The importance of ESG criteria in corporate decision-making

ESG criteria are becoming increasingly important in the decision-making processes of companies. Let’s take a look at why and how IoT platforms can help you improve your ESG goals.

The acronym ESG refers to a set of measurement criteria and standards, most of which are currently being defined, relating to an organisation’s environmental, social and corporate governance activities.

The combination of these three factors qualifies and measures an activity as sustainable and therefore represents a company’s ability to manage its impact in terms of environmental commitment and attention to corporate social and governance values. The expression ESG rating, also known as sustainability rating, therefore indicates a sort of credit score increasingly used by stakeholders, including customers, investors and the credit system, to evaluate investment risk, calculated on the basis of data and performance relating to an organisation’s intangible assets, for example values such as respect for the environment and effective and transparent governance.

ESG issues are becoming increasingly financially important. According to Bloomberg (https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/),  global ESG assets could exceed USD 53 trillion by 2025, accounting for more than a third of the projected USD 140.5 trillion in total assets being managed.

Why have ESG criteria become so important?

ESG criteria are important because they make it possible to objectively measure a company’s environmental, social and governance performance based on standardised and agreed parameters.

In the present-day, they are an increasingly important element for companies that wish to be competitive and sustainable. The sustainability of the business is a topic of central importance in terms of impact on our planet and on the well-being of present and future generations.

By adopting an ESG approach and communicating it effectively and transparently, companies can improve their reputation, reduce risk, and create new business opportunities. In fact, stakeholders increasingly privilege the most virtuous companies in their relationships.

Key indicators to show the degree of integrity of the company are, for example, carbon footprint, ISO certifications, social inclusion and governance effectiveness. Entrepreneurs who do not already implement a strategy aimed at tracking, not only formally, ESG activities are going to face serious critical issues in the near future. For many companies, compliance is already a regulatory obligation.

The evolution of ESG regulation

The European sustainability regulatory framework is undergoing a significant transformation, with the introduction of new directives and standards aimed at reinforcing companies’ commitment to sustainable practices.

As of 1 January 2024, the CSRD (Corporate Sustainability Reporting Directive) came into effect to replace the NFRD (Non-financial Reporting Directive), obliging large companies to report detailed information on their sustainability activities. This new directive introduces the concept of “double materiality”, placing information relating to the impact on the environment and society that the company carries out through its activities alongside financial information.

At the beginning of the year, the ESRS (European Sustainability Reporting Standards), the reporting standards published by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission on 31 July 2023, also came into force, which will have to guide companies that are required to draft sustainability reports in compliance with the CSRD, specifying the information to be disclosed by a company regarding its material impacts, risks and opportunities (IROs) in relation to environmental, social and governance sustainability issues.

Finally, in the first quarter of 2024, the CSDD (Corporate Sustainability Due Diligence Directive) is expected to be adopted. This is the Directive on the sustainability due diligence of companies which, based on the provisional agreements reached by the European Parliament and Council in December 2023, will affect large companies with more than 500 employees and a worldwide net turnover of more than 150 million Euros.

ESG criteria and digitalisation

Based on the CSRD’s reporting obligation, companies are required to engage in collecting and reporting data on their sustainability practices, such as carbon footprint, sustainable business practices, and diversity levels.

The aim of ESG is to ensure a more complete view of environmental impact, risk factors and development potential. It becomes a necessity for companies to know a growing number of variables that relate to the transformation of consumer needs and preferences, to have information on the evolution of the territories in which they operate and to examine factors such as greenhouse gas emissions, energy consumption, waste management, the use of any resource and the impact related to the supply chain.

Digitalization, through continuous analysis, the automatic production of reports, makes it possible to quickly achieve fundamental objectives to measure all the key elements of ESG criteria. Thus, having a digital ecosystem is essential for companies that aim to be sustainable.

If well managed, corporate data is critical to achieving sustainability goals. Technologies such as the Internet of Things (IoT) and Artificial Intelligence (AI) play a critical role in this process, turning raw data into valuable insights. IoT sensors integrated into production processes and supply chains collect real-time data on energy consumption, greenhouse gas emissions, resource efficiency, and other data. Once analysed and interpreted using AI algorithms, this data can reveal previously unnoticed patterns, inefficiencies, and opportunities for improvement. AI can also predict future scenarios based on historical data, enabling proactive strategies for reducing environmental impact, managing resources efficiently, and optimising logistics. By implementing these solutions, companies can significantly improve their sustainability performance, turning the ESG approach into a competitive advantage. This data-driven approach not only helps to achieve sustainability goals but also improves the entire company’s operations, aligning it with the expectations of stakeholders.

SECO and sustainable development

Digitalization is a key factor not only for competitive advantage, but also for the optimisation of production processes through a more conscious use of natural resources along the entire value chain. This approach gives tangible benefits, such as controlling and reducing emissions, extending the longevity of devices and making more efficient use of resources. IoT and AI are two very powerful knowledge tools, and knowledge is the key factor in achieving all sustainability goals. The real-time analysis of the data collected by field devices paves the way for applications that can increase the efficiency of production processes, minimizing waste and optimising the consumption of resources and energy.

SECO solutions are effective tools for promoting sustainable development in a wide range of industries. With a comprehensive range of technologies designed for the digitalization of devices and processes, SECO is perfectly positioned to support companies in creating sustainable businesses. SECO’s edge devices, equipped with measurement, monitoring and data collection capabilities in the field, interface natively with the Clea IoT software suite (www.clea.ai). This technology stack, which includes standard and out-of-the-box platforms, transforms the flow of field data into value, enabling data collection, orchestration, and optimisation, fleet and device management, and advanced AI applications. Clea’s connectivity can enhance field data to support companies in achieving efficiency and sustainability goals through the following:

• Predictive maintenance: the early detection of anomalies and potential malfunctions in machinery allows targeted maintenance to be carried out, avoiding the complete replacement of devices and optimising the movements of service personnel.

• Monitoring energy consumption: Regulating energy use, for example by controlling the temperature or lighting of an industrial environment, contributes to energy efficiency.

• Reduction of waste: automation and continuous monitoring of industrial processes improve production quality, minimizing waste.

• Logistics Optimisation: the definition of efficient routes and the optimal management of vehicles and warehouses improve logistics, thereby reducing harmful emissions.

Through real-time monitoring and data analysis, SECO solutions enable a precise assessment of the impact of business activities on various aspects related to sustainability, including environmental, social and governance aspects. The digital transition thus translates into tangible benefits such as increased production efficiency, reduced waste and optimized resource and energy consumption. For companies that have integrated or are integrating sustainability into their business model, SECO’s offering of hardware and software solutions not only allows them to monitor, analyse and manage environmental challenges, but also offers valuable predictive capability, accelerating the transition to efficient and environmentally friendly operations.