Some people think about incorporating ESG priorities across company operations in a way that focuses on difficult trade-offs. Where is the balance between reducing carbon emissions and maintaining production at a level that meets energy demands? How can we invest more in our employees while preserving shareholder profit? Does pursuing good governance practices interfere with our ability to innovate, given that “move fast and break things” is the mantra of successful growth companies?
In our view, implementing good ESG practices and achieving traditional business goals (growth, profitability, etc.) are not in conflict, and viewing things from that angle is a mistake from the get-go. Not only can companies grow, innovate, and maintain profits while pursuing good ESG practices, we would argue that having an ESG mindset makes it easier to achieve all of those financial goals over time – but that’s a separate topic.
In this article, we point out that the very thing that is responsible for much of the economic growth seen in the past twenty years is a way for companies to achieve their ESG and business goals together. We’re talking about technology – a tool for making processes more efficient, keeping customers satisfied, and making better management decisions. That all helps to keep businesses profitable in a sustainable way, which means using natural and human resources in a way that does not deplete them. Here are just a few of the ways technology is helping to achieve sustainability goals.
1. Blockchain technology. No, we’re not talking about cryptocurrencies. We’re talking about the underlying technology that tracks ownership of a position in almost anything. According to Amazon Web Services, “blockchain can be used as a tool to track waste, emissions, and environmental impact at each stage of the supply chain,” revealing opportunities to reduce waste and energy consumption. Blockchain’s inherent “track and trace” capabilities have many industry-specific capabilities; for example, the agriculture industry can use blockchain to improve compensation practices for small farmers. In the pharmaceutical industry, leveraging blockchain can reduce the use of counterfeit medicines. The apparel industry can use blockchain technology to track the origin of fabrics and other materials. The list goes on.
Blockchain technology can also help to meet demands from customers and investors who want more transparency. It can help companies to track how raw materials and intermediate goods move across the supply chain. This can help to ensure suppliers are honoring commitments to sustainable practices, and can help businesses spot potential “headline risk” (such as the use of child labor and other governance issues) before it becomes a headline. Blockchain technology drives positive employee engagement by making a company’s sustainability efforts more visible. According to Business Chief, the restaurant chain Sweetgreen uses blockchain technology to promote sustainability, a key element of the company’s culture and market positioning, among local farmers and food artisans.
2. Automation and e-documentation. Converting from paper reports to e-documents helps companies to reduce the amount of paper they use, which reduces paper costs and waste, and saves trees. That’s an easy step (one might even say it’s a no-brainer). Automation tools take things a step further. Increasingly, robotic process automation (RPA), which teaches a machine to execute mundane, repetitive tasks, is reducing waste. For example, Helse Vest, a health authority in Norway, used automation to reduce the number of letters mailed to patients using software “robots.” This not only reduces paper waste; it is expected to save over $500,000 in postage annually.
Fortune 500 companies all the way down to small-caps are taking advantage of automation to use energy more efficiently, which provides the duel benefit of saving money and helping the planet. In “process mining,” software “observes” a process and transforms data generated from those observations into visual workflows. This helps to identify bottlenecks that are consuming too much electricity, wasting raw materials, using up too much space that require heating and cooling, and so on.
3. How many people does it take to change a light bulb? No punchline here, but sometimes a well-placed push can help. Think about LED lighting versus incandescent bulbs. Beginning in 2020, the state of California banned the sale of light bulbs (other than those in appliances) that do not meet the efficiency standard of 45 lumens per watt. A standard incandescent bulb consumes 50 watts. An LED A-line bulb uses 9 watts—that’s an 80%+ reduction in energy use per light bulb. California predicts this will save 4,000 – 13,600 gigawatts per year. To put that in perspective, one gigawatt is enough to power about 750,000 homes. In May 2022, the federal government adopted regulations similar to California’s. Using LED lights will result in billions of dollars in savings based on today’s energy prices.
Still in the future, but not too far off
Longer-term, new technologies that focused on sustainability will both help the planet and generate profits for investors. How can we make that claim? Because ingenuity, determination, and a healthy dose of capitalism are a powerful combination. We are cautiously optimistic that carbon capture and storage at scale will help to achieve net-zero carbon emissions. Work is already underway and given estimates say this could be a multi-billion dollar industry. We expect breakthroughs in the not-too-distant future from the efforts focused on making this happen (remember, solar panels were initially too expensive to think of using them on a mass scale. Not anymore).
Improving plastic recycling will also be possible through technological breakthroughs. For some perspective, think of the Great Pyramid of Giza. Now think about forty of them. Together, they would weigh roughly 260 million tons, which (according to McKinsey) is the weight of all the plastic waste generated every year. Only about 16 percent of that is recycled (and that’s an optimistic estimate). The plastics industry is developing new technologies to improve recycling, such as pyrolysis, which uses heat and the absence of oxygen to convert plastic waste back into liquid feedstock. There are economic benefits, too – a recycling-based profit pool is estimated to reach $55 billion by the next decade.
In short, we believe ESG and business goals can and should work together like pieces of a puzzle, and that technology will continue to help us solve even the most complex puzzles we face in creating a more sustainable future. To find out how OWL can help you assess how firms are addressing their ESG challenges and opportunities, we invite you to contact us.
