Navigating Digitalization: Challenges and Opportunities in Sustainability Reporting

GLOBAL – 17 December 2024 – The integration of digital technologies is ​transforming industries at an unprecedented ​pace. ​Under the impetus of advances in artificial intelligence (AI), large-scale data analysis and the Internet of Things (IoT), digitisation promises to reshape business processes, increase productivity and improve sustainability results. However, the profound changes caused by ​digital transformation also introduce significant environmental, social and governance (GE) challenges that current reporting frameworks face.

In a new research paper entitled “The Effects of Digitization: Identifying New Challenges and Opportunities for Sustainability Reporting”, the Global Reporting Initiative (GRI) ​highlights key areas ​in which digitization influences ​sustainability reporting. The report highlights environmental concerns, human ​rights issues and ​key gaps ​in current reporting standards. Alper Cezmi Ozdemir, GRI Research Associate and co-author of the study, stressed the urgent need for ​organisations to assess and ​disseminate the impacts of digital transformation in line with changing sustainability expectations.

Environmental impacts of digitisation

The rapid expansion of digital infrastructure has significant ​environmental consequences. Data centres, the backbone ​of ​digital ​ecosystems, are very energetic. ​According to the International Energy Agency (IEA), data centres and AI ​technologies accounted ​for 2% of global electricity demand in 2022. Without robust intervention, this ​consumption is expected to double by 2026, reaching levels comparable ​to all energy consumption in Japan. The composition of the problem, data ​center cooling systems and maintenance processes ​lead to excessive water consumption, with ​up to 9 litres of water evaporated per kilowatt-hour of energy consumed.

In addition, the production and disposal of digital equipment contributes to significant electronic waste. The report indicates ​that global electronic waste reached 62 million tons in ​2022, driven by shorter lifespans and frequent updates. The projections estimate that ​electronic waste could reach 82 million tonnes by 2030, ​stressing the urgency of improving recycling and circular economy initiatives. ​While digitization ​can facilitate ​the efficient use of resources through circular business models that allow IoT and IoT, its environmental benefits remain unregulated and accountable.

Human rights

The social ​implications of digitisation are equally profound, particularly in the areas of privacy, algorithmic bias and labour market disruption. The CGE report identifies risks to individuals’ right to privacy due to opaque data collection and management practices. As Ozdemir noted, organizations often monetize personal data without transparency or clear consent mechanisms. Data ​violations, such as the Cambridge Analytics ​scandal, highlight ​the devastating effects of poor data ​governance on individual rights.

Another key challenge is the algorithmic risks arising from the adoption of the CEW. The IA algorithms, caused by incomplete or biased data sets, can produce discriminatory results. For example, automated systems are known to perpetuate inequalities in recruitment processes, access to financial services, and government decision-making. The report calls for increased reporting requirements to address these ethical risks and ​for ​organisations to be held accountable for the impact of artificial intelligence systems on human rights.

Gaps in existing reporting standards

Despite growing awareness of ​the effects of digitization, ​current sustainability reporting frameworks lack depth and specificity to address emerging challenges. The IGR standards, while robust in terms of environmental and ​economic impacts, are insufficient in areas such as AI governance, cyber security and data protection. For example, GRI 418: Client data protection ​focuses primarily on customer data breaches, but does not address broader concerns such as employee data protection or third-party data management practices.

Similarly, revelations about algorithmic decision-making and AI deployment are largely absent from ​existing standards. The report suggests looking at ERM 405: Diversity and Equal Opportunities ​to include reports on IV biases and their social consequences. In addition, standards such as GRI 417: Marketing and labelling require updates to address issues related to advertising ​and specific consumer ​profiles that are driven by digital technologies.

Recommendations for ​reporting on ​the impact of digitization

The CGE report sets out a number of recommendations to address current reporting gaps and improve accountability for the impact of digitization. The main proposals are as follows:

• Developing a comprehensive digitalization-specific reporting standard to capture environmental, ​social, ​and governance implications of digital technologies.
• Incorporating new disclosures on AI development, ​deployment, and the mitigation of algorithmic biases to safeguard human ​rights.
• Revising GRI 418 to align with evolving data privacy regulations, such as the EU’s General ​Data Protection Regulation (GDPR) and the ​OECD’s AI principles.
• Introducing disclosures on energy consumption, water usage, and e-waste related to data ​centers and digital infrastructure.

As ​the regulatory landscape evolves, ​organizations must harmonize ​their practices ​in relation to ​new international ​standards. Frameworks such as the OECD Guidelines for Multinational Enterprises and the EU AI Act provide a basis for responsible digital transformation. However, the role of enterprise risk management in ​developing globally recognized reporting standards remains essential to address the impact of sustainable digitization.

Scanning as ​an opportunity ​for transformation

While ​challenges are significant, ERM focuses on ​the transformation potential of digitization to promote sustainability objectives. Digital technologies can enable more efficient use of resources, improve environmental monitoring and support circular economy models. For example, predictive AI analysis can optimize ​energy networks, ​while IoT sensors can ​track biodiversity and reduce industrial waste. However, achieving these benefits requires organizations to adopt ​transparent, accountable and accountable practices in their digital strategies.

As Ozdemir concluded, it is clear that reporting standards ​need to be updated. Organizations should go ​beyond voluntary awareness and integrate the specific ​parameters of digitization into their sustainability reporting frameworks. In doing so, they can meet stakeholder expectations, mitigate risks and unlock the full potential for digital transformation ​for sustainable development.

Ultimately, ERM research is ​a timely call for organizations, regulators and stakeholders to work together ​to navigate the complexities of ​digitization. As the digital age accelerates, strong reporting practices will be essential to ensure that ​technological ​advances are aligned with global sustainability ​priorities.