For Digital Transformation and Industry 4.0 to be truly successful – in scale and velocity – in bending the curve of carbon-heavy linear corporate economics toward zero-carbon, then circular and regenerative business performance must become a priority matter.
By Bruce Armstrong Taylor, Editor
Environmental, Social and Governance (ESG) corporate performance deserves to rise to the level of a business-first principle.
While it may seem that the executive function for ESG programs should rest with an organization's Chief Sustainability Officer, the fact of the matter is that it may rest as much with the strategic role of the CFO and office of the comptroller and corporate accounting department, as well as the finance and accounting departments at the business-unit level.
If ESG – particularly Climate-Change mitigation priorities of carbon/GHG – both emissions and embodied – is to be taken seriously by investors, boards of directors, and executive committees, the finance and accounting for these will need to become a critical part of corporate performance reporting.
Corporate enterprise risk managers will be increasingly tasked with transparency in the arena of environmental sustainability.
As a December 3, 2020 article in the Harvard Business Review makes evident, this is now an active thesis, say the authors, "thanks to a quiet revolution in the accounting community.
"That revolution is being led by the IFRS Foundation, the body that oversees the work of the International Accounting Standards Board (IASB) in setting financial reporting requirements for most companies in the world, across more than 140 jurisdictions."
Less than a month ago, Fidelity published an article to its Active Investor page headlined:
"Investing based on your principles: Thinking about investing using environmental, social, and governance factors?"
Corporate advisories are now offering specific practice services in managing, reporting and disclosing climate change risk. Deloitte, on its website, describes it this way:
"To meet stakeholders’ growing need for information, companies are increasingly disclosing non-financial key performance indicators (KPIs) such as sustainability—i.e., ...ESG and more."
Having strong goals, objectives, KPIs, metrics and analytics for Digital Transformation projects is key to their success. It is the position of The Climate 4.0 Project that the work involved to "bend the curve of the linear economy toward the circular" begins with business and the corporate enterprise.
As the entire point of digitalization and Industry 4.0 programs and projects is significant new value creation from innovation, it should be a business requirement that part of that new value be able to demonstrate, financially and in accountancy, what the cost of carbon/GHG (particularly) drawdown or avoidance is for the business as a KPI of the activity.
Mostly, of course, we think of this in terms of software and data. However, a corporate decision to transition its entire vehicular transportation fleet gas and Diesel ICE to EV, particularly driver-assist automation leading toward the Fully Self-Driving (autonomous) vehicle, is a major achievement.
It is, in our view, digitally transformationally on the one hand, and a clear Climate 4.0 achievement on the other that needs to be financially accounted for, transparently reported and openly disclosed as part of sustainability policy and governance.
Our thesis is that any Digital Transformation, Industry 4.0 innovation program or project must have measurable ESG impact benefit, as a matter of policy and KPI.