As of today, more than 90 percent of the companies listed in the S&P 500 release reports, with varying degrees of detail, in the ESG sphere1. In several jurisdictions, the disclosure of ESG parameters is either mandatory or under careful consideration. Given the recent and forthcoming legislative developments and the growing focus on sustainability issues, it is now essential for businesses in any industry to track all the impacts their operations have on the environment and society.
Do ESGs impact corporate outcomes?
Investors and researchers have conducted numerous studies to understand how ESG factors influence the performance of companies and investment portfolios. As part of this ongoing conversation, our team at Intellico has been actively involved to determine how to best generate value for our clients, endeavouring to create tools and AI algorithms that can predict corporate behaviours which concretely improve sustainability parameters.
Our collaboration with the Department of Management Engineering at Politecnico di Milano has clearly demonstrated that there are tangible connections between corporate performance and ESG parameters in certain sectors (for instance, finance and insurance, industrial goods, utilities, consumer products), with a special focus on companies’ environmental performance and governance factors (such as the composition and experience of the board of directors) Current trends indicate that a commitment to sustainability is indeed rewarding for companies. Nonetheless, the relationship between ESG factors and the financial performance of companies is a broad and complex topic that can only be understood in the long term.
Meanwhile, in response to the growing awareness of the importance of considering ESG factors in corporate decisions and investments, the drive for the digitalization of these aspects has increased within companies. The goal is to make informed, transparent, and accessible decisions for all stakeholders, including investors, regulators, consumers, and the general public.
How Can Artificial Intelligence Enhance Digitalization in the ESG context?
As in other contexts, digitalization processes allow for increased effectiveness and efficiency in the stages of collecting, analyzing, and presenting data from various sources, such as corporate reports, financial data, public information, and environmental reports. Based on these premises, numerous ESG software solutions have been developed in recent years to address companies’ inability to track the impacts of their actions. These platforms are continually evolving, keeping pace with the developments in the topics they monitor.
Artificial intelligence, and more specifically generative AI, can play a leading role in enhancing these platforms, significantly improving their effectiveness in various aspects, for instance:
- Data collection: obtaining real-time information from various channels on corporate governance, supply chain practices, and environmental and social implications
- Performance and reporting: performing detailed analyses that can be leveraged during decision-making processes, for example concerning energy consumption or similar data where corporate choices can affect variations
- Predictive analysis: aiding decision-makers in choosing sustainable investments through data that certify their validity.
- Sustainable supply chain: conducting assessments that can suggest the social and environmental reliability of their suppliers
- Natural Language Processing: developing functionalities to process text format information contained in the company’s knowledge base in order to obtain additional information or, conversely, facilitate the production of reports based on the results of the analyses carried out
What are the further areas of development?
While ESG platforms are adept at gathering and analyzing data at a general level, they often suffer a disconnection when it comes to monitoring specific environmental aspects, such as emissions or substances released; the gap is particularly noticeable in current regulations that require detailed monitoring of such aspects.
This discrepancy has been accentuated in the practical experience garnered by Intellico in association with GreenHeadLight, a consultancy firm specializing in environmental matters, which extended support to an infrastructure operator and gathered insights from engagements with regional entities.
Expanding the scope of monitoring to encompass environmental facets is currently a fragmented process involving several professionals at various stages. Moreover, there is frequently a disconnect between the data gathered, the detailed monitoring requisites set by regulations, and the functionalities of ESG platforms.
While the drive for decarbonization and cost containment has led to the development of extensive energy management solutions, the same has not yet happened for the remaining environmental areas where the collection of valuable environmental parameters is not yet fully structured.
Similarly, platforms that serve as coordination tools are not yet widespread, allowing environmental process managers to work together in a more synergistic and efficient manner. This smart integration between data, regulations, and corporate processes would represent a significant step forward in bridging the existing gap, allowing for a more comprehensive and integrated approach to corporate environmental management and ESG monitoring, as a final goal.
Conclusions
As of today, social and legislative focus has necessitated an increase in resource investments by companies into ESG systems that allow for the control and improvement of social and environmental aspects.
These continually evolving platforms can reap the benefits of AI, both in terms of enhancing decision-making processes and improving the analysis and creation of content and reports achievable through generative AI.
However, there is a clear need to extend and integrate business processes and, consequently, monitoring processes, so that the sustainability vision encompasses all environmental aspects.
Technology and process vision are the contributions Intellico intends to make to actively support ESG processes and fully leverage the potential of technologies.
Our Solutions division aims to provide tools capable of assisting in the collection, monitoring, and management of environmental data. Given the unique global circumstances, compliance is strongly demanded on the management side in Italy, and the market has responded with a wide range of solutions. On the other hand, in the field of environmental monitoring, we believe there is still a substantial margin for improvement. It is precisely in this direction that we are working to develop cutting-edge solutions.
Contributors:
- Nico Rosamilia (PhD in Management Engineering with a specific focus on “Behavioral Finance” and “Green Finance”)
- Magdy Amin
Sources:
1Sustainability reporting in focus, G&A Institute, 2021
