The pandemic-related events of the past two years have people rethinking their sustainability priorities. Governments are issuing regulatory standards. Investors and financial managers are incorporating sustainability criteria in their investment decisions. And customers and employees have become much more environmentally conscious, seeking brands and employers who share their values. Together these forces are shaping a new corporate agenda.
Sustainability has rightly planted itself in the heart of boardroom and operational management conversations.
Despite this rising tide of influence, a new report by IBM’s Institute for Business Value, “Sustainability as a transformation catalyst: Trailblazers turn aspiration into action,” reveals that only 35% of companies have acted on their sustainability strategy. As few as 4 in 10 companies have identified either the initiatives to close their sustainability gaps or sustainability drivers for change. And only one-third have integrated sustainability objectives and metrics into business processes.
Businesses need actionable environmental insights to meet sustainability goals. But current methods are often cumbersome and complex, requiring intensive manual labor, climate and data science skills, and computing power to fully utilize their data.Kareem Yusuf, General Manager, AI Applications IBM
The good news is that digital transformation can help organizations stay resilient, adaptive and profitable in this new era. Here are four ways a comprehensive data and AI strategy can play a key role in reshaping business operations around a sustainability agenda.
Sustainability has roared to the forefront of corporate priorities, with 73% of surveyed executives saying their organizations have set a net-zero carbon emissions goal. Customers, employees, investors, business partners, and governments are pressuring corporate management and boards to place sustainability at the top of their corporate agendas.
Only 39% of firms are developing more energy-efficient products and services
In fact, recent IBV consumer research revealed that more than 2 in 3 global respondents consider environmental issues to be significantly important to them personally—and they say they’re willing to change their consumer behavior accordingly.
Companies are taking notice. 53% of surveyed organizations view environmental sustainability as one of their top priorities within 3 years, up from 39% that consider it a top priority today.
While 86% of companies have a sustainability strategy, only 35% have acted on that strategy.
But talk is one thing, action and outcomes another. Becoming a truly sustainable enterprise is hard. Only 50% of those organizations that see sustainability as a top priority are effective in achieving their environmental sustainability goals. Dabbling at the edges no longer suffices. Achieving sustainability demands transformation.
Creating a more resilient infrastructure
The effects of climate change and dwindling natural resources demand that companies extend the life of their buildings, bridges and water lines. By embarking on digital transformation to meet sustainability commitments, companies can uncover new opportunities to optimize their processes, lower costs, reduce waste, attract new customers, increase brand loyalty, and embrace new business models.
Organizations combining commitment to sustainability with execution capabilities—and integrating this effort with digital transformation—create win-win situations.
AI-powered remote monitoring and computer vision help organizations see, predict, and prevent issues. They can also perform condition-based maintenance based on operational data and analytics to reduce downtime and maintenance costs. Improved asset management can help companies reduce their spare parts inventory. And a company can save on energy costs by pinpointing a small problem before it becomes a bigger, more energy-draining issue.
Sustainability as a business opportunity
To better understand how leaders charged with sustainability approach their roles, we segmented our respondents based on 3 criteria:
- Sustainability commitment among members of the organization’s Board of Directors and C-level executives
- Sustainability effectiveness as measured by organization performance on environmentally sustainable business processes in comparison with competitors
- Sustainability integration as measured by alignment of the organization’s sustainability strategy with the digital transformation/IT strategy.
This segmentation yields 4 sustainability archetypes. Commitment Sideliners (40%) lack a strong commitment to sustainability at Board and executive levels. Execution Stragglers (38%) are committed at the highest levels but lack effective execution on environmental sustainability. Sustainability Strivers (10%) are committed and effective but have not integrated their sustainability efforts with digital transformation.
Sustainability boosts business value: Transformation Trailblazers excel in revenue growth
Building a transparent, trusted supply chain
Supply chain leaders need visibility. When they can’t track the exact amount and location of their inventory they have and where it is, they can over-order, tying up too much working capital. And if supply chain leaders lack transparency and data sharing with their deep-tier suppliers, it’s incredibly difficult to track products from point of origination to delivery in a trusted and controlled way. This makes it harder to identify supplier risk and protect the brand.
Reaching supply chain sustainability goals requires a global, accurate, real-time view of inventory, plus the ability to share data across the supply chain ecosystem in a way organizations can trust.
AI helps companies avoid obsolete and unsellable inventory, reduce carbon emissions from logistics moves, optimize fulfillment decision-making, and minimize waste across raw materials, finished goods and spare parts inventories.
Deriving business insights from environmental intelligence
Companies exposed to a wide range of external factors need especially sophisticated predictive tools. Consumer goods companies such as Unilever want data to help them predict environmental impact and make sustainable choices. Insurance companies such as Canada’s Desjardins Insurance want to better predict disruption to policyholders — for example, advanced notice of imminent hailstorms could help its clients take action to avoid damage.
70% of Transformation Trailblazers are using hybrid cloud to advance their sustainability objectives.
Environmental intelligence capabilities help companies plan for and respond to weather events with AI-driven predictions derived from a combination of proprietary and third-party geo-spatial, weather and IoT data.
This streamlines and automates the management of environmental risks and operationalizes underlying processes, including carbon accounting and reduction, to meet environmental goals.
In this radically changed business landscape, company must partnering with organizations to deliver five levers of digital advantage that are designed to:
- predict and shape data-driven outcomes
- automate at scale for productivity and efficiency
- secure all touchpoints all the time
- modernize infrastructures
- transform with new technology-driven digital business models
Businesses everywhere have entered a new era of digital reinvention, fueled by innovations in hybrid cloud and AI.
The increase in government regulation and rise in consumer expectations around sustainability make it clear: organizations today must consider the environmental impact of their activities at every level. And the changes they make must also be factored into pricing.
But trailblazers aside, many are not ready to do this. While half of the firms surveyed have initiatives in place to improve sustainability reporting, less than half indicate that they are willing to change existing business practices at the expense of profits. And only 39% of companies are developing more energy-efficient products and services.
Even so, businesses are aware that solutions are out there, and organizations often state that they have the technological solutions to achieve sustainability. Executives cite mobile, Internet of Things in Insurance (IoT), cloud technologies and AI as essential to achieving sustainability goals. The issue lies with implementation.
This is where the “transformative trailblazers” come in. By integrating their sustainability and digital transformation efforts, these firms are using sustainability to differentiate themselves in the marketplace and create business value.
Key traits of transformational trailblazers
Transformative trailblazers share several features. First, they understand that sustainability is fundamentally a business transformation play, driving change and innovation. They are therefore significantly more likely to take advantage of emerging technologies such as AI, hybrid cloud and blockchain.
As a result, these firms regard sustainability not as an “add-on” but as a strategy to infuse into the core fabric of the organization.
Insurance technology is central to achieving these initiatives, which means the CIO has a central role to play.
In fact, at these firms the CIO frequently shares responsibility for the sustainability agenda with the COO, helping the business integrate sustainability and digital transformation operationally as well as in their corporate governance.
Transformational trailblazers also step outside their organizations to collaborate closely with ecosystems and supply chains, working closely with business partners to achieve their sustainability goals together.