Privacy as a Component of ESG
Investors are increasingly relying on the environmental, social, and governance (ESG) ranking of a company, which evaluates the company’s impact on people and the planet. The ESG score provides insights into how well the company is fulfilling its obligations with respect to the environment, society, and governance attributes.
According to Blackrock projections, responsible investment strategies are expected to make up for 21% of total fund assets by 2028. A strong ESG performance has proven to deliver lower risks, higher returns, and better resiliency during a crisis like the COVID-19 pandemic.
Not only are stakeholders considering a company’s efforts to tackle environmental risks, but how the company manages its relationships with its employees, customers, and local communities is also being given huge importance.
For instance, better data management practices like data minimization and defensible deletion, along with energy-saving ways to build and operate data centers, can significantly help reduce your overall carbon footprint.
When it comes to social issues, privacy has emerged as a critical topic among socially conscious investors. As the rise in digitization has led to the collection and processing of large volumes of data, this has brought companies under increased scrutiny by regulatory bodies as well as consumers. The privacy attribute depicts the company’s efforts towards its ethical and social responsibilities within the ESG framework.
Privacy in the backdrop of ESG
Privacy has been recognized as a fundamental human right by the United Nations and is being given greater emphasis with laws like the EU’s General Data Privacy Regulation (GDPR) and the California Consumer Privacy Act (CCPA).
A recent PwC survey found that the cybersecurity and privacy component of a company’s ESG index makes up about 10% of its overall score. This emphasizes the significance of privacy and security programs within an organization.
Privacy, security, and governance should be integral in building a company’s brand value. Incidents of a data breach hamper the company’s reputation and discourage customers from using your products and services.
A growing number of individuals are factoring in privacy into buying decisions. As per a 2020 Pew study, 52% of US adults decided not to use a product or service over concerns about data protection.
By fostering transparency at every stage, you can stand out among your competitors and appeal to a whole new client base. The amount of information that a company is able to attest to about its privacy and security programs directly affects its scores across the various ESG agencies.
Apple has been leading the privacy campaign in big tech for quite some time now. With its privacy strategy being a part of nearly every new product and feature, Apple has positioned itself as the most privacy-centric company. It has managed to turn its privacy strategy into something more than just a marketing point that distinguishes its products from its competitors.
By adopting a pro-privacy approach, you can carve a niche out for your company in a highly competitive market. While being better positioned to maintain consumer trust and stakeholder interests, it will also enable you to navigate through different regulatory and political constraints.
Incorporating privacy and data compliance at every step and considering privacy issues early into the business decisions yield long-term benefits for the organization. It can also provide meaningful insights into the organization’s data management practices and help with data-driven decision-making.
Transparency about what data you collect and how you utilize it plays a significant role in this area. Strong and effective data management practices can go a long way in achieving your transparency goals.
Every organization is unique in terms of its needs and objectives. Before adopting a new strategy, you should analyze your existing ESG approach and compare it with your privacy and data usage objectives to identify how they fit your corporate goals and stakeholder interests. Based on this, the company should develop a privacy and data compliance policy with a focus on its goals and commitments.
Active consultations with stakeholders and subject-matter experts in data compliance and privacy should be undertaken. Once you have developed a policy, you should define the primary metrics to measure your progress in that area.
The key lies in developing a relevant and balanced approach for integrating privacy and data compliance into the companies’ ESG strategy and securing buy-in from all the stakeholders. Due to the extensive nature of ESG initiatives and the involvement of various stakeholders, it is necessary to have a well-coordinated permission structure, distinct roles and responsibilities, and incorporate transparent data collection and processing practices.
By integrating privacy into the ESG framework and the company’s long-term vision, you can ensure that it receives the required support and resources from the senior management. These steps will help you move beyond compliance and have the potential to become a competitive differentiator.