The growing imperative on companies to report on the impacts and opportunities of the digital transformation

By Alper Cezmi Ozdemir, Research Associate, GRI

Digital transformation is fundamentally changing the way companies across industries and sectors operate. This transformation is fueled by a wide array of technological advancements, from data analytics to artificial intelligence (AI). While the growing use of digital technologies holds great promise, it also creates uncertainties around sustainability issues. It is now becoming increasingly important for organizations to grasp the implications that this shift has for how they approach sustainability reporting. ,

Companies trying to navigate this digital terrain need to ensure their reporting processes are not only efficient but also transparent and accountable, meeting the rigorous demands set by international reporting frameworks. By doing so, they can effectively communicate their environmental, social, and economic impacts, thereby reinforcing their commitment to sustainable practices and enhancing their credibility with stakeholders.

Environmental impacts cannot be overlooked

Despite the overwhelming potential benefits of digital change, the rapid rise of new technologies also brings environmental challenges. The development, maintenance and eventual disposal of digital infrastructure, such as data centers and personal devices, contribute to greenhouse gas emissions, energy consumption, and the generation of electronic waste. For instance, data centers, which are the backbone of digital operations, are notoriously energy-intensive. According to the International Energy Agency, data centers accounted for approximately 2% of global electricity demand in 2022.

Moreover, the rapid pace of technological advancement leads to frequent hardware upgrades and replacements, resulting in a growing volume of electronic waste. This e-waste poses a serious environmental threat. The disposal of outdated devices and components not only contributes to landfill overflow but also represents a loss of valuable resources that could be recovered through recycling.

Understanding and disclosing these environmental impacts is crucial for companies that are genuinely committed to sustainability. It requires a comprehensive approach that includes investing in energy-efficient technologies, implementing robust e-waste management practices, and exploring solutions such as renewable energy sources for powering data centers. By proactively tackling these challenges, organizations can ensure that their digitalization efforts align with their sustainability objectives.

What digitalization means for society and human rights

Digitalization affects the economy in multiple ways, including productivity, labor markets, and market concentration. The integration of digital technologies into business operations can significantly enhance productivity by automating routine tasks, optimizing supply chains, and enabling data-driven decision-making. This technological advancement opens up new avenues for job creation, particularly in sectors such as information technology, digital marketing, and data analysis, where demand for skilled professionals is on the rise.

However, alongside these opportunities, digitalization poses substantial risks. One of the primary concerns is job displacement, as automation and artificial intelligence can replace roles traditionally performed by people, although new technologies simultaneously generate new job opportunities in other areas. Furthermore, the digital economy tends to favor large technology firms, or firms with capabilities and resources to absorb shocks due to emerging disruptive technologies. Some big tech companies are already facing charges of monopolistic behavior, stifling competition, and limiting consumer choices.

Human rights-related concerns related to digitalization include the extensive collection and use of personal data by organizations, which raises serious concerns about privacy and data protection. Meanwhile, AI systems can inadvertently perpetuate algorithmic biases and discrimination.

It is essential for organizations to communicate how they are addressing these implications responsibly, for example, how they ensure robust data protection measures or transparency in AI algorithms. By doing so, organizations can uphold human rights and foster trust among stakeholders while also leveraging digital technologies to drive innovation and growth.

The need for global reporting standards on digitalization

The GRI Standards provide a robust framework for organizations to report on a wide array of sustainability impacts, including those that arise from the increasing digitalization of business operations. These standards are designed to cover a broad spectrum of environmental, social, and economic topics, ensuring organizations can effectively report on critical areas.

However, as digital technologies continue to evolve and integrate into various aspects of business operations, there are emerging gaps in the current disclosure landscape. These are particularly evident in areas related to the unique impacts of digital technologies, such as data privacy, the use of AI, and cybersecurity. For example, while the GRI 418: Customer Privacy Standard provides some level of coverage, it falls short of addressing the complex and rapidly changing landscape of data privacy and governance. This is a critical area where organizations face increasing scrutiny and regulatory requirements, necessitating more detailed and specific guidance.

To effectively bridge these gaps, updated GRI Standards or new disclosures that address the challenges and opportunities presented by AI and data governance will be needed. This includes standards that provide clear guidelines on how organizations should manage and report on data privacy issues, the ethical use of AI, and the implementation of robust cybersecurity measures. By responding to these emerging disclosure needs, the GRI Standards can continue to serve as a leading global framework for sustainability reporting, enabling organizations to navigate the complexities of digitalization while maintaining their commitment to sustainable and responsible business practices.

Bridging the reporting gap

As digital transformation accelerates, GRI has a unique opportunity to lead the charge in establishing clear and comprehensive reporting expectations that address the multifaceted impacts of digitalization. By aligning with emerging international standards and guidelines, GRI can ensure that organizations worldwide are equipped to report on their digital impacts with precision and transparency.

The further updating of existing GRI Standards, and the development of new ones, as overseen by the Global Sustainability Standards Board, will be crucial to enable organizations to capture the wide-ranging impacts associated with digital technologies accurately. In the future, this may mean disclosures that address the development and deployment of AI, as well as the growing concerns about cybersecurity.

Ultimately, GRI’s proactive approach to standards development not only supports organizations in meeting the sustainability challenges they face but also helps them to leverage digitalization as a strategic advantage that drives long-term value and fosters positive change.

ABOUT THE AUTHOR

Alper Cezmi Ozdemir is lead author of the research paper, The Impacts of Digitalization: Identifying emerging challenges and opportunities for sustainability reporting, which is now available to download from the GRI website.