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TL;DR
More than 140 countries have made net zero commitments, including major emitters and regions such as China, the United States, India, and the European Union. As of February 2024, most EU member states have set net-zero targets, either in law or in a policy document. Also, more than a third of the world’s largest organisations have made commitments to reach net zero by 2050. To facilitate this economic transition companies and countries will have to hire and often train ESG talent or tap into consultants' expertise.
In the short term, the ESG labour bottleneck, poses a few risks. Burnout and disgruntled ESG employees may produce work and analysis that is of lower quality than expected by regulatory bodies. In the long term, the ESG talent shortage means that reporting, compliance and actioning net zero targets happens slower than expected, inhibiting the progress demanded by regulators and investors. These inefficiencies will severely compromise achieving critical net zero emissions targets set by a third of large businesses by 2050 (UCL, 2023).
The WEF Future of Jobs report (WEF, 2023) cites sustainability specialists as one of the fastest-growing job segments. For the foreseeable future, the green skill gap will continue to be an acute problem for many companies. The introduction of new regulation in the EU is likely to create an even more acute gap. Currently the number of jobs requiring green skills is three times higher than existing green talent participation.
In recent years, the EU Commission has introduced a suite of groundbreaking sustainability regulations aimed at reshaping the corporate landscape and financial markets to drive the transition towards a more sustainable economy. These regulations, namely the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy Regulation, the Corporate Sustainability Reporting Directive (CSRD), and the proposed Corporate Sustainability Due Diligence Directive (CSDDD), have emerged in response to the pressing need to address climate change, environmental degradation, and social inequalities.
The introduction of these sustainability regulations will undoubtedly create significant compliance burdens for companies operating in the EU. Complying with the extensive reporting and due diligence requirements will require substantial investments in time, resources, and new talent. Companies will likely need to hire sustainability experts, ESG data analysts, and legal professionals well-versed in these regulations. They may also need to upgrade their data management systems and processes to collect, analyse, and report the required information. This could lead to significant compliance costs, particularly for smaller companies with limited resources.
Some argue that the complexity and granularity of the reporting requirements could distract companies from focusing on the most material sustainability issues and making tangible progress on ESG goals. The risk is that companies get bogged down in compliance paperwork rather than driving real change.
Climate and ESG-related work is vital for companies and investors to assess ESG risks, and impacts and set appropriate net-zero targets. To carry out these activities companies need to hire and build out their own ESG teams or hire consultants to fill in gaps in knowledge and expertise. On the environmental side, most companies are focused on reporting and setting a science-based baseline to use for target reduction strategies. For social and governance, most companies rely on sustainability or compliance teams to carry out materiality assessments, gap assessments and remediation strategies.
Manual assessments by ESG consultants can sometimes be inefficient and slow. £1.5 billion globally each year is spent on tasks that can be automated. We estimate that globally 38.9 million consulting hours are wasted every year on carrying out assessments that check ESG compliance. Ironically, too much ESG regulation could pose a real threat in delaying the sustainability progress demanded by stakeholders, investors and regulators.
Right now we believe that roughly 20-30% of an ESG analyst's job could be streamlined. This involves speeding up parts of the job that involve checking vast amounts of documents to check for alignment to specific regulation. Assuming the other 70-80% is spent gathering data, doing research, liaising with external stakeholders, creating pitch material, setting the strategy and coming up with remediation strategies.
A Faster Global Net Zero Transition with AI
The first step on the path to net zero and towards a more sustainable future involves measuring a company’s current emissions and evaluating the company's sustainability policies. Reporting and carrying out assessments is an initial first step. Benchmarking a company’s performance against its peers is the natural next step. Then, the company can begin the crucial work of implementing viable operational changes.
We believe that by lifting the reporting, compliance and screening burden that sustainability professionals have to face, more time can be spent on crafting tailored net zero targets and actioning these strategies to make the move towards net zero. Reports, analysis and research are still prone to human error. By speeding up consultant workflow, we empower consultants to complete tasks faster, with fewer errors enabling them to scale their operations efficiently. Following this, by introducing productivity tools to all sustainability professionals we help them focus on high-impact tasks, expediting our path to net zero.
If you have any comments or are interested to find out how Radiant AI can help you streamline ESG compliance assessments please reach out to jon@getradiant.ai or feel free to book a chat using the Book Demo button.
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