It is no surprise that climate change is happening. While individuals like us need to do our best to minimize our carbon footprint, it is even more critical for businesses to take more aggressive actions to reduce its impact on the environment. Companies are increasingly incorporating ESG factors in their business strategies and investment decision making – but what is ESG and (in the spirit of our class) how can technology be used to measure and hold companies accountable to their sustainability goals.
ESG stands for Environmental, Social, and Governance and is used to measure the sustainability of an investment. The term was first introduced in the 1900s with the intention to encourage businesses to focus on all three P’s of the bottom line: People, Planet, and Profits, and not just Profit. For this blog, I’ll focus on the “Environmental” aspect of ESG and deep dive into how it can benefit the digital transformation of businesses.
Environmental criteria measure a business’s environmental impact on the earth, such as waste, pollution, greenhouse gas emissions, deforestation, etc. It is also used to evaluate any environmental risks a company might face and how the company is managing those risks. For example, is the company compliance with government environmental regulations, or are there risks related to its ownership of contaminated lands? Unlike values of assets owned or liabilities, environmental impact is much harder to measure and regulate. Fortunately, with technology – we might have some hope.
Technology will allow better measurement of environmental impact
We have talked a lot about cameras and sensor technology in our everyday lives but haven’t touched on environmental sensors. It is a market that is predicted to be worth more than $3 billion annually by 2027. Environmental sensors allow companies to detect, visualize and manage various environmental impacts. For example, Methane is a potent greenhouse gas responsible for 25% of climate change. And the largest source of emission is from oil and gas industries such as ExxonMobil and Schlukberger. These companies work with Stanford and Environmental Defense Fund to uncover the best mobile methane monitoring technology to help the industry manage emotions more effectively. Additionally, a coalition in London uses data collected by environmental sensors to provide locals and businesses with visual tools showing their exposure to air pollution around the city. This study showed that air pollution is the cause of 650,000 sick days each year. It also costs the global economy $225 billion each year in lost labor income.
Additionally, air pollution directly affects our brain, decreasing our cognitive performance and impairing judgment. For example, stock traders in Germany were 10 percent less likely to trade when air pollution levels were increased. Another study of daily data from the S&P 500 index and daily air quality sensor near Wall Street showed that on days with poor air quality, stock returns were lowered by close to 12 percent. Of course, air pollution doesn’t solely impact the productivity of white-collar workers. A National Bureau of Economic Research study showed that workers at a pear packing factory had a 6 percent decrease in packing speed when there was an increase of pollutants inside the factor.
Technology will increase efficiency
New technology will be pivotal to help companies consume less energy, cut down energy bills, and reduce emissions. For example, Google is currently adding a new feature to Google Map to highlight the most environmentally friendly routing. Using data such as traffic, incline, and road type, Google Map can generate the least polluting route and recommend it to the user. Additionally, Google has also been using AI to reduce the amount of energy to cool their data center by up to 40 percent by building more efficient servers and investing more in green energy sources. They are also using machine learning algorithms to predict wind output 36 hours in advance to deliver optimal wind energy to the power grid. Another research by PwC estimated that adaptation of AI for agriculture, water, energy, and transportation contributed up to $5.2 trillion to the global economy, created 38.2 million new jobs, and reduced gas emissions by 4% by 2030.
“Put simply, AI can enable our future systems to be more productive for the economy and for nature,”
– Celine Herweijer, Global Innovation and Sustainability Leader, PwC UK