Artificial Intelligence Era in ESG Reporting
The burgeoning demand for transparency and accountability by investors and stakeholders has contributed to the growing adoption and importance of reporting on Environmental, Social, and Governance (ESG) within organizations.
The revolution of AI technologies is rapidly permeating the modern society as it acts as a powerful tool in providing actionable insights and standardizing business performance. The lack of consensus on reporting standards and frameworks leads to a myriad of metrics used to show progress, without a standardized approach to measurement.
In Kenya, the National Securities Exchange released its ESG disclosure manual which guides listed companies and other companies interested in ESG reporting on their ESG frameworks and integration of ESG within organisations. Nonetheless, ESG reporting should be viewed not only as a corporate obligation but also as a commitment towards responsible corporate practices, hence the need for uptake by SMEs and social impact organisations.
While many organisations have started prioritizing their ESG initiatives, AI is here to assist organizations to seamlessly report on ESG based on its materiality aspects. The traditional reporting approaches of ESG have encumbered challenges such as data overload, greenwashing and inaccuracy. AI seeks to automate the processes of collecting data from various sources including social media, websites and public disclosure documents, and analyzing it to derive insights on a company’s performance in the context of ESG metrics and reporting.
Let us explore some areas in which AI can promote ESG and pose as opportunities for ESG reporting:
ESG Rating
Some of the machine learning analyses data and compares performance against providing benchmarks and leaderboards ensuring continuous optimization.
Climate change strategies
Every year there is a Global Climate Summit (Conference of the Parties to the UNFCC (COP) where governments discuss how to limit and prepare for future climate change.
During the recent COP 28, more emphasis was put on adopting sustainability practices and integrating reporting frameworks aimed at carbon emission reduction and energy efficiency. AI can assist companies in identifying climate risk factors and promote ecofriendly practices that inform policy changes.
Compliance
AI solutions can facilitate detecting regulatory breaches upon monitoring and analysis of company data.
Construction Practices
AI is instrumental in fostering sustainable smart building practices, waste management and enhancing communities’ preparedness to climate change.
Whilst ESG reporting has still not been fully assimilated and embraced, AI is a rising trend in ensuring efficiency, accuracy and reliability of data. The United Nations reported that the use of AI could help speed up and intervene towards achievement of Sustainable Development Goals (SDGs) by 2030.
“You can’t solve a problem on the same level that it was created. You have to rise above it to the next level.” Albert Einstein.
As Boards carry the heart of corporate governance, they therefore need to explore innovative ways of championing ESG within their institutions by harnessing the potential of AI.