The new data challenge: Raising your company’s ESG IQ

Just a few days after the November election, the Deloitte Center for Board Effectiveness held a private workshop for senior executives on the hottest topics on U.S. boardroom agendas today. The guest speakers were a trio of experienced female board members with collective business expertise ranging from engineering, insurance, and healthcare industries to financial institutions, public universities, and media companies.

Pandemic response and recovery naturally topped their hot-topics list, followed by concerns about a 2021 economic recession. But it was the third topic that might surprise CIOs: Environmental, social and governance (ESG) issues are consuming more board attention today than ever before.

Before the global pandemic knocked the world off-kilter, the CIOs paying closest attention to ESG issues were chief investment officers, not technology leaders. Once exclusively the province of auditors checking for regulatory compliance or socially conscious investors tracking sustainability metrics, ESG in our post-pandemic world is now a strategic item on the board agenda.

Measuring company culture

“Many CIOs may not see the connection for them, but it’s about data,” says Kristen Sullivan, a partner who leads Deloitte & Touche’s sustainability services. “ESG comes down to using data-driven ways to evaluate long-term strategy.”

Data is “so critical on both sides of the equation,” as one of the Deloitte workshop speakers put it. “But it’s company culture that is the connective fiber that ESG will enhance and strengthen.” The other board directors agreed, noting how the Black Lives Matter movement had especially increased their sense that employee expectations were shifting dramatically.

“It’s the shift from shareholder capitalism to stakeholder capitalism, which is about companies playing a more integral and accountable role in improving society,” says Christine Spadafor, an experienced board director, BBC business commentator and CEO of SpadaforClay Group. “Employees, business partners, and investors all want and expect the role of the corporation to evolve beyond a focus on stockholders.”

Institutional investors are increasingly asking corporations for data about the diversity of the senior executive team and board members, Spadafor notes. “It’s not happening in the U.S. yet, but overseas regulators are now requiring companies to report their progress toward achieving specific ESG metrics.”

In the UK, for example, public companies with more than 250 employees must disclose the pay ratios between CEOs and average employees. Roughly $1 of every $3 that Americans invest “supports some sort of sustainable investing, to the tune of $17 trillion — a 42% jump in 2019 over the previous year,” InvestmentNews.com reported last month.

Urgent, complex, and abundant

“Our board is very engaged on this topic,” says Angela Yochem, chief transformation and digital officer for Novant Health, a not-for-profit, integrated healthcare system serving 4 million patients across several Southern states. “Health equity issues are always top of mind, but there’s an even greater sense of urgency now.”

Since “technology touches everything,” Yochem adds, CIOs are uniquely positioned to understand and communicate about the data sources and digital capabilities their companies can bring to bear on a variety of ESG focus areas. “It affects every area of our business, from how we think about sustainability across our footprint, to how we build talent pipelines from communities without easy access to traditional employment centers.”

“All of these new sources of scrutiny and measurement will escalate data complexity,” Deloitte’s Sullivan says, noting how more standard, easily measured inputs (like currency) already have those controls “built into systems and prepared for disclosure.”

Yet ESG data is still evolving and multiplying, flowing in ever-growing volumes into corporations from third-party sources and from increasingly sophisticated advanced analytics and AI tracking. That data is arriving in all different shapes and sizes, from kilowatt hours to diversity & inclusion metrics, health and safety employee measures  and carbon footprints.  

Toward organizational resilience

The opportunity here for CIOs, several experts said, is to understand the board’s priority focus areas and serve as a kind of expert witness on the quality and value of ESG data. Is the source valid? Is the data timely? How is it secured and accessed? CIOs don’t have to become subject matter experts in those areas, Deloitte’s Sullivan points out, but their data management expertise can bring “an absolutely critical relevance” to board discussions.

“To me, the next decade will be about sustainability, diversity and digital as the big disruptors,” says Melanie Steiner, a board director with U.S. Ecology (Nasdaq: ECOL), where she chairs the risk and corporate responsibility committee. The linkage between ESG issues and CIOs is also likely to show up in conversations about the security and resilience of a company’s increasingly digitized supply chains, she adds.

“When we think about wanting a company built to withstand whatever happens in future,” says Steiner, who spent the past eight years as chief risk officer for retailer PVH, Inc. “That’s the whole point about organizational resilience.”