Automation, Key to Inflation Fight, Could Also Raise ESG Risks

July 5, 2022

Contributor: Lori Perri

CEOs use three levels of responsible automation to mitigate inflation and support environmental, social and governance (ESG) impact.

Done well, automation promises significant cost, quality and speed improvements. In today’s inflationary environment, it is especially attractive as a way to reduce the cost of doing business. But those benefits can come at a social cost and result in job losses and inequality. As CEOs increasingly prioritize sustainable business, even automation needs to be viewed through the lens of responsibility.

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“Responsible automation is a vision, concept and framework that goes beyond economic benefits to enable social, environmental and governance (ESG) outcomes,” says Kristin Moyer, Distinguished VP Analyst at Gartner. “And without due attention, automation can conflict with investor priorities for ESG.”

Three ways to think about automation benefits and ESG risks

No. 1: Earnings-driven automation

Earnings-driven automation focuses on improving financial performance. Gartner estimates that automation could result in a $15 trillion benefit to the global economy by 2030. Executive leaders apply earnings-driven automation to improve productivity. 

Automation can reduce the volume of talent needed, but it may also exacerbate skills mismatches (such as the lack of data and analytics talent), which are already an issue. Earnings-driven automation may also warrant upskilling and reskilling existing employees. 

“Quite often, higher productivity and better bandwidth for an existing employee would result in performing high-value tasks that were not getting done, such as nurturing high-value client relationships,” says Moyer. Training a robot might be a new job profile. Business domain knowledge would be mandatory.

Earnings-driven automation can be used to mitigate inflation. It can also be a response to an economic downturn, alleviate talent shortages, and improve operating margins and productivity. 

The potential risks of using earnings-driven automation 

  • Worker displacement and potential long-term unemployment

  • Widening inequality

  • Competition for highly skilled workers, such as data scientists

  • Capital expenditure (capex) required to implement automation

  • Hidden operating expenditure (opex) costs of automation (maintenance, training, aversion to change)

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No. 2: Experience-focused automation

Experience-focused automation seeks to improve the overall experience and accuracy for customers, employees, investors and partners, among others. It focuses on automating tedious tasks to increase accuracy and improve the quality of work. 

Many manufacturing companies in emerging markets use automation and machines to improve quality reporting and quality assurance.

The potential risks of using experience-focused automation

  • Lack of available skills on the market to implement a responsible automation strategy

  • Abandonment of automation before full return on investment (ROI) is seen

  • Workers augmented out of jobs (there’s a fine line between augmenting work and automation that eliminates headcount)

  • Technology is trusted over the voice and experience of workers 

No. 3: Equity-oriented automation

Equity-oriented automation can be used to drive new revenue streams, create new and high-quality jobs, and support DEI. This automation reduces the level of employee knowledge needed to perform tasks and therefore upskills workers to perform at a higher level. 

Robotics can be used in manufacturing to improve worker safety and reduce strain for people with disabilities. HR can leverage artificial intelligence to screen resumes and reduce hiring practices bias. Equity-oriented automation does, in fact, recognize the risks of incorporating human biases.

The potential risks of using equity-oriented automation

  • Machine rights may become as important as human rights

  • Machine control could lead to unintended consequences

  • Ethical bias

In short:

  • Automation can help fight inflation by reducing costs and driving new revenue streams and job creation.
  • But purely economic-focused automation may conflict with CEOs’ and investors’ increased focus on ESG priorities.

  • Taking a responsible automation approach means weighing the benefits and risks to earnings; stakeholder experience; and diversity, equity and inclusion (DEI).

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