ESG Is Crucial For Companies

ESG, the acronym given to the three factors (environment, social and governance) effectively summing up sustainability, has become a buzz word in the last 5 years. The term has received special interest by companies as it becomes more important among investors, external stakeholders and rating agencies.

ESG has evolved into more than just an acronym signifying sustainable efforts. It has become a driving force of corporate strategy for many businesses. Environmental, social and governance factors are becoming increasingly important for investors as a method of evaluating companies and deciding where to invest.

Why Is AI Used To Assess ESG Performance?

Today, artificial intelligence (AI) is increasingly used to assess large amounts of data and provide comprehensible, easy to use information generated from multiple sources. AI is used by many companies and investors globally to collect and analyse large amounts of data when assessing environmental, social and governance risks and opportunities. AI has got a vast field of knowledge and data that it draws on when assessing corporate ESG performance. This allows it to pick up on trends that human analysts often overlook. AI tracks patterns and makes correlations, recommendations and conclusions based off of these outputs.

Traditionally, ESG perception was dependent on the information released by a company. With the assistance of AI, ESG information is also tracked and informed by external documents, sites and social media sources making the results a more reliable and informed source of information about a company. This has provided valuable intelligence to investors, rating agencies, data providers and companies wanting to track their ESG performance relative to the industry.

How Can I Use AI To Help My Company Stand Out?

Strategic Management

Using AI to focus on the strategic aspects of ESG allows you to plan, manage and use resources more effectively. For instance, looking at your company’s performance across the industry can be overwhelming and a time-intensive process. To give an accurate rating of the company, multiple sources should be evaluated. AI assists in this way due to its ability to scan, analyse and summarise thousands of sources in a short time period.

Evaluating how your company fits into the industry relative to its peers is important to understand how your performance is being perceived by external stakeholders. It allows you to identify blindspots, learn from how your peers deal with similar events and helps you to understand how to improve your current performance.

At Eunoic we have developed a feature that considers the share price relative to ESG sentiment of a company to see how its share price is affected by the media sentiment. This is helpful for companies to see the relationship between investor activities and their ESG performance. Knowing which ESG actions move the needle from an investment or divestment perspective allows companies to more smartly manage and communicate on environmental, social and governance dimensions.

Communication and External Perception

Company ESG performance is generally measured by information in internally generated communications (e.g. reports and websites) and external sources (e.g. news, social media, etc.). AI plays a key role in analysing the information from these often unstructured data sources.

Algorithms identify key areas where a company needs to improve their perception. This allows management to focus resources and effort to improve their rating and overall ESG perception and performance in the future.

Reports and Websites

For example, when writing company reports it is important to clearly identify the message you want to portray to readers. Using the appropriate language and ESG-linked keywords is crucial in this regard. AI can help make the report’s messaging more accessible to people and algorithms, improve the document’s ESG emphasis, and help it align to market consensus demands.

This is similarly done for a company’s website. Specific words and phrases have greater impact on AI and align to ESG aspects better, resulting in improved ESG performance perception. AI has the ability to pick up these areas and assist in overall improvements within the company based on their current documents and resources.

News and Social Media

The way a company is portrayed in news and social media is often out of direct control of the company. Therefore, using AI, companies can assess how they have been perceived by the public more easily than manually searching through all news and social media feeds related to the company.

AI is a highly efficient and effective tool that helps to make analysis and understanding more simplistic to its reader. Company communications regarding their ESG journey is important as it shows customers, business partners and investors their commitment to the company’s sustainability journey.

Eunoic has tools that help corporations look at their overall ESG media sentiment in a given timeframe and allows them to easily identify time periods where media and news sentiment was particularly positive or negative. This provides an easy way to zone in on periods and see what drove the sentiment and how to either improve the negative sentiment or continue company performance to maintain a positive sentiment.

Through tracking global trends, company specific information and general market information, recommendations can also be made for your company to improve performance and perception. In a society that is so easily and quickly influenced by trends, it is important to have measures in place to respond appropriately.

Improving ESG Communication Accessibility

While AI can be an invaluable tool to assist in improving ESG performance and perception, your communications and data needs to be presented in a way that these algorithms can understand. Ensuring that information in your reports is presented clearly ensures that your company is able to present its performance coherently to AI.

For instance, making sure that formatting and information are correct, AI can understand your messaging which will benefit your company and provide it with a competitive advantage over its peers. This can be applied to company reports and websites.

Improving ESG Communication Comprehensibility

When writing reports, it is important to make sure that they are clear and easily readable to both human and algorithmic audiences. While there is no silver bullet as each report is unique in its messaging, layout and format, there are a few simple steps that can be employed to increase the document’s comprehensibility to AI.

For instance, when using visual aids such as graphs, infographics and tables, try to ensure they are inserted into the report as an image or have sufficient context for the text to be understood by itself. Algorithms reading the document have a difficult time distinguishing and interpreting the uncontextualised information presented in these sources and can therefore reduce the overall readability and understanding of your document.

Both simple reports and creative reports can be comprehended by AI. What matters is that the information is presented in an appropriate way, and through the use of clear and concise language throughout.

Eunoic provides you with a range of different comprehension metrics to help you throughout this process. The applications allow for iterative assessments to fine-tune your ESG messaging.

Improving ESG Emphasis

Reports and websites are written to convey a specific message to their reader. When AI scans and reads a document, it looks for which words are most important to the communications message. These keywords are matched to important ESG terms guided by international best-practice frameworks, such as the GRI and the SASB, to determine the overall ESG emphasis in the document.

Eunoic provides companies with an overall understanding regarding the perceived messaging in the document, which ESG themes and keywords were best linked to the report, and how to improve the communications. This helps better reflect the company’s desired ESG messaging with the way in which it is perceived by both people and AI.

Improving ESG Alignment

ESG communications also need to address key stakeholder demands. Using a market consensus approach, companies can use AI to understand which ESG topics are most important to investors, ESG rating agencies and data providers. The algorithms can then match the company’s actual communication emphasis with market consensus demands. This process helps the management to optimise the company’s resource usage and communication efforts to improve its ESG performance and external perception more effectively.

When writing reports or a website, ensuring that information is easy to find, comprehendible and relevant to your company and the market sector are important. These measures ensure that your documents are readable to AI and enables a more accurate rating and perception of your company to external shareholders and third parties who use these tools. The elements listed above play a big role in building your company’s ESG presence and making sure it aligns to the markets expected requirements.

Benchmark against peers

Benchmarking against other companies in the same industry or sector gives a good indication as to whether your company is performing well within the market. It also guides what to include in your performance improvement and communication efforts. Importantly, knowing how well your company is performing relative to its peers allows you to assess its ESG performance the same way investors and rating agencies do. Tracking the right data in this regard is very important.

Lastly

Business leaders generally struggle to integrate ESG and sustainability initiatives into their organisations. This problem is exacerbated by increasing pressure for companies to align and progress on sustainability and ESG practices.

Given the complexity of the problem, AI has become a key way to help companies improve their ESG performance, external perception and competitive advantage by providing smart, timely and objective data analytics and outputs. Using AI in a company’s ESG journey places it in a superior position to its peers and highlights its achievements more effectively to investors, ESG rating agencies and other stakeholders.

How Eunoic Helps

A company’s value is affected both by its sustainable performance and being perceived as such. Eunoic provides AI-enabled solutions to help in both ways. Using Eunoic’s applications, a company can diagnose potential ESG issues - both in performance and perception - and get clear and actionable ways to improve.

With increasing expectations from investors, consumers, employees and other key stakeholders, sustainability is too important to get wrong. If you would like a free demonstration of our application, including sustainability report review, and news or social media sentiment analysis, please contact us for a free consultation.