It seems like technology is often at odds with ecology.
The ESG failures of tech companies have attracted attention. But the Inflation Reduction Act is trying to accelerate the green side of technology, aiming to reduce U.S. greenhouse gases to 40% below 2005 levels by 2030.
To help achieve this goal, the act includes incentives for developing and using clean technology like solar panels, batteries and electric vehicles. For example, it encourages homeowners to buy electric appliances through home energy rebate programs, provides discounts to electric vehicle purchasers and promises tax credits for U.S. cleantech manufacturers.
“The new legislation, on top of the ongoing shift to greener technology, means that cleantech companies could see much more commercial and residential demand — and much more stakeholder scrutiny.”
“The new legislation, on top of the ongoing shift to greener technology, means that cleantech companies could see much more commercial and residential demand — and increased stakeholder scrutiny,” said Grant Thornton ESG & Sustainability Director Suha Gillani.
Many cleantech organizations need to take a closer look at their business operations, to ensure that they align with the same ESG goals as the products and services they sell. Effective ESG business strategies can help companies respond to stakeholder needs, mitigate social risks and foster transparency across the supply chain.
Clean the chain
Cleantech companies often have a mission that includes operating as an environmentally conscious business. However, they also often fail to track the full environmental footprint across their supply chain.
For example, many cleantech products require metals that can only be produced in combination with other metals, like cobalt and gold that are by-products of large-scale copper mining. This creates dependencies on additional supply chains and large volumes of metals that may not all be used in the production processes.
When companies get better transparency about these dependencies across their supply chains, they can make conscious shifts toward a circular economy mindset and implement steps to reduce their environmental footprint.
Build resilience to ESG risks
A transparent supply chain can also make companies more resistant to supply-side shocks, a concern for many stakeholders in the post-pandemic world.
Investors, regulators and consumers now recognize how ESG increases business resilience. Companies are seeing a growing number of ESG-specific motions from shareholders that want corporate leaders to apply the same values and standards when they select and work with suppliers. Pressure is also mounting from regulatory bodies like the SEC, which has proposed a rule that will require public companies to disclose climate-related risks.
For a young and growing industry like cleantech, building a customized and robust ESG approach is critical to proactively identifying and addressing ESG risks and ensuring the continued financial and moral support of their stakeholders.
Remember the “S” in ESG
“Cleantech companies need to remember that today’s employees and consumers consider the social commitments of a company as a critical factor when evaluating the organization for any engagement.”
“Cleantech companies need to remember that today’s employees and consumers consider the social commitments of a company as a critical factor when evaluating the organization for any engagement,” Gillani said.
It’s important for companies to recognize the importance of their societal impact, including the company’s record on diversity, equity and inclusion (DE&I) both internally and externally. A company’s DE&I performance will impact the talent and resources cleantech organizations continue to attract, especially as millennials and Gen Z become the majority of the current and potential workforce.
To turn considerations into actions, companies need to undertake some tangible steps.
Take action with tangible steps
Cleantech leaders need to develop a cohesive ESG narrative for their organizations, and they can start with these steps:
- Conduct a materiality assessment to establish your starting point
To establish a baseline for your organization’s approach to ESG, and the resources needed for that approach, conduct a materiality assessment. This assessment identifies the ESG topics that are critical to stakeholders and business success, and sets a starting point for your next steps.
- Tie ESG goals to KPIs in an ESG policy
Align your ESG goals with KPIs, especially the KPIs from relevant disclosure standards, to make progress tangible and measurable across industries and geographies. Then, create an ESG policy that gives stakeholders definitive guardrails for initiatives that will help your organization achieve its ESG goals.
- Ensure adequate oversight through robust governance
To establish accountability on your ESG progress, design a concrete organizational structure (like an ESG committee) that includes institutional leadership. This oversight team should have the autonomy and resources to implement efficient ESG policies and processes, like environmental management systems and labor rights and workplace safety reporting programs. The team can also help create greater transparency for stakeholders.
- Validate progress through third-party assurance
Leverage third-party vendors to authenticate your reports on ESG progress, like your KPIs on climate-related risk as part of reporting for the proposed SEC rule. This will also give stakeholders confidence in the operational integrity of your organization.
- Incorporate financial benefits from ESG-conscious programming
Identify and monetize relevant tax benefits offered to the industry as part of the evolving regulations, to help sustain operations and motivate ESG-conscious business goals.
Cleantech companies have a green mission that puts them ahead of other U.S. companies in the move toward an accelerated ESG impact. However, they still need action to proactively invest in and shape further ESG progress.
The Inflation Reduction Act’s energy incentives and credits help monetize ESG progress, and the market for clean solutions. That makes this the time for cleantech companies to prepare for increased demand for their products — and increased scrutiny of their organizations.
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