ESG’s struggles are Big Tech’s problem

It’s on Big Tech to save ESG

Big Tech has been quick to try to profit off of the surge in ESG investing.

But the effort faces a major credibility challenge. Now it’s up to the sector to help shore up trust in a concept that many tech companies have adopted as a key cultural tenet, and to persuade other businesses to maintain investment in it.

• For the last several years, opposition to ESG investing seemed like background noise as the effort matured. But as scrutiny over key aspects of the concept intensifies, the increasingly vigorous (and often bad faith) campaigns to discredit ESG and prevent it from becoming a new global accounting standard appear to be gaining steam.

• And now, as businesses float in the regulatory doldrums, the evaluation model aimed at analyzing an organization’s impact when it comes to environmental, social, and governance issues in the same manner as financial performance is in a precarious state.

That’s bad news for the tech industry. The sector has long embraced ESG reporting as a foundation of operations, or sometimes just as a marketing tactic. Still, the industry is banking on the maturation of the concept as a key future revenue stream.

• Unlike quarterly financial disclosures, ESG is not yet an established reporting standard for corporations, though regulations are coming. Without a common standard in place, there’s little ability to actually verify whether corporate statements are accurate or comparable in the same way that financial statements are.
• However, governments around the world continue to move forward with new ESG-focused reporting mandates and guidelines, a move that could add some much-needed stability for businesses, as well as for governments, investors, and end customers.
• But there’s uncertainty as to when that will happen, given the SEC has already delayed its own climate disclosure rulemaking.

Right now, it’s chaotic. The absence of formal guidelines hasn’t stopped businesses from broadcasting their results. But the lack of clarity around what, exactly, these reports and other ranking criteria are based on, along with rampant “greenwashing” efforts, has sowed substantial confusion.

Conservative politicians who oppose ESG goals are pouncing. And as backers work to restore ESG’s credibility, businesses are revamping or flat-out abandoning their strategies; investors are pulling back as the number of new funds plummet amid greater government scrutiny; and Silicon Valley is closing its vaults.

• A plateau in progress is not unexpected and may even be necessary to reestablish ESG’s credibility. But there are troubling developments that threaten to undermine the whole rationale behind the concept.
• For example, behemoth asset manager BlackRock is facing blowback from Republican state attorneys general and treasurers who claim the firm is prioritizing a “woke political agenda.”
• BlackRock and many ESG funds, though, include oil and gas companies despite the obvious environmental impact of their operations. Arguments to include fossil fuel companies more prominently have gained steam, though, as they rake in record profits.
• And with a possible recession looming, it’s unlikely companies will be able to sustain the same level of investment in ESG-related initiatives.

The current struggles are sure to wipe up some of the saliva Big Tech has drooled over the ESG surge. Software vendors will play an important role in helping organizations gather the immense amount of information needed to adequately report on ESG progress.

• That step will get increasingly complicated as businesses look to include data beyond their own operations into areas like the supply chain. Despite Big Tech’s own struggles with overseeing the procurement process, it’s an area where vendors like SAP and Coupa can play an important role. Overall, the market for ESG software is expected to reach $2 billion by 2030.
• And as businesses look to meet loftier climate targets, clean tech should continue to garner ample investment even amid a harsher funding environment.

IT vendors are trying to capitalize on what is a dream scenario for them: a vital cause with immense marketing potential that also promises to be one of the more expensive compliance burdens for businesses in recent memory.

• The information needed to evaluate factors like greenhouse gas emissions, for example, is stored in databases across the company managed by tech providers. Now those same vendors, as well as startups, are building platforms that can span those many storage centers, making analysis easier.
• Beyond corralling corporate information, Salesforce recently unveiled a new carbon credit market, allowing customers to buy what has become an important, but still insufficient, way for businesses to tout environmental progress.

While it’s unlikely that corporations shun their ESG goals entirely, declining investment could ripple through the tech sector, affecting everything from startup funding to how much Salesforce or ServiceNow makes in sales for new ESG-focused products.

The tech industry has long claimed to embrace many of the causes that are central to the concept of ESG. And now it’s beginning to profit from others jumping on board. As momentum around ESG skids, Big Tech has both a moral and business imperative to act.

Sponsored content from ServiceNow

Ever since the pandemic put the evolution of everything in hyperdrive, marketers realized the old categories of B2B, B2C, and B2B2C were obsolete. Starting in 2020, our profession embraced the Business to People (B2P) paradigm. Business, fundamentally, is relationships among people. Even in the biggest enterprises, those making momentous decisions are still people.

Learn more

The best of Protocol

Elon Musk’s reign begins. What happens next?— Issie Lapowsky

• Elon Musk’s reluctant acquisition of Twitter leaves several questions unanswered, including whether Musk will take on the CEO role, if “banned-for-lifers” will be invited back, and if users and advertisers will walk away.

Carbon Direct just hired its first head of climate justice. Here’s why that matters. — Michelle Ma

• Christian Braneon, the first head of climate justice at carbon management platform Carbon Direct, wants clients to understand that making a positive impact is about more than just pulling carbon from the air: Deploying carbon removal at scale equitably is crucial. By taking on the role, he hopes other carbon capture removal companies understand that, too.

With Chainguard, a team of former Googlers wants to fix software security — and ‘do it right’— Kyle Alspach

• Over the course of its first year, Chainguard has emerged as one of the most promising players in the effort to curtail the massive security risks of the software supply chain. But the group faces a rapidly growing threat as more and more attackers seek to use the software development process itself as a vehicle for delivering malicious code.

Chainalysis’ Michael Gronager knows your crypto customer— Benjamin Pimentel

• Michael Gronager, CEO of Chainalysis, didn’t know a thing about crypto at one point. Now his company has blazed the trail for on-chain analysis — so much so, in fact, that he thinks Chainalysis’ work could have softened the blow of the crypto crash.

Alan McLachlan, an engineer key to the invention of the PDF, dies at 58— Lizzy Lawrence

• Alan McLachlan is remembered by family, friends, and co-workers as being humble, talented, vastly knowledgeable, and technically gifted. Throughout his career he focused on firmware, essential software that allows a device’s specific hardware to function, and was essential in the creation of the PDF. He died at home in San Francisco earlier this month.

Trump wants to sway SCOTUS on Section 230. Soon everyone else will, too.— Ben Brody

• Through a pile of amicus curiae, or “friend of the court” briefs, former President Donald Trump as well as 16 Republican-led states have made their stance clear: They want the Supreme Court to remake both the First Amendment and Section 230 by allowing states to stop social media content moderation. And more of these briefs are on the way.

The CFPB’s Rohit Chopra wants an open banking ‘race to the top’ — Ryan Deffenbaugh

• The CFPB kicked off a rulemaking process Thursday to give consumers more control over their financial data. The goal, Director Rohit Chopra said, is to “ultimately give more leverage to consumers,” while also speeding up the transition to open banking.

The Bayonetta voice actor saga is obscuring an important conversation — Nick Statt

• The drama between voice actress Hellena Taylor and Bayonetta 3 developer PlatinumGames has been messy, with Taylor stirring controversy by deceiving the voice acting community and beyond about how much she was offered to reprise the main role. The deception overshadows the treatment and compensation issues voice actors face.

Sponsored content from ServiceNow

The pandemic has been a global event that, somewhat paradoxically, put an intense spotlight on the personal. In a marketing context, it underlined the centrality of supporting customers’ purpose – personal and organizational – and the need to serve the customers’ customer hierarchy of needs as those needs change over time.

Learn more