In the United States, it’s easy to find prominent politicians condemning business for using ESG to impose what they call a radical left-wing ideological agenda on Americans. Recently, some state governments have moved beyond rhetoric to explicitly limit ESG-based investing.

While often politically motivated, these criticisms have arisen from the fact that ESG (environmental, social and governance) criteria don’t have an agreed-upon performance standard, which can lead to debatable decisions in ESG rankings, measurement and reporting. ESG disclosure does not eliminate honest mistakes or even egregious cases of corporate fraud. It can also suffer from low-quality, out-of-date and unaudited data. These limitations can severely undermine ESG’s role in improving transparency and accountability, and leave it exposed to partisan political attacks that sometimes ring true.

While serious, however, the limitations in applying ESG factors can be overcome. As our research has shown, emerging technologies such as blockchain, digital twins, satellite imaging and cloud computing, to name but a few examples, can play a critical role in measuring and reporting on ESG. Many of these technologies are already being used, and there is room for new applications.

Blockchain – a decentralized, unalterable digital ledger – offers countless possibilities for improving ESG disclosure. Fishcoin, for example, uses blockchain to incentivize data sharing and improve traceability in the seafood industry. Repsol, a Spanish energy company, uses blockchain to improve product certification in its supply chain. Blockchain has also been widely used to support financial transactions, emissions certificate trading and contract management, which are some of the foundations of implementing ESG.

Advances in blockchain have been so rapid that regulators are still trying to catch up. Recently, the US–EU joint technology trade council began working on tracking and curbing carbon emissions with the help of blockchain and other technologies. The British Standards Institution (BSI) also recognizes blockchain-based carbon emissions tracking.

Digital twins are a virtual representation of real-world physical objects or processes, and they are already being used in agriculture, mining and other sectors. Applications vary, but digital twins can enable and can be used to streamline supply chains, optimize networks and respond to disruptions. A rapidly growing number of organizations believes that digital twins can catalyze transformation and help them achieve their sustainability agendas.

Satellite imaging offers a number of useful applications to ESG. Satellites already measure biodiversity, changes in water reservoir levels, water quality, air quality and land usage. They can even be used to identify supply chain hotspots for issues such as poor working conditions. Moreover, AI-assisted satellites can synthesize environmental data and convert it into environmental insights.

Cloud computing and analytics are also important ESG tools, particularly for their potential in automating data collection, standardizing data, reporting metrics and enabling greater transparency within and between organizations. A PwC survey of Fortune 1000 companies found that most C-suite leaders are committed to using the cloud for ESG: 60% are either using or planning to use it to augment ESG reporting, while 59% use or plan to use the cloud to refine their ESG strategies.

Emerging technologies can be used independently or as a part of a more integrated platform. But, they won’t solve all of ESG’s problems. Blockchain, for example, can be used to codify poor-quality data. Satellite imaging can identify hotspots for poor working conditions, but it may require on-the-ground verification. Risks to privacy and data security remain paramount, as many high-profile breaches attest. This is just the start of a long list of potential technological limitations.

As a part of a broader effort, however, technology can improve ESG measurement and reporting. It can improve the availability of high-quality, up-to-date, verified ESG data. This can provide a much-needed basis for improved transparency and accountability. There is no technical fix for all ESG issues – judgement is still required in deciding what to measure and disclose – but technology can help reduce or eliminate some of its clear shortcomings.

The increasing attention on ESG challenges practitioners, academics and policymakers to recognize its flaws and develop innovative solutions to address them. ESG focuses on big issues, but it hasn’t yet fulfilled its potential.  Emerging technologies can help it get there.

The post How emerging technologies can strengthen ESG appeared first on Corporate Knights.

Cory Searcy is a professor and the vice-provost & dean of the Yeates School of Graduate Studies at Toronto Metropolitan University.

ESG has become a contentious corporate and political battleground.

In late September, Republican senators warned bank CEOs to steer clear of ESG (environmental, social and governance) issues. Pennsylvania’s Pat Toomey, a member of the Senate Banking Committee, noted, “I can’t help but observe that when banks do weigh in on highly charged social and political issues, they seem to always come down on the liberal side.” And in May, former U.S. vice-president Mike Pence claimed that ESG is “injecting left-wing politics into business.”

These are strong words for a concept focused on disclosing a company’s ESG performance. The answer, however, is not to drop ESG disclosure; it is to make it mandatory.

ESG disclosure is largely voluntary in many countries, including the U.S. and Canada. Reporting on a company’s carbon footprint, working conditions in its supply chain, and board composition are just a few of the many issues disclosed under the ESG umbrella. These disclosures are often made in response to pressure from investors, customers, employees and other stakeholders under the belief that public reporting may encourage improved performance.

Unfortunately, numerous instances of gross social and environmental malpractices show the limits to voluntary activities. The key problem with voluntary ESG reporting is the gap between corporate claims and actual practices.

Perhaps the most infamous case from the past decade is Volkswagen, perpetrator of the “Dieselgate” emissions scandal, despite previously being lauded as a model of voluntary ESG disclosure. More recently, Deutsche Bank’s offices were raided this past May to investigate “greenwashing” charges in its asset management unit, DWS. The key allegation is that DWS was misrepresenting financial products as green and sustainable. In June, the U.S. Securities and Exchange Commission (SEC) announced that it was probing Goldman Sachs’s ESG funds.

These examples represent just the tip of the iceberg. The continuing emergence of ESG scandals and false disclosures indicate the ongoing seriousness of the disconnect between stated and actual performance.

There is some movement toward mandatory ESG reporting in the United States and elsewhere. The SEC is currently working to make disclosure mandatory. Climate-related financial disclosures are already required for U.K. registered companies and financial institutions. Other mandatory disclosure requirements focus on working conditions in supply chains.

The California Transparency in Supply Chains Act, for example, is focused on preventing human trafficking in supply chains. Other regulatory jurisdictions, including the implemented mandatory disclosures of modern slavery in supply chains. As one final example, the International Sustainability Standards Board is developing an ESG reporting standard that will be mandatory for U.K. companies by 2025 or earlier.

Mandatory ESG reporting is not a panacea and does not guarantee excellent environmental, social and governance performance. There will still be possibilities for errors, misrepresentation and outright fraud. Some companies may choose to accurately report poor performance and take no action to remedy it.

Mandatory ESG reporting does, however, build an expectation for corporate accountability and is likely to increase the authenticity of public disclosures. Most voluntary disclosures are unaudited, and mandatory reporting will invite greater scrutiny and assurance of ESG data. Mandatory disclosure will also signal that ESG is a strategic concern and will discourage practices that decouple stated and actual performance, such as greenwashing.

To be sure, regulators should remember that companies have many positive impacts on society. While many disclosures undoubtedly focus on mitigating negative impacts, disclosures of a company’s positive contributions should be encouraged. This could potentially be grounded in the United Nations’ Sustainable Development Goals, such as the provision of decent work and promoting responsible consumption.

Regulators must also guard against imposing overly burdensome requirements that companies cannot realistically be expected to meet. Mandatory ESG disclosure should be restricted to core issues of greatest interest to investors, consumers and broader society. For example, The Economist recently argued that ESG fundamentally comes down to emissions. Some mandatory requirements could also differ by industry.

ESG is too important to become a partisan political issue. ESG is not about imposing “woke capitalism” or establishing a “climate cartel.” Rather, it is about building better businesses and a stronger society. Mandatory ESG reporting will help guard against unsustainable and unethical corporate practices while also highlighting the many positive contributions business makes to broader society.

There is room for debate about what mandatory disclosures should be, but the time to establish and strengthen mandatory ESG disclosure requirements is now.

The post In defence of ESG appeared first on Corporate Knights.

To achieve this objective, engineered versions of age-old building technologies, like wood, straw or bamboo, are critical. These bio-based building materials generally demand less energy in manufacturing and have the ability to capture and store carbon through photosynthesis.

This is why experts in green building policy, climate science and architecture increasingly tout the benefits of transforming buildings from a giant source of carbon into a large carbon sink.

As scholars of business sustainability and bio-products markets, we closely observe the trends in green building and construction industries, and the reactions these provoke in sectors of the economy looking to cut emissions. With corporate announcements on the rise that publicize natural materials like wood as “the new concrete” in company offices and warehouses, we believe it’s time to take a closer look at the opportunities and limitations of making building materials part of a company’s net-zero carbon pledges.

The rise of net-zero carbon offices

The past two decades have seen the use of green buildings as an explicit tool to reduce the carbon footprint of companies. It is now commonplace for business offices to feature the latest in engineering and building operations, from energy efficiency and on-site heating and cooling, to waste reduction and recycling.

Bloomberg’s European headquarters, for instance, has earned the title of the world’s most sustainable office building for combining all these measures. From a company perspective, going beyond operational efficiency, to also focus on building materials, is a logical step.

Walmart offers one prominent example of the use of bio-based building materials. The retail giant is set to finish its new home office in Bentonville, Ark., by 2025. It is the largest corporate campus project in the U.S. that uses mass timber, a group of large engineered structural wooden panels that have gained market acceptance following changes in building codes, for the construction of multi-storey and tall wood buildings.

Structurlam, a Canadian company that delivers mass timber, opened a fully automated facility in Walmart’s home state where it procures lumber from forests in the region to complete the project. Similarly, Google will soon finish its first mass timber office complex.

Microsoft already opened a building on its Silicon Valley campus that uses over 2,100 tonnes of cross-laminated timber (CLT), a wood panel system that is projected to reach a global market size of more than $3 billion within the next five years.

Some European firms like the German retail chain Alnatura are using prefabricated loam in their headquarters, and automaker BMW is about to open an electric vehicle showroom in California that has flooring made from hemp wood.

Green construction meets prefab

What unites these technologies is a potential to combine climate benefits with the shift towards off-site construction and prefabrication, where the planning, design, manufacturing and partial assembly of building elements occurs at a location other than the final building site.

Many of the manufacturers that offer buildings made from bio-based materials are, in fact, a new class of technology start-ups that are backed by large investors.

Prefabrication helps optimize material use and model adaptive structures that can be deconstructed, modified and reassembled, thereby reducing the need for virgin resources.

This provides companies with immense flexibility in planning for the long-term use of their office buildings, sales stores, warehouses and factories, without having to think about demolishing a structure.

Limitations of bio-based building material

Bio-based building materials have their limitations. Harnessing their environmental potential requires that they are sourced from sustainable supply chains. From a climate perspective, building wooden office towers with timber can be counterproductive if large amounts of carbon dioxide are emitted in the logging, transport and manufacture of wood products.

A company may also ask whether new buildings are needed in the first place. After all, the lowest carbon footprint is that of a building that is never constructed.

Companies may consider using bio-based building materials in retrofitting and remodelling existing offices or factories instead of building new ones. Serial retrofit initiatives, of the kind spearheaded by governments in Europe and suggested for Canada, already funnel capital into the scale-up of industries for prefabricated building technologies, like facades made from wood and recycled materials.

Ultimately, as with all corporate environmental strategies, simply introducing bio-based products and materials to the company, be it in office buildings or elsewhere, without having resources in place to monitor their environmental efficacy (for example, in procurement, installation and use) can backfire.

The future of bio-based building materials

Building materials can play a key role, when considered as a part of a broader strategy in companies’ efforts to reach net-zero emissions. Over 450 firms around the world have already pledged to finance the transition to net-zero emissions by 2050.

The issue of materials in construction is gaining attention at the global scale as well. With more than 130 events focused on the built environment at the COP26 summit in November, buildings received more attention than ever.

That being said, bio-based products and materials will require even more attention going forward. A likely bottleneck in assessing when and how to use bio-based building materials, will be just how quickly industries normalize the use of life cycle costing tools, such as whole life carbon accounting.

Progress on the adoption of these tools has been slow, but the recent signing of whole life carbon requirements by 44 large companies offers hope that the time for net-zero carbon buildings may indeed be ripe.

Meike Siegner is a post-doctoral research fellow at the department of mechanical and industrial engineering at Ryerson University.

Cody Searcy is a professor of mechanical and industrial engineering, as well as vice-provost and dean of graduate studies at Ryerson University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The post If companies want net-zero carbon offices, they need to focus on building materials appeared first on Corporate Knights.