Increasingly heard in companies worldwide, the acronym ESG (Environment, Social, and Governance) has become a priority for thousands of organizations aiming to create a more positive impact on society without giving up financial goals. However, we know that not all companies have the resources or know-how necessary to adopt this approach in their business. The good news is that SMEs can use technology – such as ERP, Cloud, or Cybersecurity solutions – to implement an ESG strategy.
ESG and technology are distinct concepts and areas, but they can complement each other and help companies achieve better results not only from a financial perspective but also considering aspects increasingly valued in today’s world – environmental sustainability, social responsibility, and governance.
What is ESG (Environment, Social, and Governance)?
ESG criteria represent three fundamental categories for assessing an organization’s sustainability and social impact:
- Environment (E): relates to a company’s impact on environmental factors such as climate change, water and marine resources, biodiversity and ecosystems, circular economy, and pollution;
- Social (S): refers to an organization’s impact on all people-related factors, including labor, value chain workers, communities impacted by the business, consumers, and end users;
- Governance (G): relates to leadership, business ethics, and aspects linked to remuneration, internal control mechanisms, shareholder rights, quality of relationships with stakeholders, responsible business practices, and brand management.
Currently, in Portugal, non-listed SMEs are not legally required to meet specific reporting requirements related to ESG. The European Union’s Corporate Sustainability Reporting Directive (CSRD) has recently expanded its scope to more companies; however, the reporting obligation applies only to companies listed on regulated markets.
However, it is important to note that adopting ESG practices brings significant benefits to businesses of all sectors and sizes. Currently, many large companies are already requiring their suppliers and partners to adopt sustainable and responsible practices, which can influence competitiveness and market opportunities for SMEs. It is also possible that, in the coming years, European directives will also cover SMEs, so the implementation of mandatory legislation in the ESG field should not be ruled out – and companies that prepare earlier will have an advantage over those that have not yet done so.
ESG and Technology in the Business Context: the Perfect Alliance
Together, ESG and technology – particularly digital transformation tools – enable companies to achieve their financial, sustainability, and corporate governance goals, thus having a positive impact on society.
Moreover, investing in technological tools can help improve operational efficiency, reduce costs, and strengthen the company’s reputation with customers and investors. Tools such as management software, cloud, or cybersecurity solutions can be part of an ESG strategy in an SME, combining excellent operational management with the achievement of sustainability, social responsibility, and corporate objectives, among others.
Benefits of Digital Tools in Service of ESG in Companies
Reduction of Negative Environmental Impact
Technological tools are an excellent aid in collecting and analyzing all types of data, and information related to environmental impact is no exception. Various software allows setting goals, for example, for waste reduction, and monitoring them over time.
Greater Transparency and more Efficient Reporting
Using digital tools increases the visibility of business-related data, promoting transparency and simplified access to information – something highly valued in ESG policies. Moreover, it becomes easier to prepare reports that can be used in audits and help managers better understand the impact of implemented sustainability practices.
Credibility and Competitiveness
As we have seen, more and more major players are selecting their suppliers and partners based on the adoption of good ESG practices. Thus, a company that adopts these principles (and communicates them efficiently) has a significant competitive advantage over the competition and also increases its credibility in the market.
Positive Social Impact
In addition to helping increase transparency, digital tools facilitate the involvement of different stakeholders and improve collaboration between teams, especially along the supply chain and with third-party suppliers. They also allow various employees to participate in sustainability initiatives, contributing to a more inclusive workforce. By eliminating the need for human intervention, process automation also helps prevent corruption, thus fostering business ethics.
How to Implement Good ESG Practices through Technology
More and more companies are adopting digital transformation solutions that can also serve to implement ESG principles in their operations. Tools such as management software, Cloud hosting, or Cybersecurity solutions are some examples we will see next.
Management Software
Already used by a large portion of Portuguese companies, ERP (or management software) can help implement and monitor good ESG practices. By integrating different business areas, ERP promotes a comprehensive and detailed view of operations, facilitating the application of sustainable, ethical, and efficient practices, such as:
- Monitoring and Reporting: ERPs include modules that help collect, monitor, and report metrics related to carbon emissions and energy consumption (environment), diversity, inclusion, and worker well-being indicators (social), aspects related to regulatory compliance and audit reports (governance), among others.
- Resource Management and Sustainability: ERPs can also help optimize the use of energy resources and minimize waste by planning production, inventory control, and more efficient and sustainable stock management.
- Transparency and Compliance: ERPs allow full traceability of materials, from their origin to the delivery of the final product. It is also a useful tool in risk management, allowing the identification of issues in the supply chain and helping to maintain compliance with current environmental and labor standards – including aspects related to occupational safety and health.
- Employee Well-being: Good Human Resources software or an ERP that incorporates HR modules allows managing teams and monitoring diversity, training, and team development indices, as well as managing well-being and corporate happiness initiatives.
Practical Example of ESG Application through ERP
A logistics company using an ERP can monitor the carbon footprint of each trip and, based on these results, plan more efficient routes to reduce emissions and costs, as well as report these results to its stakeholders.
Cloud
Adopting Cloud services is also an excellent way to implement good ESG practices in companies. Investing in cloud hosting allows managing IT infrastructures more agilely, with various advantages for businesses:
- Reduction of environmental impact: Cloud providers invest in good energy management practices, such as using renewable energies, which allow companies contracting their services to also reduce their environmental footprint.
- On-demand Scalability: Cloud services are scalable – that is, clients only contract the resources they need, avoiding the waste associated with oversized systems.
- Security and compliance: Cloud providers meet international security and privacy requirements, ensuring compliance and data protection for client companies.
- Operational continuity: Cloud hosting reduces risks associated with interruptions caused by cyberattacks or other incidents. In case of data loss, thanks to backup technologies, it is possible to recover the data, ensuring business continuity.
Cybersecurity
Investing in cybersecurity is the best way to protect business digital assets, but also a good investment in terms of ESG. Protecting data, operations, and systems not only reinforces stakeholders‘ trust but also promotes ethical, responsible practices aligned with sustainability, helping companies build a solid reputation in governance and social responsibility areas:
- Governance: Cybersecurity promotes transparency, data protection, and regulatory compliance. It is an investment that demonstrates to stakeholders the commitment to the privacy and security of their information.
- Training and awareness: Cybersecurity best practices training programs increase employees’ digital literacy, creating a more informed and responsible workforce.
- Operational continuity: A cyberattack can cause operational stoppages that affect not only the company but also the surrounding community. Implementing cybersecurity solutions such as firewalls, backup systems, or threat hunting helps maintain operational continuity, avoiding financial losses and social impacts.
- Contribution to environmental sustainability: Although indirectly, Cybersecurity solutions can contribute to environmental sustainability, as a cyberattack involves data recovery – an activity that, by itself, involves greater use of energy and technological resources.
Practical Example of ESG Application through Cybersecurity Solutions
An SME that protects its clients’ data through cybersecurity solutions avoids fines for non-compliance with GDPR and, at the same time, demonstrates social responsibility by respecting stakeholders‘ privacy while ensuring business continuity even after attack attempts.
PONTUAL is the technology partner that helps you implement good ESG practices in your organization. We are ERP specialists, with hundreds of implementations and customizations of management software that allow our clients to achieve their medium and long-term goals and objectives in various areas, including environmental, social, and governance.
As a Security & Managed Services Provider, we offer a wide range of services in IT Systems, Cloud Infrastructures, and Cybersecurity, providing our clients with tailored solutions that allow them to improve performance and keep their IT assets secure against vulnerabilities and cyber threats. Contact us to learn more about how we can help you.
