ESG for Technology, Technology for ESG

1. ESG Consulting Services WHITEPAPER ESG for Technology, Technology for ESG

2. ESG Consulting Services Understanding ESG is crucial in driving business continuity. Over the last decade, the impact of Environmental, Social and Governance risk factors on the global economy has been immense and multi-faceted. Toward the rapid growth of economy, one of the major contributors has been the technology sector. Over the years, we have witnessed technology play a dual role, both as an enabler of ESG and as a major economic sector compelled to understand the importance of ESG. On one hand, it is the lifeline of major business segments, revolutionizing the way corporates function. Breakthrough innovations and trends have changed the way ESG is integrated as an essential measure for meeting corporate sustainability goals. On the other hand, due to some of its most revered contributions, the technology sector demands for a greater degree of attention on the impact on its stakeholders across the value chain. With global attention toward the non-financial aspects of business, the technology space has major ESG concerns such as growing energy consumption, tax transparency, anti-competitive behavior, business ethics compliance, and employee working conditions, to name a few. These issues have, in turn, sparked a series of controversies that reveal gaps in the technology sector’s adaptation of ESG. Creating Momentum via Structural Drivers of ESG In the last decade, the technology sector, like most other sectors, witnessed the ESG wave in the economy. With investor interest in ESG along with data-driven analysis on the enhanced performance of corporates due to the adoption of ESG, a number of corporations took up this experience head to become leaders in the sector. The top tech giants of this century such as Alibaba Group, Microsoft, and Alphabet have secured their business resilience via holistic integration of ESG. These are such organizations that have kept themselves ahead of the dynamic ESG trends witnessed in the technology sector and have leveraged their internal capabilities to manage ESG initiatives. For instance, Microsoft’s net-zero targets are an industry-wide best practice, whereas Amazon has one of the most valuable employee volunteering programs. Corporates are now often expected to go beyond their own operation, addressing the broader impact on climate and society. Such forward-looking statements from large corporates have been shaped by stakeholder expectations. With the dawn of the information age, consumers find themselves in an empowered position where they expect corporates to address and communicate the short-term as well as long-term impacts of their direct and indirect operations on them. Elaborate disclosure frameworks have been developed in parallel to address multi-stakeholder needs. With such forces in play, it becomes more important than ever for corporates in the technology sector to solidify their commitment toward ESG. 2 ESG for Technology, Technology for ESG

3. ESG Consulting Services Far-reaching Consequences of ESG on Tech Companies While there are various ESG factors that tech companies need to be aware of while ensuring a holistic ESG alignment, few concerning incidents have repeatedly come to light. These incidents portray the liabilities of capitalizing on technology without considering its ESG impact. Keeping up with Energy-demanding Computing Potentials: With the advancement of technology, a number of new products and devices have come into the market with better computing potential. This has led to an increase in the average energy demand ever witnessed in the history of mankind. In 2020 , 36% of the global energy was consumed by communication networks, 30% by data centers, and 34% by computers. With an unprecedented potential to innovate and produce at scale (also a boon of technology), consumers are looking for newer options, thereby contributing immensely to the e-waste streams rising from conspicuous consumption. However, the adaptive potential of technology led to finding suitable solutions. Recently, we witnessed a huge uproar around the energy needs of cryptocurrency servers. Also, Elon Musk expressed his concerns around it on Twitter. This did not stop El Salvador from integrating cryptocurrency as one of its legal tenders. It used geothermal energy from its volcanoes to mine the digital currency. Potentially Adverse Social Developments Fueled: Technology’s potential for fostering ideas and providing a medium to enable its implementation makes it a useful tool for advancement and integration in our daily lives. Humans can now live ‘online’ with the human ‘profile’ being replicated on online forums for a variety of applications from banking to gaming or even dating. Nevertheless, these boons of technology have also triggered a series of concerns regarding cybersecurity, data privacy, identity threats, equal representation etc. The hardware and semiconductor subsectors are more exposed to social risks such as criticism over labor management, poor working conditions, and lax occupational safety standards particularly in Asia. Archaic Regulations Coping with Dynamic ESG Needs: Given its dynamic nature, the speed at which technology is redefining itself does not quite match the speed at which the general know-how and regulations around it are developing. These regulations do not consider a wholesome outlook for containing the negative effects of technology even for its major stakeholders. Leading tech giants such as Apple, Amazon, and Facebook are said to indulge in anti-competitive and unfair trade, which is testament to the fact that the existing laws and regulations for the technology sector can be considered archaic. Efficient governance structures have the capability to ensure optimum consideration of ESG risks in any corporate. For companies in the technology space, it is crucial for the governing body to institutionalize crucial aspects of ESG such as implementation of business ethics codes, consideration of sustainability targets in remuneration structures, setting up efficient monitoring and evaluation systems, management of systemic risks, etc. A strong governance pillar enables technology companies to manage its way through various unforeseen disruptions. A Challenging Journey Ahead The road toward ESG adoption, though crucial and rewarding, has its own challenges. While a number of leading tech giants have tossed their hats in the ring, a majority of companies are still struggling in their efforts. Companies in the technology sector have their own set of roadblocks that make this journey challenging. The lack of standardized reporting formats and general contextual know-how for tailored ESG integration often prevents corporates from adopting holistic ESG practices. Their elaborate and varied supply chain network make it difficult to find authentic data sources and efficient monitoring systems. However, domain understanding coupled with technical know-how as well technological intervention serves as a potential solution to combat the challenges mentioned. 3 ESG for Technology, Technology for ESG

4. ESG Consulting Services Technologies Powering ESG Big Data: Big Data in ESG is considered one of the megatrends of the century. Data technology and our ability to analyze large ESG data sets have galvanized decision-making capabilities across stakeholder groups. Artificial Intelligence and Machine Learning: Artificial intelligence allows analysts to collect and digest more information than ever before when accounting for ESG factors. It has proven to be evidently useful in tackling the lack of transparency in ESG investing. Blockchain: Originally developed for monitoring cryptocurrency usage, the blockchain network allows for unmatched levels of traceability and accuracy, proving to be a useful tool for maintaining transparency across the value chain of an organization. The technology sector has continually shown resilience toward modern day business dynamics. Its adaptive nature ensures that for every roadblock, there is a quick turnaround to the problem utilizing technology. A major shift in paradigm is being witnessed where corporates are going beyond providing a mere historic account of their quantitative performance to a declaration of their forward-looking commitments toward meeting major ESG goals. Major technological trends have made huge breakthroughs, allowing greater levels of transparency and accountability throughout the value chain of a company. • the creation of central data repositories, which has revolutionized the way we store and access data across global networks. • of IoT deployments have the potential to address UNSDGs. IoT fuels real-time impact monitoring, allowing swift decisions to be made regarding crucial ESG impact, and flexibility and precision while monitoring ESG initiatives and impacts. • • • Cloud Computing: Cloud computing has enabled IoT: According to the World Economic Forum, 84% As we move into the fourth industrial revolution, we are witnessing the capacity of resilient technologies to benefit the adoption of ESG across industrial sectors. An examination of more than 160 studies by Deutsche Bank found that 85% of businesses that took ESG seriously tend to benefit from better financial performance. Furthermore, they discovered a strong positive correlation between investor enthusiasm and stock market performance for businesses that maintained good ESG management. With technology in the picture, this management becomes even smoother and accountable. Technology’s dual role for ESG is a vantage point for observing the potential developments in business world. A perfect blend of technology and ESG co-existing in synergy would soon turn out to be the next by-word for business resilience. 4 ESG for Technology, Technology for ESG

5. ESG Consulting Services About the Author Pallavi Singh • AVP, ESG Solutioning With over 12 years of experience in sustainability research, ESG and climate change management, Pallavi has worked with many leading corporates and international financial institutions spread across geographies to manage ESG related aspects starting from maturity assessment to roadmap development. She has provided consultancy in enterprise sustainability performance management and has led many projects involving technology enablement for corporates. Contributor Akhyata Pattanaik • Analyst, ESG Research With passion for sustainability fuelling her solution-oriented inputs, Akhyata is an inquisitive ESG professional with first-hand experience of working on a wide range of sustainability projects. Her areas of expertise have been developed working on varied engagements ranging from impact monitoring and assessment to providing insightful and bespoke ESG solutions for custom research projects. Disclaimer This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by SG Analytics (SGA) and is not intended to represent or get commercially benefited from it or imply the existence of an association between SGA and the lawful owners of such trademarks. Information regarding third-party products, services, and organizations was obtained from publicly available sources, and SGA cannot confirm the accuracy or reliability of such sources or information. Its inclusion does not imply an endorsement by or of any third party. Copyright © 2021 SG Analytics Pvt. Ltd. www.sganalytics.com GET IN TOUCH New York | Seattle | Austin | London | Zurich | Pune | Hyderabad 5 ESG for Technology, Technology for ESG