Imagine how useful it would be if every good or service purchased came with a tag that shows the amount of greenhouse gas (GHG) emitted to produce and deliver it. How about the ability to drill down through the supply chain to isolate where those emissions came from and how the emissions could be reduced or eliminated? We don't have to stop at carbon emissions. Think about the impact on your business if you had access to this level of data on child labour, the gender pay gap, biodiversity impacts, air pollution, and water use.
Managing sustainably requires more evidence than contained in conventional accounting systems. It requires data on the predicted and actual social or ecological consequences of decisions. This data is necessary but may not appear on invoices or receipts. But this does not mean that it does not exist or can't be harnessed.
One of the key features of the digital revolution is the availability and usability of data on almost everything we do. In some supermarkets, smartphones can now scan a bar code and instantly receive a comprehensive sustainability ranking of that product. New possibilities are also fuelled by the growth of open-source databases of environmental impacts such as Climatiq. The company's GHG conversion factors — which convert activity data into the equivalent GHG emissions — mean that previously complicated tasks such as calculating the climate change impact of a business decision are now simple and automatable.
Technology has given us a greater capability to connect business actions with their positive or negative social and ecological impacts. This data fills in critical knowledge gaps in accounting formation systems and is needed to evaluate the sustainability of products, actions, and future strategies and plans.
Further, these new technologies can be connected to your current data systems in many different ways. It is precisely this connectivity that will help businesses see new sustainability opportunities and evidence that will improve decision-making. Here, I share a few things to keep in mind as you consider using these emerging technologies to improve sustainability of your organisation and to manage risks.
Identify the missing information to mitigate risks
A good starting point is to assume that you, or any stakeholder, can get data on any social or ecological impact of the organisation. The sustainable development goals (SDGs) provide a useful guide to the types of impact you might need to consider. Details on the SDGs are provided in recently published CIMA toolkits and the AICPA & CIMA report Accounting for the Sustainable Development Goals.
You can then do an audit of your business information systems to identify missing or poor-quality data (see the table below). This audit should include an evaluation of the risks to your business of remaining ignorant of, or others uncovering, these impacts, considering the business case for searching for and integrating any missing data. Reputational risks need to form part of this evaluation. In the current climate, how would your business be affected if it was uncovered that a supplier was involved in systematic deforestation?
This is because anyone with a smartphone can download live satellite images of your factory and your suppliers and monitor vehicle movements or smokestack emissions. Remote indigenous communities in Nigeria can share real-time videos of oil leaks and damage to rivers with the rest of the world. Company claims on tree planting or recycling rates can easily be audited or challenged by community groups using satellite imagery or geotagging.
Businesses should explore whether many of the risks they face can be avoided or mitigated through the use of emerging technologies and new data possibilities. If businesses can evidence the provenance of their products and monitor their use and compliance with regulations, this reduces potential lawsuits or reputational damage.
Knowing when factory emissions are likely to breach consent levels allows for cost-effective interventions before ecosystems are irreparably damaged and punitive sanctions are enforced. Imagine the value if a firm could track all of its plastic packaging and prove that none of it had escaped into the oceans.
In the financial services sector, companies have developed automated monitoring tools that scour the internet for content relating to activities of companies to monitor their compliance with sustainability commitments or covenants. Self-monitoring smart contracts automatically enforce financial sanctions for noncompliance or apply differential interest payments on contracts such as green bonds. Sustainable fintech companies are building digital arks to store critical data along with digital applications that allow the possibility of automating the production of corporate reports that comply with different reporting standards at the touch of a button.
Businesses need to identify the potential value of the data they have if it was made usable and sharable with others in the organisation: What data do you hold, why are you holding it, and what else could it be used for?
Artificial intelligence and machine learning technologies
There are numerous tech companies specialising in niche areas of sustainability. Greenvest Solutions uses satellite data to accelerate the adoption of renewable energy, particularly in developing countries. Artificial intelligence (AI) helps identify the best sites for wind or solar, provides near real-time monitoring of operations and social impacts, and forecasts future power demand. Applications for AI-interpreted satellite data extend beyond the energy sector.
Cargill, a food and agriculture company, complements such data with drone-mapping when cloud cover hampers satellites, to monitor and anticipate illegal deforestation on remote palm plantations. AI and machine learning can help to improve the accuracy of accounting data, detect incorrect data and outliers using tried-and-tested statistical analysis techniques, and plug in missing data with techniques such as predictive analysis. AI can also draw on alternative sources of data, such as the internet of things, natural language processing, and sentiment analytics to arrive at more nuanced interpretations and analyses of industry reports. This takes financial statement analysis to new unimagined dimensions.
These alt-data systems are now becoming strategically important and aligned with growing interest in responsible business transformation.
Assess all positive and negative impacts
There is data out there for anyone to use, but businesses need to assume that all impacts, positive and negative, are out there in some form or other.
The consequences of your actions are now visible to all, and you could be held accountable for things you do not disclose in your formal reports. Every business action creates a digital footprint somewhere on the web that others can access and compile into alternative accounts. Your business needs to be aware of the possibility of others providing their own accounts of the sustainable performance of your business, similar to accounts produced by Action on Health and Smoking (ASH) that challenged the corporate social responsibility claims of British American Tobacco.
Databots can be trained to seek out, sort, and compile any digital mention of a business into a database or report. Different databots can be given specific tasks — for instance, products, legal action, supply chain, human rights abuse, and climate change — which should be aligned with strategic priorities and the business model.
Find your digital vulnerabilities
Monitoring your business digital footprint helps fill in knowledge gaps, identifies zones of ignorance, and acts as an early warning system for possible risks. For sustainability purposes it is recommended that you also monitor the digital footprint of your value chain and key stakeholders. What your customers and suppliers are doing (or not doing) can be easily connected to your business, and your reputation can be infected by their unsustainable or irresponsible actions.
Remember your competitors could be undertaking this very same digital search. It is relatively simple to set up a web crawler that tirelessly scours the internet collecting any data on your products, services, customers, investors, or regulatory breaches. Similar tools exist for monitoring social media platforms, which are fast becoming perceived as reliable sources of data. A growing range of digital products is using AI to undertake real-time monitoring and reporting of global environmental, social, and governance (ESG) and supply chain risks.
It is worth undertaking some horizon scanning research to get yourself future ready. CIMA's digital mindset web resource is a great starting point for any digital transformation.
— Ian Thomson, ACMA, CGMA, is professor of accounting and sustainability and director of the Lloyds Banking Group Centre for Responsible Business at the University of Birmingham in the UK. To comment on this article or to suggest an idea for another article, contact Drew Adamek at Andrew.Adamek@aicpa-cima.com.