Do tech companies need ESG, or does ESG need tech companies? – Publications

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Insight






September 08, 2022

With Forbes calling environmental, social and governance (ESG) factors “the biggest economic trend of 2021”, many technology companies are at an inflection point as they evaluate the adoption of a full suite of ESG strategies in their overall business plan. There is no one-size-fits-all approach for technology companies, as executives assess many ESG-related factors:

  • Corporate, Investments and Finance (integration of ESG principles into fund creation, investments and M&A transactions)
  • Energy and climate change (investing in clean energy technologies and reducing emissions)
  • Disclosure and enforcement (compliance with changing regulatory and disclosure rules)
  • Pension plans (taking into account ESG factors in investment decisions)
  • Social issues (promoting diverse, inclusive and harassment-free workplaces, pay equity initiatives and ethical supply chains)
  • Securing ESG-related tax benefits (maximizing tax benefits in transactions that achieve ESG objectives)

But companies aren’t the only ones paying attention to the growing world of ESG. As shareholder advisory firms, environmental groups, stakeholders, government regulators, lawmakers, rating agencies and lenders take a closer look at all things ESG, technology companies need to consider some key issues when adopting an ESG strategy.

The E: Environment

  • A decade ago, few companies outside of the energy sector were even measuring their greenhouse gas (GHG) emissions, let alone charting a course toward net zero emissions. But today we’re seeing a sea change, with tech companies releasing detailed reports on what they’re doing to promote net-zero emissions in their products and supply chains. While Europe and Asia have in the past favored a more restrictive regulatory environment, the United States has historically allowed companies to make official statements only on matters material to their business. The current US Securities and Exchange Commission (SEC) is paying much more attention to these corporate reports and has proposed mandating disclosure of environmental actions.
  • Few countries in Asia have yet committed to net zero goals or national strategic plans, while the United States and Europe tend to have more stringent climate regulations in place. Many tech companies in Asia have not released voluntary disclosures related to environmental plans or emission levels, which tends to attract the attention of law enforcement agencies.
  • ESG initiatives in Asia are largely government-led for a broad, top-down approach, as opposed to a more bottom-up and local approach in the United States. The Chinese government faces the challenge of creating a comprehensive strategy that applies to businesses in geographically and climatically diverse regions, from cities ranging from rural to wealthier urban areas with advanced infrastructure, and a population very culturally diverse that includes a multitude of ethnicities and languages.

The S: social

  • The rules around the ‘S’ of ESG are even more hazy, as there is a general push for more diversity from stakeholders and shareholders, but very little in terms of state mandates or government regulations. -United. The same is true in Asia, where diversity tends to focus on gender, not racial diversity. Large multinational corporations, including banks, life sciences companies and technology companies, are driving demand for more diversity-related data. This creates a challenge regarding privacy issues in the collection and use of this data, especially from the employees themselves.
  • By committing to the well-being of their employees, many companies have seen a positive impact on their long-term business by reducing employee turnover and positively engaging with their community. But there are also concerns that raising employee salaries or allocating resources to diversity and inclusion initiatives could reduce a company’s profits, at a time when a number of economies are showing economic uncertainties and less positive economic indicators.
  • After the Uyghur Forced Labor Prevention Law came into effect in June 2022, countries and companies doing business in the Asia-Pacific region are taking a closer look at where they source to ensure that workers across all supply chains are treated ethically. It has also significantly affected tech companies, as several key components of global tech products are manufactured in controlled regions in China.

The G: Governance

  • ESG disclosures are motivated by a number of factors, including to share positive or socially impactful results, to avoid negative public relations, to appease activist shareholders, and to meet contractual requirements. But these disclosures are, in part, driving increased regulations and standards, as there is currently little uniformity in how individual companies report disclosures.
  • In November 2021, the International Financial Reporting Standards Foundation announced the creation of a new International Sustainability Standards Council to develop global ESG disclosure mandates. In July 2021, the Global Reporting Initiative announced that it was working with the European Union on sustainability standards. In June 2022, China released its first ESG disclosure standard, the Guidance for Enterprise ESG Disclosure, which places a strong emphasis on Chinese laws, regulations and policies. Other countries in Asia, including Singapore, Hong Kong, Japan and India, have issued new or more stringent climate change or sustainability reporting requirements for public companies in the past two years. . And in the United States, the SEC and the Department of Labor are taking the initiative to impose more detailed disclosure mandates.

Technology companies are playing a unique role in this global shift to adopting ESG. It’s not just that tech companies need to consider ESG as part of their own business strategies; the ESG movement needs tech companies to succeed. With a focus on digital transformation and IT innovations to meet ESG objectives, new technologies will be the keystone for almost all companies to improve their products and processes to meet ESG commitments.

For more details on why technology companies should care about ESG issues, please see our full presentation, which is part of our 2022 series on Tech Innovation in Asia.

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