Eco.logical

Environment, social, and governance (ESG) issues were once seen by business leaders as a secondary concern. Now, they are a strong magnet for investment, especially among generations who will shortly be making those key decisions. Millennials and Generation Z are twice as likely to invest in funds that endorse companies with strong ESG principles, and 70% prefer to work for a company with a strong ESG footprint. As workforce issues like talent retention continue to climb up executives’ priorities, satisfying those sustainability expectations has become essential for business growth.

Committing to sustainability goals is one thing, but delivering on them – and proving the results add value to the business – is a complex challenge. Organizations must choose between an abundance of frameworks like the Global Reporting Initiative and the Task Force on Climate-Related Financial Disclosures and prepare to comply with emerging governmental regulations worldwide. It’s even more complex for suppliers, who may need to comply with different sustainability standards depending on their clients’ expectations.

Success is built on three pillars:

• Identifying the best strategy to tackle sustainability issues,
• Devising meaningful ways to monitor, measure, and report on the results, and
• Empowering people across the organization to put those plans into practice.

By addressing all three pillars, Fractal helps its clients frame the right problems to address and design the solutions.

Question one is the same for every organization: what exactly is the ESG problem you want to tackle? The answers are very different. We all have ideas about reducing emissions and conserving natural resources, but how does it look in the context of your business and the industry in which it operates? By putting the issues in this frame, organizations can identify opportunities to make the impact they want and explore ways to make it happen. A design-led approach is the best way to pinpoint the pertinent issues, envisage effective solutions, create prototypes, and manage change so the whole organization can rethink how it does things and achieve its sustainability goals.

This design-thinking, solution-seeking approach is at the heart of what Fractal does, and it can be used to develop powerful ESG strategies. In the Asia-Pacific region, for example, a major telecom company wanted to harness innovation and technology to help reduce carbon emissions, address environmental issues and reduce consumption.

“Telstra’s sustainability vision goes beyond carbon neutral operations, which we achieved in July 2020 through one of Australia’s largest ever carbon offset purchasing programs. By 2025, we aim to generate renewable energy equivalent to the amount we use. By 2030 we’ll have reduced our absolute emissions by at least 50%. We are also committed to creating a more sustainable future by optimizing resources, reducing consumption and waste across our business, and investing in circular solutions. Alongside an 85% increase in our network waste recycling rate, our goal is to reuse or recycle 500,000 mobile phones, modems, and other devices each year to 2025.”

Fei Tan

Advanced Analytics Chapter Lead, Telstra

Telstra’s vision extends beyond internal goals to support sustainability efforts across its ecosystem.

“As Australia’s leading telecommunications and technology company and a large user of energy, Telstra has an important role to play in addressing climate change and the many environmental challenges we face. We are committed to leading by example and using our scale and voice to help drive better environmental outcomes in our operations and among our customers, suppliers, and communities. We use technology to address environmental challenges and help others to do the same.”

Tim Osborne

General Manager of Data Solution Engineering at Telstra

Using a multi-disciplinary, design-led approach, Fractal’s artificial intelligence, engineering, design, and domain experts worked with employees and stakeholders from across the company in a hackathon-type process. 

“We started with an immersive view of the business, including the client ecosystem, data centers, and network sites, and the data available on their systems,” said Tanay Kumar, Senior Consultant at Fractal. “This was complemented by primary and secondary research, including collaboration with industry experts, corporates, and educational institutions to deepen our understanding of the trends and best practices in the telecom industry.”

By combining those best-in-class examples through its design-driven process, Fractal worked with the company to synthesize and narrow down the problems it wanted to address, build a solid business case, and experiment with solutions. It then moved towards three prototypes that can be scaled to reduce emissions across its data centers and network sites. 

While framing the problem is an essential starting point for a strong ESG strategy, progress can only come from a deep understanding of the organization’s current position in its sustainability journey, what it aims to achieve, and the actions needed to move forward. For instance, what benchmarks, baselines, and data controls should be in place to deliver a full and accurate picture of progress, not least in compliance with various governmental and non-governmental standards and regulations? And how can you make sure everyone has the information they need to keep things on track? It’s a challenge that demands all the right data to be in one place, where it can be aligned and modeled against a spectrum of well-defined key performance indicators (KPIs) and automatically audited and validated. That’s where Fractal’s process consulting expertise comes in.

Take the example of two major consumer packaged goods companies that needed to build end-to-end ESG reporting and visualization platforms. Both organizations faced a similar problem: structured and unstructured data coming from various sources, including third-party suppliers and their own sourcing and procurement teams. By creating a data model for ESG, Fractal harmonized and democratized each organization’s data onto a single platform so it could be used across business functions, from manufacturing to procurement, logistics, human resources and governance teams. 

“Each of these business functions had different processes for collecting and gathering data, as well as different KPIs relating to sustainability,” said Siddhartha Sabale, Engagement Manager at Fractal. “Developing a single platform helped them to visualize the entire range of KPIs, but it also reduced overall turnaround time. Visualization reports that took weeks or months to create can now be generated at the click of a button. The organizations use these reports in their annual sustainability reporting to external audit partners. Additional simulation tools are now being developed with one of these companies, enabling it to see how sustainability initiatives in logistics or manufacturing will have a wider impact on areas like net growth or net revenue.”

3 KEY STEPS TO SUSTAINABILITY

When all stakeholders are clued up on ESG performance against KPIs, it’s easier for them to make the right decisions – and that is another area where Fractal excels. How, for example, can a global confectionary manufacturer ensure it is sourcing raw materials that are cost-efficient and environmentally responsible? 

That was the big problem for one Fractal client, which needed to identify the most sustainable areas to source its cocoa supplies from. Cocoa trees are susceptible to water stress, and some plantations that supply the organization include areas with limited groundwater availability. The company needed accurate, up-to-date information to identify areas of baseline water stress (BWS – the ratio of annual water withdrawals to total available annual renewable supply) to create sustainable sourcing strategies across a given farm or geography. Its manual calculations proved prone to error. Fractal recommended an optimization solution that uses site-level simulation with inputs including BWS, emissions, the volume of raw material required, and latitudinal and longitudinal location parameters to provide recommendations about which areas sourcing teams should select for different scenarios. The result? Low-cost sourcing of raw materials with lower average BWS across the chosen farm or location.

With these three pillars of sustainability in place, companies can devise, test, and demonstrate the value of their ESG measures. But to paraphrase an old saying, time waits for no man, organization, environment or planet. The pressure is on to act now and to match accuracy with speed and scale.

“Every industry, and every company within each industry, has different needs, whether it’s identifying targets they can work towards incrementally or realizing dramatic change to make their business future-proof. As we’ve worked with different clients’ frameworks, we have created accelerators to help speed up the journey of discovering and achieving the sustainability impacts they’re looking for. That might involve framing the solution, consulting on the assessment process or creating data models to help clients create the solutions they need. Our design-thinking approach helps companies to identify the problems they want to address quickly and to tackle them through targeted strategies and scalable solutions.”

Bhaskar Roy

Client Partner, and Head, ESG Data and Analytics, Fractal

A BRIEF HISTORY OF ESG

2006: ESG gains financial significance for businesses when the United Nations Principles for Responsible Investment provides a framework for incorporating ESG measures in investment decision-making.

2009: The Global Reporting Initiative (GRI), established in 1997 to create an accountability framework for companies to report on responsible environmental business practices, begins to focus on ESG issues.

2015: The United Nations launched Agenda 2030, centering on 17 Sustainable Development Goals aimed at governments, businesses, civil society, and citizens.

2020: BlackRock commits to putting sustainability at the center of its investment process, saying that integrating sustainability-related information will help portfolio managers to manage risk and make better-informed decisions.

2021: Investment in ESG bond funds reaches $54 billion.

2022: Gartner’s CEO and Senior Business Executive Survey lists environmental sustainability among executives’ top 10 business priorities for the first time.

The US Securities and Exchange Commission mandates reporting and disclosures around ESG for all listed firms.