It's 2040 and environmental, social and governance (ESG) requirements have become incredibly sophisticated, and standardized global measures are now mainstream across business, government and broader society. The rise of digital personas has elevated the urgency of conversations on transparency and privacy. Today, transparent ESG reporting is a baseline expectation through the values-based economy, with ESG ratings now the global watermark of how society assesses business performance.
Organizations and individuals have become more aware of the impact of technologies on human rights, and leaders are evaluating these impacts at the earliest stages of technological innovation. The self-reporting and agency auditing models have given way to continuous measurement trust challenges of digitizing work and social activities. Today, all organizations build trust with their stakeholders through transparency and data certainty.
For example, the legal profession has experienced a significant upheaval as legislators crafted new laws to govern everyday events in digital environments that extend our rights to privacy and safety to the digital world. Fundamental shifts in how people interact has fueled the expansion of the metaverse, and questions have emerged about how to manage and regulate digital personas. Governments and industries worldwide have considered the question of equality in the hybrid world and the environmental implications of the infrastructure required to support an ever-expanding metaverse. Automatic tracking scores for digital behavior are the norm across platforms, and consumers can even sell the digital rights to their personas if they wish.
The appetite for all things ESG is widespread, facilitated by the evolution of technology and digitization, and companies are battling to surpass one another to meet and exceed stakeholder expectations. Inevitably, continuous ESG monitoring and reporting obligations became mandated some time ago on both national and global levels. Businesses quickly realized that prioritizing ESG was a critical success metric -- leading to improved access to capital, an increasingly loyal customer base and a dedicated workforce attracted and retained through improved practices and demonstrable changes in understanding of what was important.
High-profile reputational incidents involving major organizations have led stakeholders to react quickly and ruthlessly toward businesses that have failed to prioritize their ESG agenda. In many countries, poor ESG performance has led to widely publicized penalties and heavier taxes, which have paled in comparison to the long-term reputational damage they experienced.
Why did this happen?
The early part of the 21st century brought substantial change in societies worldwide. Social media and increased access to unfiltered information highlighted social and racial injustice, spawning powerful international movements such as #MeToo and Black Lives Matter. Over time, these movements have forced organizations to take more accountability for their actions.
Growing environmental impacts from the power used to fuel cryptocurrency transactions and an ever-expanding multiverse has led to technological advancements in green computing. A compelling shift in consumers' mindsets towards environmentally conscious behavior has taken place. In a 2020 IBM consumer survey, Meet the 2020 Consumers Driving Change(1), 57 percent of global consumers stated they would change their purchasing habits to decrease the negative impact on the environment and this has definitely happened since the survey too place.
Generation Z and millennials have played an essential part in underpinning these societal and regulatory shifts. As customers, they have demanded more from organizations and insisted on increasing the ESG focus. Social media and digital platforms have made it easy to identify those companies whose practices didn't align with their values. bringing more conscious practices to their workplaces around equity, diversity, inclusion and environmental initiatives. This grassroots momentum has forced governments worldwide embrace regulatory initiatives.
Once it became clear that ESG exchange-traded products (ETP) outperformed non-ESG ETP, the capital markets stood up and took notice. Today, regulators require that all publicly traded companies share their ESG rating. No certification, no floating.
Things didn't happen overnight, but the unprecedented change in the world's regulatory posture and the expectations for equality and social outcomes has transformed society. No company conducts business the way it did 20 years ago, and ESG prioritization is now a commonly accepted competitive advantage. The global mindset has changed, with society now acknowledging its historical role in destroying the natural world. And this acknowledgement has led to significant technological innovations in carbon-positive products. The world is now closer to achieving its net-zero targets much sooner than anticipated.
Despite the rapid advancements of the last 20 years, there is still much to be done.
While the values-based economy and continuous monitoring of ESG metrics have transformed business models and workplace culture to one that promotes activism on social and environmental issues, some industries and organizations still haven't risen to the challenge.
Many have discovered loopholes that allow them to reap the benefits of a high ESG rating without committing to positive change. Over the next 20 years, these loopholes need to be closed, driven by community and stakeholder awareness, engagement and action.
1 “Meet the 2020 consumers driving change: Why brands must deliver on omnipresence, agility, and sustainability." IBM Institute for Business Value. December 2019. https://www.ibm.com/thought-leadership/institute-business-value/report/consumer-2020
This article was originally published on kpmg.com.
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