
With a proven track record of assisting various-sized companies in achieving successful digital transformations, N-iX empowers businesses to thrive in the digital age. For over 21 years, N-iX has helped global enterprises plan and implement their digital transformations. As a global software development and consulting tech partner for industry-leading organizations and 30+ Fortune 500 companies, we design, develop, implement, and integrate solutions that allow businesses to innovate their processes, comply with various requirements, and improve operational efficiency.
Partnering with N-iX for ESG and digital transformation ensures access to over 2,200 tech professionals. Our services include product design, cloud transformation, DevOps & SRE, data analytics, AI, IoT, RPA, and enterprise platforms.
Leveraging a data-driven approach, we transform your data into actionable insights, enabling advanced analytics and facilitating informed decision-making. Furthermore, our scalable solutions, led by cloud and DevOps experts, facilitate seamless system migration and ensure uninterrupted performance, ultimately driving sustainable revenue generation and business growth.
Final thoughts
The synergy between ESG and digital transformation is evident across various domains. Digital tools and technologies empower businesses to minimize environmental impact, enhance data security, and foster stakeholder engagement. Conversely, organizations must ensure that their DX strategies align with ESG priorities, upholding sustainability and responsibility principles.
Data science, Cloud, IoT, computer vision, Blockchain, and RPA will power your business with tools that give a holistic overview of your business's environmental, social, and governance impact. The N-iX team is ready to consult, develop, and integrate tech solutions that would ensure growth. Contact us, and let's discuss the digital transformation strategy that would improve ESG compliance and help you become a more sustainable business!
