Environment, social & Governance

Business ESG in 2022: What to expect before COP27

From climate change to technology adoption, Giacomo Lee rounds up what businesses need to know to bring their environmental, social and governance performance up to speed this year. 

Last year ended with the 26th UN Climate Change Conference of the Parties, better known as COP26. The much-vaunted event was fittingly summed up by Energy Monitor as a “self-proclaimed failure”. But what does this mean for the advancement of environmental, social and corporate governance (ESG) in 2022? And how will business and tech react to the climate change challenge in the lead up to this year’s COP27 event in Egypt?

The Glasgow Climate Pact from COP26, as Energy Monitor reported, “admits action has been lacking and the world is not set to meet its climate ambitions”, but “does not offer much in the way of these enhancements.”

Analytics firm GlobalData saw this coming last summer, looking at the lack of action taken since 2015’s Paris Agreement, and finding an opportunity for business to fill the vacuum.

“Every company must recognise that the science is clear, and the need for climate action will only increase,” GlobalData’s researchers argue. “It’s an ‘all hands on deck’ moment that calls for an ‘all of the above’ approach: regulation, voluntary action, technology innovation and self-interested action by companies seeking competitive advantage as they balance near-term and long-term business strategies.”

For all its relative failures, COP26 stressed that both private and public finance is required to fund technology for a low-carbon economy. Every financial decision, GlobalData argues, must take the climate into account. Central banks and regulators, for example, would be wise to ensure financial systems can withstand the impacts of climate change, and factor ESG into all investment decisions.

As of 2021, Sustainable Finance Disclosure Regulation is required by all financial market participants that operate within the EU. ESG reporting will become an expectation in 2022, not a bonus, and the creation of the International Sustainability Standards Board (ISSB) will add clarity to the otherwise confusing world of ESG disclosure. The ISSB was launched by IFRS Foundation Trustees in November to mark COP26.

ESG in 2022: SBTi and the Climate Pledge

This year, companies failing to disclose their ESG performance may face backlash from shareholders as they increasingly demand that companies align with ESG standards.

Market mechanisms are driving the closure of the climate action feedback loop, where companies will increasingly pledge climate action to win stakeholder approval, driving competitive advantage.

The Science-Based Target Initiative (SBTi), an NGO-led effort that recruits companies to set emission reduction targets, will build on the success of 2021 and continue to apply pressure on companies to act on climate change.

This year will also see an increase in signatories to the Climate Pledge, an Amazon initiative under which companies agree to reach net-zero by 2040. As this can be achieved through carbon offset schemes, there will be increasing pressure for the voluntary carbon market to be regulated.

Companies committing to non-credible net-zero targets through offset schemes will face reputational harm. The SBTi and the Climate Pledge will start to hold companies more accountable and require that targets are met.

Social governance in 2022

But there is more to ESG than environmental measures. There is also the hot topic of social governance.

Big Tech companies have constantly evaded accountability for data breaches, fake news and online abuse perpetrated through their internet platforms. After a Meta whistleblower revealed details of Facebook’s impact on users’ mental health, there will be greater pressure to regulate social media in 2022.

Network techniques may also help to detect particular users on social media platforms who are more prone to sharing fake news, and thus try to encourage better enforcement against the content that they share. Greater transparency will be expected from Big Tech companies, and there is growing pressure on regulators to audit the Silicon Valley giants regarding their management of misinformation.

To this end, the UK Government is revising its IT Act and Online Safety Bill, and other countries will likely follow suit. But as Verdict reported last year, current proposals don’t make the cut. The current consensus on the UK’s proposed Online Safety Bill, for example, is that it is a failure, and instead of taking away power from the social giants, it makes US-based Big Tech the gatekeepers of UK online content.

The very companies that the UK is trying to rein in become the arbiters of what speech should be allowed online.

“Service providers will most likely be tasked with removing content and accounts deemed harmful,” Paul Bischoff, privacy advocate at Comparitech, told Verdict last autumn. “It’s not clear whether this will require tech companies to pre-screen content, which has huge implications for online free speech.

“The very companies that the UK is trying to rein in become the arbiters of what speech should be allowed online. It (also) attacks the messenger, punishing social media companies for content posted by users, instead of going after the real perpetrators of harmful content.”

In countries like China, meanwhile, the cover of social governance is arguably (and perhaps unsurprisingly) being used to limit anti-state narratives. While 2022 will see social governance increase, it would be wise to ensure checkpoints for the endgame of such control.

ESG and artificial intelligence

In the fight against fake news in 2022, artificial intelligence (AI) could play a key role. As Henry Brown, director of data & analytics consulting at Ciklum, told Verdict last year, natural language processing  can be “used to detect nuances in grammar, spelling and sentence structure, which in turn may reveal an issue with the original author of an article or piece of content.

“Network techniques may also help to detect particular users on social media platforms who are more prone to sharing fake news, and thus try to encourage better enforcement of the content that they share,” Brown added. “A fake news warning could then be shared with other users on the platform.”

AI detection can also “stamp” content online as sealed, verifiable data. “For example, if a detection algorithm were used on a video uploaded to social media, the results of the analysis could be attached to the video in the same way verifiable assertions like copyright, camera data and edit history are secured,” Andy Parsons, director of Content Authenticity Initiative at Adobe, told Verdict.

ESG and Industry 4.0

The increasing emphasis on ESG will push Industry 4.0 tech like AI to the forefront in 2022, according to GlobalData. Platforms for analysing a company’s environmental impact across its supply chain will become more readily available and easier to integrate into existing systems.

Consumers are also placing greater importance on companies’ environmental impacts. As such, businesses that fail to proactively monitor and reduce their environmental impact with Industry 4.0 technologies will likely suffer.

Many companies also failed to handle the supply chain disruptions that occurred in 2021. Industry 4.0 technologies can help when such disturbances arise by proactively assessing disruptions and providing prompt data-driven strategies.

“Companies that fail to integrate technologies such as AI, digital twins, and edge computing into their systems in 2022 will be side-lined by the next disruptive event,” GlobalData researchers believe.

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