• Namrata Rana, Partner |
4 min read

As businesses continue to mull over the best ways of adopting artificial intelligence (AI), one cannot overlook its role in helping streamline key processes across sectors. When applied mindfully, a powerful digital technology like AI can be immensely useful in helping businesses meet their environment, social, and governance (ESG) goals for a longer-term impact, thereby contributing to climate change mitigation.

Today, business leaders around the world and in India, are aware that E, S, and G are extremely important for ensuring the longevity of their financial success. Findings of the KPMG 2023 India CEO Outlook, show that CEOs increasingly recognise ESG for what it is - an integral part of their operations and corporate strategies - for building productive sustainable businesses. To this effect, 69 percent of global CEOs have fully embedded ESG into their business to create value, and 54 per cent of CEOs in India have done the same.

Balancing ESG goals with profitability ambitions is a tremendous challenge for companies. Quantifying ESG performance and progress towards the targets through pertinent ESG disclosures are critical at a time, when both stakeholders and regulators, expect relevant and accurate data, at par with financial disclosures. Companies in India are making concerted efforts to reveal their ESG performance, however, articulating a convincing ESG story to stakeholders remains a challenge. The rising inquisition into companies’ ESG commitments and their results has compelled CEOs to focus on improving transparency and performance in meeting these goals and avoiding greenwashing. There are many ways in which AI tools can help them make progress on their near-term ESG ambitions.

At the World Economic Forum (WEF) Annual Meeting in Davos early this year, political, business, and civic society leaders, who converged to discuss the benefits of using AI for ESG reporting agreed that CEOs should embed AI in their ESG governance and reporting model, but with a democratic and a more human-centric approach. It is crucial to have a systematic, data-driven approach that prioritizes data integrity for ESG reporting. Additionally, we  must also remember that Generative artificial intelligence (Gen AI) in itself, uses massive amounts of energy and there has to be a way for this to be addressed and ensure there is accountability.

What this means is, that while we measure emissions of the business, we also need to be mindful of the emissions of the technology in use, so that benefits from one are not undone by the other. It is important therefore to have Realtime data on scope wise data dimensions among other factors in a transparent and sustained manner.

Moving on to automation, several businesses are already reaping the benefits of AI-powered ESG report automation. Companies have adopted AI to collect and evaluate data on its employees, customers, and supply chain, ensuring that their operations are ethically and socially responsible. Furthermore, a leading provider of trading, clearing, and exchange technology, launched an AI-powered ESG data platform to help both companies and investors track ESG metrics more accurately and reliably.

With sustainable business practices regarding ESG assuming critical importance in boardrooms, there is a compelling business case for companies to work towards aiding sustainable capitalism and green initiatives. Sustainable supply chain management is one of the most enormous areas of concern for multinationals. Implementing AI tools can assist in and support for compliance / code of conduct monitoring and reporting. Assessment of risk via modelling the climate impact of a company’s operations or an investor’s asset exposure is also gaining ground.

As we mark Earth Day 2024, one cannot, but emphasize the importance of corporates as one of the frontrunners in the global fight against climate change. Harnessing the potential of AI-based digital solutions will help predict, develop, analyse, and report timely data and manage stakeholders, which is essential to the business. What will be even more important in the future is, making sure that the development of the next generation of AI tools for business use, does not come at the expense of the health of our planet.

There is no running from the lucrative power of the AI-ESG collaboration in the future, but what corporates would also have to keep in mind is, though AI is the future due to the many benefits it brings, they would have to find ways to ensure that the AI-ESG collaboration, can be made more sustainable in the long run.

A version of this article was published on The Economic Times Insights.com on 22nd April 2024

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