Wellian Weekly 13.12.2021

A Fourth String to the ESG bow?

I came across the table below the other day as part of a wider blog and it really has made me think in a slightly different way about ESG. The table itself is written by Andrea Bonime-Blanc and although it does state that this is not exhaustive or exclusive it does suggest that “E”, “S” and “G” are not enough. In a world where we are becoming more interconnected in Technology in everything we do – personally as well as professionally, surely a fourth letter - “T” deserves a place in the hearts and minds when it comes to the due diligence, risk management, fundamental research and so on. “T” is Technology.

In a professional capacity, there are pieces of software that I absolutely rely on. My day-to-day professional being simply cannot function without them. Of course, should my laptop get coffee spilled on it I might be without computer access for a few days before the IT department sorts the problem out. This is not a “T” problem; this is an inconvenience. As a business we have disaster recovery plans in place, and how well they worked in March last year was testament to good quality planning. Don’t get me wrong, we hadn’t forecast a global pandemic, but testing before the event meant that remote work, access to centralised files and the like helped the business run smoothly. Even effecting a Disaster Recovery Plan is not necessarily a “T” problem.

What I’m referring to here is an elongated period without certain pieces of software or hardware or access than can affect you individually or professionally due to errors or fault not of your own making. Companies are becoming increasingly reliant on technology, but in a world where robotics and AI are taking centre stage, what if - to quote a song by the Fun Boy 3 – “the lunatics take over the asylum?”

A number of the points raised in the “T” column below might be / could be / should be considered part of the day-to-day Business As Usual (BAU) processes or an outsourced task, we cannot be complacent or rest on our laurels.

I once read that something like 3 in 10 spread sheets contain errors (now, it didn’t say how serious or significant an error) but in today’s world, and certainly in this financial profession of ours where it feels like I watch more “how to” excel videos on YouTube than my kids watch videos on how to win at GTA or Minecraft or FIFA (and believe me, they watch a lot…) I really feel that there is a very strong argument for ESGT.

In a world where more is done online, behind a screen, programmed and then forgotten, are we opening ourselves up to unknown risks? In a world where thousands of financial articles daily are “written” and “read” entirely by computers and data from that is fed into AI and machine learning algorithms, just how in control are we? If we are making “informed” decisions without understanding how the “I” and “O” (Inputs and Outputs) are being interpreted, this could have lasting and far reaching implications.

Ultimately, I guess there is a long way to go – the taxonomy of E S G is still far from set in stone - but with the rapid take up and digitisation of pretty much everything it probably does make sense to stop and think and look at the ESG risks brought about by networks and technology. Even Facebook has recently changed the name of the parent company to Meta – because the interaction between the real world and the virtual world are getting closer.

Fund managers are spending more time with the C-Suite to understand the risks and sustainability of their business models. As more capex goes towards digitisation and online operations, surely the risks of technology impacting a business is rising and the ability for poor execution of “T” are rising too.

The world of ESG is rapidly changing. With the need to collect lots of data for E S and G purposes, wouldn’t it make sense to collect data for T purposes too because these risks are very real and can be incredibly useful in the future.

 

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