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Enhancing Sustainability Management with AI at EY Japan

In a world increasingly focused on sustainability, EY Japan is taking bold steps to improve how companies manage their sustainability efforts by harnessing the power of artificial intelligence (AI). With the growing demands for corporate responsibility, the firm is introducing a unique AI tool developed by its team of data science and sustainability professionals to streamline the identification and monitoring of ESG (Environmental, Social, Governance) related risks and opportunities. This initiative aims to bolster its clients' sustainability consulting services.

Background: The Complexity of Sustainability in Business

Sustainability-related risks and opportunities encompass the various challenges businesses face in their operations concerning ESG criteria. Failure to address these can lead to severe consequences, such as damage to brand reputation from environmental destruction or human rights violations within the supply chain and business losses from unaddressed climate change. On the other hand, embracing sustainability can create new market opportunities through early adoption of decarbonization and resource recycling technologies, as well as establishing transparency and trust with stakeholders through proper information disclosure.

Businesses are now expected to effectively identify and evaluate sustainability risks and opportunities, engage all levels of management and operational departments, and understand the implications on business sustainability. Moreover, they must align their strategies with their purpose, social value offerings, and brand strategy to differentiate themselves in the market and earn stakeholder trust through effective disclosure. However, the challenge lies in comprehensively identifying these risks and opportunities and monitoring critical external environmental changes in a timely and efficient manner.

The Role of AI in Sustainability Management Support

Acknowledging this challenge, EY Japan has integrated its proprietary AI tool into its consulting services for sustainability management. This tool analyzes and monitors sustainability-related risks and opportunities by processing vast amounts of publicly available information, such as competitors’ disclosures in securities reports and changing trends reported in news articles, using large language models (LLM).

Key Features of the AI Tool:

1. Sustainability Risk and Opportunity Finder
- The AI collects information aligned with international disclosure standards, such as SASB (Sustainability Accounting Standards Board), identifying the sustainability risks and opportunities that clients should address.

2. Sustainability Information Monitoring
- The AI focuses on monitoring trends related to key sustainability risks and opportunities deemed critical by the client, providing timely alerts for necessary actions.

By leveraging these AI tools, clients can efficiently gather and organize an extensive array of publicly available information, allowing them to concentrate on high-value activities such as developing sustainability strategies, planning, and engaging with stakeholders to enhance corporate value. Notably, the ability to systematically collect previously unmanageable amounts of information enables more accurate decision-making.

In the future, there are plans for clients to use the tool for their own analytical and decision-making needs, enabling them to promptly and efficiently gather information concerning sustainability-related risks and opportunities and changes in external environments. For specialized fields that require advanced knowledge in strategy formation and actions, EY Japan will continue to provide supportive collaboration.

Insights from EY Experts

Koichi Oyama, Partner, Head of the Sustainability office at EY Strategy and Consulting, states, "Engaging all areas of the company, including business divisions, is essential to enhancing corporate value through sustainable management. Identifying and addressing sustainability risks and opportunities is a critical activity toward achieving this goal. The breadth and rapid changes in the information required necessitate not just human effort, but the use of AI. Sustainable management moving forward should be driven by collaboration between humans and AI."

Another EY expert, Motoharu Kobayashi, Partner and Data Science Leader, adds, "The advancement of AI technology has made it feasible to process vast amounts of information that was previously challenging for humans. However, success lies not only in adopting technology, but also in effectively combining human expertise with AI's processing capabilities. Our tool facilitates the division of labor where AI handles information gathering and organization, while human expertise is utilized for strategy formulation and execution. This collaboration enhances the quality and quantity of information, ultimately elevating our clients' decision-making capabilities."

Finally, Takeshi Kawasaki, Principal leading Sustainability Disclosure and Assurance Solutions in EY Japan's Climate Change and Sustainability (CCaSS) practice, remarks, "In sustainability disclosure under statutory regulations, comprehensively identifying risks and opportunities is crucial. Utilizing AI allows for the cross-analysis of a diverse range of information, including external environments and supply chains, facilitating more transparent disclosures to investors and other stakeholders. Continuous updates of risk and opportunity analysis in response to environmental changes elevate disclosure from mere compliance to sophisticated management strategies."

About EY

EY aims to create new value for clients, members, society, and the planet by establishing trust in capital markets and building a better working world. By leveraging data, AI, and advanced technologies, EY’s teams support clients in confidently shaping the future and addressing pressing challenges now and in the future. The firm's service areas span across assurance, consulting, tax, strategy, and transactions, backed by accumulated industry knowledge and a globally connected network across various fields, providing services in over 150 countries and regions.

All in to shape the future with confidence.