The ESG Opportunity

ESG Opportunity

By Nish Kotecha

One of my favourite movies of all time is Oliver Stone’s 1987 Wall Street. I believe I know all the lines off by heart but the one the that stands out most is Gordon Gekko’s insightful speech “Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.” It seemed that the corporate purpose was clear before ESG muddied the waters.

Unfortunately, a lot of ills were hidden behind the profit motive. Choosing short term returns over longer term sustainability was acceptable, however, the current modus operandi has shifted in the opposite direction. The challenge is how corporate leaders navigate these new waters that makes them both profitable and futureproof.

ESG is not a tickbox exercise but a new paradigm. But not all businesses see it that way – many still believe it’s a checklist or worse a form that needs to be filled in. While more forward-thinking leaders are starting to recognise the value of ESG in giving them a competitive advantage.

Either way, ESG is here to stay and those seizing the opportunity will derive long term economic benefit of being part of the new paradigm.

Environmental concerns are now one of the most important considerations for all businesses. I do hope we are beyond questioning climate change and instead continually considering how we may adapt to neutralise the effects and reduce our environmental footprint.

The business risk of climate change can be akin to the experience of the Pandemic. The Pandemic has put a huge spanner in the works on how we do business, particularly when most of our operations were designed to be quick, efficient, and low cost. These efficiencies were put under severe strain, and once relied upon links were found wanting.

The business risk of climate change can be akin to the experience of the Pandemic. The Pandemic has put a huge spanner in the works on how we do business, particularly when most of our operations were designed to be quick, efficient, and low cost.

Adding resilience usually means adding redundancy which is likely to increase, rather than reduce, our environmental footprint, unless one can manage operations differently – for example by exploiting synergies and minimising duplication. This requires the use of digital tools right from the start of designing a new supply chain fit for the future. This will not be the last pandemic or disruption to the business world as we know it (e.g., trade barriers, sanctions and the popular politics of nationalism). These hurdles will remain long after we have all been vaccinated.

We have seen two years of digitalisation in two months in the words of Satya Nadella, Microsoft’s CEO and the trend is accelerating. This is no surprise because when one entity invests in a new digital platform, the ecosystem then has little choice but to do the same.

Trusted data is the key, and potentially a competitive differentiator. Enterprises need to throw away their reliance on spreadsheets and phone calls and move to a platform of trusted data. This brings synergies and synergies across stakeholders, which if implemented effectively, can reduce their environmental footprint. If we cannot trust the data that we use, how can we make claims about our ESG standing?

Imagine if we were all found to be exaggerating our decarbonisaton claims? The damage would be irreversible. Remember the Volkswagen emissions scandal? Consumers are being asked to submit their compensation claims… I wonder how much Mother Nature stands to claim?

The rebuilding of our supply chains will help bring about widespread acceptance of blockchain as a technology that enables cross-enterprise transformation and digitalisation.

Blockchain technology offers transparency and creates the supply chain agility required in the new normal. For companies, blockchain can be used as a private permissioned framework for a group of stakeholders, such as suppliers, customers and regulators, to manage the sourcing, production and movement of goods dynamically throughout the supply chain. Unlike, public blockchain networks, private ones could be more efficient than current legacy systems when you consider the amount of processing, time and money spent checking the data.

Data need not be only outward facing. In fact, updating internal data architectures are arguably the best place to start. Trust in data can be called under question within large enterprises where duplication and doubt leads to delays, cost and inefficiencies as data is checked.

Trust in data can be called under question within large enterprises where duplication and doubt leads to delays, cost and inefficiencies as data is checked.

Moving to a common data platform that transcends internal and external data flows seems the way forward. Blockchain can hold the answer. If your workforce trust what you are saying and understand how you are evidencing your public claims, this can be a foundation in achieving your social goals which considers labour relations, diversity and inclusion and the community in which you operate.

Turning to Governance: establishing how companies are managed, their controls and procedures and if they are operating within the law can also be done by blockchain. Reducing the risk that claims are made without evidence or accountability or where issues arise, they can be audited.

The ESG triangle needs to be optimised through the common thread of data quality and trust. This can only happen by rebuilding our operations using blockchain technology to act as a trusted database which evidence claims and ultimately holds companies to account.

Those who take the pandemic as an opportunity to reengineer their business processes will find themselves with a competitive advantage against those remain focused on short term survival. Regulators, consumers and mother nature are demanding that sustainability replaces short term profit as the objective while you rebuild the organization from bottom up, one digital brick at a time.

Think about the Titanic – the boat was simply too big, too bulky and too slow to make the turn once they saw the iceberg. Sitting on the deck, oblivious to the pending disaster may sound like scaremongering but if we continue to move at our current pace, the window to avoid disaster is narrowing fast.

Adapting for ESG will deliver survival as well as a competitive advantage: both are intertwined. Enterprises need to become agile, adaptive and capable of reinvention at a rate never seen before. This starts by rethinking the tools and resources that you have to support a flexible approach to everything you do – from working location, to sourcing to communication (internally to your workforce, externally to your suppliers, customers, regulators and so forth). Most importantly, replacing damaging operational processes to ones which put Mother Nature at the centre of businesses.

Fellow Wall Street fans will remember that Gekko was unable to change his short termism approach with Blue Star airlines contrary to his presentation to the workforce. It was curtains for Gekko when he was found out, much as it will be for corporates who fail to see ESG as an opportunity that also gives them a competitive advantage that will ultimately determine their survival and secure their future.

About the Author

Nish Kotecha

Nish Kotecha is a Co-founder of Finboot – a technology company that gives its customers a competitive edge through accelerating their digital transformation, realising value and building trust through blockchain. Finboot has developed MARCO, an ecosystem which brings together blockchain technologies in one place, connecting multiple ledgers simultaneously. It enables companies to incorporate blockchain within their value and supply chains, bring traceability, transparency and compliance which, in turn, helps them meet sustainability and ESG requirements while also increasing operational efficiency. Finboot is headquartered in the UK with a base in Spain.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.