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Why Business Leaders Must Incorporate Data Privacy Into ESG Frameworks

Safeguarding customer information and shifting to data resilience is the next ESG frontier

An environmental, social, and governance (ESG) framework is not a new business term, but what it means for a given company is constantly changing. Why disclose this sort of information in the first place? Smart companies know that strong ESG propositions can provide proof-positive evidence to safeguard a company’s long-term success. Not just because it’s an inextricable part of doing business in the 21st century, but because its overlapping elements are a key way to provide a huge amount of necessary growth transparency to a wide range of stakeholders like employees, customers, communities and company shareholders.

Now more than ever, to be an industry leader means inextricably tying core business goals to ESG principles. But when business leaders build out their ESG frameworks, the first topics that come to mind are often related to carbon emissions, human capital development and business ethics standards — all of which are incredibly important. However, there’s an emerging area that’s quickly gaining traction in the new, better understanding of ESG – data privacy.

The new rules of data privacy

From the release of the General Data Protection Regulation and California Consumer Privacy Act to the implementation of Apple’s Identifier for Advertisers and Google’s Privacy Sandbox, governments and industries around the world are paying more attention to privacy protection. By that socioeconomic fact alone, data privacy and product security should become an important part of operations if it hasn’t already.

Those strict government policies, as well as demographic shifts and an evolving view of risk, have all contributed to ESG-driven investing as of late. 2020 and 2021 were found to have the highest number of M&A agreements referencing ESG, and 2022 shows no sign of stopping that upward trend. Sustainable investments worldwide topped $35 trillion in 2020, and one in every four dollars invested in the United States was allocated to sustainable companies using an ESG evaluation. Expect investors to increasingly choose to pour more money into companies with better ESG profiles across regulatory frameworks.

Additionally, consumers themselves are putting more pressure on businesses to be socially and environmentally responsible, while employees that advocate for corporate responsibility contribute to team-building morale, better productivity and boost talent acquisition efforts.

Privacy is an ESG win

The tumultuousness of the past few years has changed a wide range of industries. In some ways, these shifts were beneficial. Engagement increases and subsequent advertising dollars pushed big gains for tech companies in particular. Much of these gains have been simultaneous with global regulation intensifying data protection and privacy security rules.

Global, publicly traded companies drove the directions of regulations at the same time that martech and adtech platforms made rapid moves to sideline primary actionable insights from targeting and analysis data. But efforts can’t stop there. Maximizing data security and creating perpetual data protection processes should be top of the list for industry leaders.

While data itself might be the lifeblood of a company, data privacy is often viewed by companies as a regulatory requirement, and not necessarily a primary factor for building a reputable brand. That said, the numbers mentioned above clearly indicate that investors are increasingly treating privacy safeguards as significant indicators of the health of an organization and its ability to provide sustainable and ethical growth for its shareholders. Strengthening a company’s position in the market now requires an emphasis on building up and maintaining robust data security and user privacy measures.

ESG should not be approached in the abstract. Instead, it should be incorporated directly into business models, strategies and offerings. The intertwined nature of these concepts is paramount for business success. So let’s cut through the basic ESG acronym and get into why data privacy is so vital for ESG frameworks.

The environmental impact

From an environmental standpoint, linking data privacy with ESG strategies means companies incorporate intelligence and automation into operations as a way to go green. By taking steps to centralize technology in the cloud to cut down on physical server rooms and computing centers, they promote data minimization and reduce data footprints.

Reducing physical data storage means reducing the land, hardware and electricity used and simultaneously reducing carbon emissions. Companies can even take small steps like going paperless, but they should also make sure those types of steps ensure the collection and processing of only necessary data to reduce e-waste.

Companies can even take small steps like going paperless, but they should also make sure those types of steps ensure the collection and processing of only necessary data to reduce e-waste. Surprisingly, digital advertising has a significant carbon footprint.  The internet and its total support systems account for around 4% of global carbon emissions — more than the global aviation industry combined —  and are on track to double by 2025. Limiting ad density, ad refresh cadence, or being more mindful of lower-carbon creative running on green energy during peak hours are small but effective steps towards better sustainability practices in the digital space.

The social impact

A diverse and innovative team with a worldwide footprint tends to collect huge amounts of personal information, which could be sensitive and used without the consumer’s knowledge. The general consumer base has wised up over the past few years with high-profile data breaches in the zeitgeist and privacy becoming a key differentiator. For example, Apple’s focus on customer privacy is shaking up the advertising practices of social media companies including Meta.

Companies now have a social responsibility to be respectful of personal and behavioral data. They must weigh their reputation and investor benefits from prioritizing ESG against profits derived from third-party data collection and use. By positioning privacy as a social value, companies build a level of trust from society’s expectation of privacy that had been lost. By being more scrupulous with data collection, consumers will feel comfortable sharing personal and sensitive information that will eventually build brand reputation and convert into investor-friendly profits.

The governance impact

ESG strategies, data security, and user privacy are not passive processes. Proactive, comprehensive technology audits on sensitive data can involve third parties auditing systems. Managing the security of information assets via SOC2 Type 1 and Type 2 compliance roadmaps or ISO/IEC 27001 assessments can validate information security frameworks. These certifications also boost confidence in shareholders focused on the dependability and scale of company systems.

What an environmental, social, and governance (ESG) framework means for a given company is constantly changing. There's an emerging area that's quickly gaining traction in the new, better understanding of #ESG - data #privacy. #respectdataClick to Tweet

Implementing ESG in every aspect of operations means delivering long-term value to all stakeholders. Companies have the responsibility and the capability to further the well-being of the environment and society, and those frameworks must include data privacy. A commitment to being a safe, reliable, and ethical company that strives to protect data security and to use cloud computing and intelligent tech in an environmentally-friendly way will require constant upkeep. But it will also prove essential to take advantage of opportunities for growth in the years ahead.