EY study finds finance leaders see AI as a way to address key shortcomings in non-financial data management.
As environmental and sustainability targets increasingly become as integral to a company’s journey as its profit margins, companies find themselves under mounting pressure to deliver.
It is in this context that AI has stepped into the spotlight. Known for its ability to optimise processes, an EY study shows CFOs are increasingly seeing it as a tantalising solution to the complex problems of data management, emissions tracking, and resource optimisation necessary to meet ESG.
Can AI be the saviour of corporate sustainability? Or does it introduce new issues?
A crisis of confidence in sustainability reporting
EY’s 2024 Global Corporate Reporting Survey has laid bare a troubling landscape in corporate sustainability reporting.
A staggering 96% of CFOs express concerns regarding the reliability of their organisations’ non-financial data, signalling a crisis of confidence at a time when stakeholder scrutiny is at an all-time high.
This scepticism is not unfounded. The survey reveals that over two-thirds of finance leaders are facing increased inquiries from investors about non-financial metrics compared to two years ago.
This growing emphasis on ESG data underscores the necessity for robust and trustworthy reporting mechanisms.
“Finance leaders’ apprehension around businesses’ ability to meet crucial goals underscores the growing importance of building confidence in reporting on sustainability efforts”, says Nicolas Lecoq, EY Global Financial Accounting Advisory Services Leader.
“Customers, shareholders, regulators and investors increasingly hold companies to account for their environmental impact and commitment to sustainable practices”.
The complexities faced by companies in managing sustainability data are manifold. Issues such as inconsistent data formats and lack of comprehensive systems hinder effective reporting.
Alarmingly, only 47% of finance leaders believe their organisations are on track to achieve their stated environmental goals. This scepticism is somewhat alleviated among investors, with 53% expressing confidence in companies’ abilities to meet their targets.
AI as a change maker
Amidst these challenges, AI emerges as a potential ally in enhancing the credibility and accuracy of sustainability disclosures.
According to the EY survey, 57% of investors believe that AI could significantly aid in assessing the integrity of corporate reporting, while 51% see its value in identifying discrepancies within these reports.
The big benefit of AI is that it can detect patterns in data, such as anomalies and similarities, and use historic knowledge to accurately predict future outcomes.
AI can automate the gathering of data from various sources and then generate comprehensive reports that comply with regulatory standards, allowing companies to respond swiftly to stakeholder concerns.
This can be used for companies to help track their data and ensure accuracy.
Beyond data tracking, AI’s promise can also facilitate more efficient resource management and emissions tracking.
For instance, AI technologies are already being deployed to monitor methane emissions from oil and gas installations, showcasing their capability to drive significant environmental improvements.
However, by using AI, companies need to take into account the added emissions this may entail.
While AI holds immense potential for improving environmental outcomes, it also poses significant challenges due to its energy-intensive nature.
Data centres housing AI servers are notorious for their high energy consumption; estimates suggest that they could account for nearly 35% of Ireland’s energy use by 2026.
ESG reporting requirements increasingly emphasise the need for companies to account for emissions beyond their direct operations, including those generated by their suppliers and other entities in their value chain. This concept is known as Scope 3 emissions reporting.
Balancing drawbacks with benefits
As businesses navigate this complex landscape, fostering transparency and accountability in sustainability reporting will be crucial in building stakeholder trust and achieving long-term environmental objectives.
It’s therefore that the integration of AI into corporate sustainability efforts presents both exciting opportunities and significant challenges.
Yet, it is imperative that companies approach this technology with caution, carefully weighing its benefits against its potential environmental costs.
Only through such thoughtful implementation can AI truly become a force for positive change in the realm of corporate sustainability.
