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Technology consultant Chris Allison returns to 'Trust Bites' to discuss the role of technology in ESG (Environment, Social, and Governance).
Chris talks about the evolution of ESG, from its roots in the financial services industry to its current form as a tool for mitigating social and environmental issues like food safety and climate change.
Chris emphasizes how sensor technologies, artificial intelligence and data management can streamline the ESG reporting process, as well as the importance of human oversight in acting on these insights.
This podcast is presented by My Trusted Source.
Produced by Joe Diaco Podcasting Support.
Chris talks about the evolution of ESG, from its roots in the financial services industry to its current form as a tool for mitigating social and environmental issues like food safety and climate change.
Chris emphasizes how sensor technologies, artificial intelligence and data management can streamline the ESG reporting process, as well as the importance of human oversight in acting on these insights.
- (00:17) - Introduction
- (01:16) - Understanding ESG and its Importance
- (03:04) - ESG Reporting and Regulations
- (07:26) - Role of Technology in ESG
- (16:22) - Vulnerability and Responsibility in ESG
- (18:23) - Examples of ESG Metrics and Performance Indicators
- (19:30) - Farewell
This podcast is presented by My Trusted Source.
Produced by Joe Diaco Podcasting Support.
Creators & Guests
What is Trust Bites?
Hosted by food safety industry leader and consumer advocate Dr. Darin Detwiler, "Trust Bites" examines the challenges of ensuring food safety in a complex global marketplace and maintaining brand reputation.
With the rise of global food trade, consumers, retailers, and producers alike are increasingly concerned about the safety and quality of the food they buy. Many existing validation systems are outdated, bureaucratic, and expensive, creating inefficiency and allowing vital information to slip through the cracks.
"Trust Bites" delves into the validation process, discussing the challenges and limitations of current systems and exploring fair and equitable solutions.
Dr. Darin Detwiler: Hello and welcome to another episode of Trust Bites. As always, these are being brought to you by the fine folks at My Trusted Source, your digital solution for supply chain management validation and other needs. I'm your host, Dr. Darin Detwiler. With us again, we have Chris Allison. Chris, welcome.
Chris Allison: Thank you, Darin.
Dr. Darin Detwiler: Chris, you're not just a member of our board, but for those who have no idea who you are, who are you to our audience?
Chris Allison: By trade, I'm a technology consultant and I've spent the vast majority of my career in banking technology, but then more recently moving into ESG and supply chain practices that involve food and and also environmental crime.
Dr. Darin Detwiler: It's not a simple job, there's so many things going on, and we try to often capture big concepts into something simple. I think ESG is something that is often used as a simple concept to describe a very complex situation there.
I would like to talk about ESG a little bit. But before we get into ESG, which, by the way, is environmental, social and governance, and many people know that this is a growing trend, probably more growing internationally than here in the United States, but it came out of the financial industry, a way to look at investing, for insurance purposes, for basically for financial analysis of a company, a bigger picture of what they're doing.
But how would you define ESG to people who have no idea what it is other than three letters?
Chris Allison: Yeah. Good question. So as you say it's driven out of the financial services industry initially, but ultimately we're responding to climate change, right? So as a tool to combat climate change and get people to think about climate change and the impact of climate change we've started a lot of practices within, particularly within listed companies around understanding emissions and sustainability. And then that's grown into a broader definition of things that we should find important around corporate social responsibility, et cetera. And that's grown into this ESG.
So environmental is, " What's my impact on the environment?"
Social is my labor practices, diversity, that kind of thing.
And then governance is how I'm actually running my organization. I think a misconception that people have that this is just a financial investment concept.
And yes, that's where it came from, but it's grown into a lot more than that. And the reality is that ESG reporting is becoming mandatory. And there are a whole series of regulations and standards that have been developed over the last decade that are actively now starting to bite in different jurisdictions, right?
If you're in the UK, you've got the UK mandatory climate disclosures, which is hitting something like the top 1,300 UK firms already. In Europe, you've got the CSRD, Corporate Sustainability Reporting Directives, which hits in 2024. You mentioned that other countries are further, are more progressive than the US. But the SEC is hitting with the climate disclosure rule that comes in 2024, and that's particularly hitting ESG Scope 3, which we'll get into and climate impact. And then the state-specific regulations that are coming in as well. So New York and California in particular have pushed ESG reporting through there.
So what does that mean? So that means, particularly if I'm a listed firm, and in some cases there's a broader definition of that, so just if I'm a large firm that's important, then I need to understand and report on environmental impact and specific measurements that different frameworks have for my social and governance responsibilities too, right?
And then the way that they've been constructed, generally, these frameworks are about financial materiality. So you've got to understand the difference between financial materiality and impact materiality. So impact materiality would be, "What am I doing to the environment?" Whereas financial materiality is, "If the environment suffers, what's the impact back to me?"
So, most of these standards actually for ESG, are financial materiality. So, it says, if this happens at the bottom of my supply chain, what's the financial impact back to me? So if I'm relying on alluvial mining practices in the Amazon Basin and that gets shut down, or if I exhaust my supply of cocoa or whatever it is that I'm relying on, what would the financial impact be to me if I had to change my supply chain practices?
So ESG is becoming very real in terms of reporting for large organizations, whether they like it or not. And it's expanding into climate and nature-related disclosures as well, right?
Dr. Darin Detwiler: And when you look at the fact that professionally, I focus a lot on food safety, and you look at red flags for food safety, and, usually they're after the fact. It's usually after someone's been harmed that you find evidence that you need to have a recall, or that you need to deal with an outbreak.
But if you start looking at red flags within the realm of ESG, you'll probably find a broader set of indicators of problems. Right now, there's a big focus in the United States on some companies have been using third party. companies in terms of cleaning their food manufacturing plants or even their meat slaughtering plants.
And those companies have been employing minors at one o'clock in the morning. You've got a 14 year old cleaning a slaughterhouse kind of situation. Now, will that necessarily impact food safety? It may not. However, if you look again at the bigger realm of ESG, finding out that there's this evidence here in which a company is violating or taking advantage of a loophole or whatever, other areas, now that starts to change your perspective in terms of the overall, how we trust this company, how we do we invest in this company? Do we do business with this company? How do we handle this issue? So I don't see it. I agree with what you said. Though it has its roots in the financial sector, there are far wider-reaching implications in terms of how ESG can drive business and trust with consumers, et cetera.
Chris Allison: Exactly. Exactly. I think a lot of the evils of the supply chain that were hidden from us in the past, we are getting to the point where transparency is crucial through these supply chains. And we're forcing transparency so that those evils cannot be hidden from us anymore, right?
Whatever they are, wherever they are.
Dr. Darin Detwiler: And with transparency, with ESG, with all these different areas, we look at technology in terms of how technology is used to collect data around these issues. And of course it's going to vary from company to company, from commodity to commodity, but ultimately, whatever they're collecting to satisfy the collection of data that shows this transparency is using technology.
But can technology be used to enhance, not just collect information after the fact, but can technology actually be used to enhance the performance of a company in areas that are measured, if you will, by ESG?
Chris Allison: Yeah, a hundred percent. It's a big challenge, right? So understanding really what's happening at the bottom of your supply chain is very difficult. At the bottom of everybody's supply chain, we're either digging something out of the ground, farming something or pulling something out of the sea, right?
And knowing exactly where that happened and how it happened and having the right sensor information or the right satellites trained on that area to understand what the impact is is an area where we have a huge amount of gaps right now.
There's some great reporting and analysis going on around one of these standards at the moment, like TNFD, Task Force for Nature-related Financial Disclosures, and they do a great job of assessing the gaps in the data that's available right now.
So if you're saying to everybody, "You need to understand what's happening right through your supply chain," number one, it is really difficult. But if you're looking at the pieces under your direct control, wherever you are in that supply chain, then technology can have a huge impact.
So, the capabilities of sensor technology to monitor what's happening, whether you're farming or managing land or managing water sources or you're in the oceans or whatever, like the sensor technologies firstly, the cost of sensors is plummeting. The technology is evolving really quickly. And then the ability to push AI down to the edge. Think about Internet of Things and the ability for edge devices to have computer vision or perception. The ability to push real-time recognition down to those devices to spot quality control issues or spot things that are violations of standards. It just wasn't there last decade before.
The price point is there now, so where people have a willingness to actually be measured or to measure other people, the technology exists to be there. So that's the first thing I'd say about sensors and pushing AI down into that space. Second thing is, in the world of data and data management, again, every year we're evolving that. So the ability to pull large amounts of data into one place. Whether you're talking about large data lakes in the cloud or on your own premises or having third parties do this for you and provide the answers as services, that kind of technology has evolved from the big data boom of the last 10-15 years but now is again a very cheap price point, very manageable.
And the last thing I would say is that graph technology has started to play a huge part in this as well. So especially where you're looking for violations and where you're looking for companies that might be on the edge of whether you can trust them or not. Especially when you're talking about different parts of the world. I'm getting raw materials from China or Peru or parts of Africa. How do I know that the companies I'm dealing with are genuine? There are some firms popping up that are using huge amounts of data, a lot of AI, but then with a layer of graph technology above that, that are really trying to spot the connections between... you know, spot the bad connections, if you like.
And for people not familiar with graph technology, this is the kind of technology behind social networks. So you're trying to find links between, and how strong those links are, between nodes. And the node might be you and I, Darin. So does Facebook know that we're having a professional conversation? How does it find that and how does it create a link between us? But the same can be used when you're trying to look at linking data around shipments and you're monitoring rainforests and you're spotting payments between people in high positions in government. You're trying to correlate all these things together to try and spot where there might be issues.
Dr. Darin Detwiler: It sounds like these days, you look at some of these sci fi action shows and part of the storyline is, how did they use technology to make these connections that no one ever saw? And find out that it's the corrupt senator from the state or something like that through these different things.
These are becoming more of the reality in terms of the idea that there are patterns that we're finding today that --good or bad, right?-- we never necessarily saw before. And I know there's always been this worry about, oh, so much data. Perhaps one of the challenges is to make sure that we're not just collecting data for data's sake, right? We want to collect real, valuable information. We want to make it search, it's actionable. We want to make sure that we have different places that are able to use everything from the same type of data to the same units of measure to the same way of collecting that data.
So we can spend less time trying to clean the data and more time having specialists, experts, if you will, evaluating and making recommendations from this data. And what I find amazing is how many conversations I've had with people that'll go in, they'll be paid a lot of money to put in all this work, to take all this data, to say, "Here's the pattern and here's the recommendations for you to achieve your goal."
And they'll present this information back to a company and a company will literally turn around and say, "Yeah, we don't really think we want to do that. We don't understand why we should be doing that."
If we look at a weakness, there's still the human element, right? The human element to understand the patterns and to understand why do we need to take certain actions based on what this machine learning or Artificial Intelligence or graph technology or whatever it is we're looking at is telling us. What are your thoughts on that weakness component of the human element?
Chris Allison: I think the one thing I might disagree with there is about what data to collect and what data not to collect. I come from an industry where we came to a point where we said, "Just collect everything and we'll figure out how to use it later." And the reality is machine learning and particularly deep learning finds connections that you and I don't. And that's the point of it. You teach it. If you're using supervised learning, you would, you teach it some outcomes and then say, go and find the patterns. So I'm going to show you a picture of a cat and a dog. I'm going to show you many pictures of cats and dogs. I'm going to label some of them as cats and dogs. And then I'm going to give you another 10,000 images. And you go and figure it out. You're going to figure out what you think the defining characteristics are between those things.
So, we may be collecting data today that we think is useless, but. The deep learning techniques may, the algorithm may find patterns in those that you and I don't spot.
Dr. Darin Detwiler: I guess what I was referring to are situations and as you're saying this, I was trying to think of a simple example. A company that has a manufacturing plant and they have rodent traps and they pay someone, they pay a company to come in every other month to clean out the traps, versus a company that decides that they're going to use technology that will. And they can actually tell real-time when there's actually been a rodent captured in the trap. That'll pinpoint that along with where is that? Are there other things that are going on? Are there times a day? Are there events that are going on like an open warehouse door or something like that?
Maybe it... There's more rodent activity when there's landscape work being done outside the building. Who knows, right? But this is where you start to see the pattern, as opposed to 'why do we need to collect data at all in terms of rodent activity.'
That decision to collect data or not can eliminate the ability to have the data and technology be able to literally help you identify information that could help with the root cause analysis in terms of why are you having a rodent problem in the first place? Is this something we can solve?
Chris Allison: Completely agree with that. Yeah.
Dr. Darin Detwiler: One last question here with technology. You talked about price. The prices are coming down. We've talked about different elements with technology. I would also think that the more, even outside your company, the more people within your commodity, within your sector, within your geographical region, the more data that's being collected over time has to help with this as well.
Even crowdsourced information from consumers, this all has to help at some point. But there are still those out there that talk about, "The sooner you adopt technology, the sooner it is for you to be crucified," because there's too much information about what you're doing. And you want to be able to control that.
What are your thoughts on the idea of vulnerability versus taking responsibility for your actions? And realizing that if that body of technology and data reveal some vulnerabilities, it is what it is. Unless you take action upon it, unless you are the responsible corporate officer who says, "This is what it is. We can do better and actually take steps to improve the situation as opposed to 'this is what it is. Let's hide from it.'"
That's not being a good corporate officer.
Chris Allison: And I guess there's a line here between what I'm analyzing myself internally versus what I'm making transparent to others. And you don't necessarily want other people to jump to conclusions based off raw data that may be wrong conclusions. And then you end up with a pR disaster on your hands that you can't control. But you would think it was your own responsibility to gather as much data as you possibly can to understand yourself, whether you're taking risks or whether there's efficiency opportunities within your firm, right? Any data that you can cost-effectively gather yourself for your own purposes as a starting point is a great thing.
But I think just understanding how ESG and these frameworks are going to hit you at some point, whether you're in the first line of regulated firms or listed firms that have a direct responsibility, or whether you're in the next tier or the next tier, you're going to be asked at some point, " To stay in my supply chain, I need this information from you."
So If you're getting that asked right now, you're going to get those questions asked in two years or three years. So start collecting the information. The better trend that you've got of data, the more likely you are to stay in those supply chains, right?
Dr. Darin Detwiler: One last question then. Based on what you were just saying now, what are some specific examples of metrics or performance indicators that can be utilized to measure ESG?
Chris Allison: Let's say I'm a farm, right? And whatever it is that I'm growing, basic things like water management are really important versus the volume of goods that I'm producing. How much water am I using? That's a very simple thing. I could tell you that from my own house, right?
So being able to tell me that for your farm or your production facility or anywhere up the supply chain from there, I should be able to get a handle on water management and water management is a really critical part of the environmental measurement. So it's one very simple measurement, right?
But then you go from there into emissions and fuel consumptions. And how much do I recycle? How can I quantify what I consume versus what I recycle? All those kind of things are part of the environmental part of ESG.
Dr. Darin Detwiler: Chris Allison, thank you very much for this incredible conversation about ESG and trust and technology. And I look forward to future conversations with you.
Chris Allison: Thank you. My pleasure.
Dr. Darin Detwiler: For Trust Bites this is Dr. Darin Detwiler. Thank you very much.