ESG for the TMT Industry
As a seasoned professional in the technology arena, I’ve recently had the opportunity to engage in in-depth discussions with executives and professionals from the Telecommunications, Media, and Technology (TMT) sector. The recurring theme across these conversations is a pressing question: “How does ESG apply to our field?”. To answer this, we need to consider two viewpoints: Green IT and IT for Green.
Green IT explores how you can embed ESG principles within your own organizational operations, turning your internal tech structure into a more eco-friendly and socially responsible entity. It entails everything from decarbonization and resource optimization, to adapting infrastructure to the impacts of climate change. Whereas, IT for Green, which takes a more external approach, focusing on how your technologies can assist your clients or stakeholders in tackling their own ESG challenges. From technology acting as an enabler for sustainable practices to examining the broader value chain impact, IT for Green is about technology serving greater ecological and social goals.
This article aims at detailing these two lenses with the aim of fostering not only innovation but cross-sectoral collaboration towards building a more sustainable future.
The acronym ESG can itself prove to be a source of confusion for executives. ESG refers to extra financial data,which can be classified into 3 categories: Environmental, Social and Governance. Historically ESG data has been used largely by investors to manage the risks associated with the way a company is doing business: how are environmental changes going to impact long term profitability? Do we risk losing our operating license due to the introduction of unknown or uncontrolled regulations? Is the company paying the taxes it owes in each country?
While ESG is not standardized yet (which in itself carries its own weight of criticism), it is an expansive framework that allows for gauging a company’s performance on environmental stewardship, social contributions, and governance best practices. Traditionally, ESG data has been an invaluable resource for socially responsible investors. However, the landscape is shifting rapidly. Increasingly stringent regulations such as CSRD in Europe or the recent Climate Disclosure Law in California and a general sense of ecological urgency, have brought the topic of extra financial data disclosure from companies — and thus ESG -to the forefront and highlighting these considerations as a priority. This article serves to mitigate confusion related to the fact that ESG intersects with Corporate Social Responsibility (CSR) and Impact by illustrating the differences in a Green IT vs IT for Green approach.
Green IT vs IT for Green
- Green IT: This focuses on internal organizational improvements to make operations more eco-friendly. The aim here is to use technology to shrink a company’s own environmental footprint.
- IT for Green: This is focused on how a company can impact positively its partners and customers. Here, the technology developed by a company is used to facilitate environmental improvements on a broader scale, often aiding clients or other stakeholders in achieving their sustainability goals.
Green IT: embedding ESG in your operations
The recent reactions both positive and negative around the recent Apple Sustainability Report (PDF, Youtube Video) illustrates clearly that there is an increasing demand from all stakeholders including the consumers to understand how a company is helping improve the world they live in. The biggest marketing message was about the Carbon Neutral Apple Watch, not anymore about more features, more power, faster.
When it comes to Telcos and other Technology companies the pillars for improving its operations on the E, S and G pillars are quite well identified:
Decarbonization, Resource Optimization, Adaptation and Software
Let’s start with decarbonization as it is the most pressing matter.
Accounting for all emissions
The need to reduce GHG emissions is now well acknowledged and the Science Based Target initiative has released a Guidance Document to help ICT companies set the correct targets.
Taking a close look at the targets published, all the major telecommunications companies and data centers companies have committed to net-zero targets and published near-term targets.
Looking at the integrated reports from Orange, for instance, the Net Zero ambition and the reduction of the carbon footprint are both outlined as key goals with a disclosed willingness to move to renewable energy. However, like many other companies in this sector (see the data disclosed by Deutsche Telekom), the Scope 3 GHG emissions are not yet accounted for which tend to limit or blur the actions required to really progress towards a Net Zero target as most of the emissions are Scope 3 (more than 70% of Verizon reported emissions come from the Supply Chain for instance).
Data Centers
According to the International Energy Agency, data center electricity consumption was 240–340 TWh (1% to 1.3% of global electricity demand). Amazon, Microsoft, Google and Meta more than doubled their electricity consumption between 2017 and 2021 reaching 72 TWh. The demand is forecasted to increase by about 15x by 2030 which comes from the explosion of data used linked partially to 5G deployment and the rapid adoption of LLM.
Thus it is clear that reducing energy consumption is one of the most important strategies for technology companies to decarbonise their operations.
Energy consumption in data centers mostly come from 4 sources:
- Servers and storage usage
- Network
- Cooling
- Lightning
There are some obvious actions to be taken for instance:
- Shift to Renewable energy sources and especially shift from diesel to hydrogen and lithium batteries and deploy energy management software.
- Minimize failure points and optimize design.
Some other actions are not obvious and can lead to true innovation:
- Shift to new infrastructure technologies such as lightning as discussed previously at the Beyond Institute illustrating Ayar Labs technology
- Reuse heat from the data centers to heat new and old buildings as well as domestic hot water by using a solution like Qalway. QTS recently refitted a datacenter to provide heat to thousands of homes in the Netherlands.
- Rethink your infrastructure design to move away from generic CPUs and All-GPUs computation layer and include FPGAs and ASICS designed for specific workloads (especially AI workloads)
The European commission is exploring several measures to improve energy efficiency and circular economy adoption in data centers and hyper scalers.
Resource Optimization
Data Centers use a huge amount of resources during the construction phase but also depend on a significant amount of water when operating. For instance in the Netherlands, a city discovered that the usage of water from a datacenter was 4 times the planned usage.
Reviewing the conception of hardware products with a circular/ecodesign mindset can lead to operational excellence and reduce the overall water usage and other resources dependency.
This is especially true for semiconductor companies that have a great opportunity to leverage the circular economy to reduce waste and pollution. This is well acknowledged by NXP and the European Semiconductor Industry Association. The NXP ESG report actually reflects well the priorities around resource management by announcing the First Extended Minerals Reporting.
Climate Change Adaptation
Another dimension for TMT companies to think about is how to protect their infrastructure (base stations, underground networks, data centers) from the well documented events resulting from climate change: how do they adapt to climate change?
Several new tools such as Risk Thinking are helping analyze their assets or precise 3D maps from vendors like Luxcarta to optimize the base stations deployment and take into account natural disasters.
Partnering with engineering companies like RSK Group specialized in climate change adaptation can offer a competitive advantage.
What about Software?
Though often overlooked, software also plays a part in an organization’s sustainability efforts by reviewing the application architecture and even at the code below those applications.
It was already the case when I was a BPM expert, we were reviewing the architecture of complex applications to optimize the use of resources and minimize the data exchanges. Today you can deploy code review software such as CAST to help identify inefficiencies and provide actionable recommendations for improvements.
Software is obviously also critical in battery management, electric management and more generally management of devices linked to heat/cooling and power generation.
IT For Green — The Larger role Technology:
Having an ESG internal agenda or Green IT is a great way to optimize internal operations, to reduce energy and resources consumption, optimize waste management but the bigger opportunities lie in creating value by thinking how technology can be leveraged to help their customers in materializing their impacts.
Adopting a new mindset, shifting the lens, can unveil opportunities and strengthen the ESG agenda.
Google and Microsoft have already been very successful in deploying their solutions to help their customers reduce their environmental footprints or provide greater visibility on their customer supply chains.
When you analyze the full value chain of data flow from the data collection to the presentation of insights and knowledge, you realize that each link can provide impact value: From sensors that can already collect energy consumption from machines, optimize lightning to complete software solutions that offer predictive maintenance insights from the data collected for various systems such as lifts. Coupled with digitalisation it brings coordination to the entire supply chain which is a key to reduce energy consumption and optimize transports.
AWS Greengrass aims at simplifying the deployment of IOT devices to collect and manage data for instance to help companies realize new value.
We can also mention technologies such as 3D Printing that can have more social impacts than first envisioned (3D printed limbs and 3D Printed houses for instance) or augmented reality and its use for visual inspection, fault detection.
Software companies are tailoring their solutions to ease the management of ESG data, we can mention Salesforce that recently announced a new release of its platform to help customers in disclosing their ESG data and be ready for the coming European disclosing requirements.
Thinking about how one services or products truly improve the life of its customers is helping companies understand also the ‘social’ impact of their businesses and choose partners or missions that are core to their purpose, demonstrating coherence in their approaches . For instance Orange is for many years acting on promoting digital inclusion; KPN in the Netherlands stayed true to its commitments to the circular economy by partnering with Fairphone…walking the talk.
Data
One strong foundation to deploy those strategies is to understand the whole lifecycle from data collection to the generation of insights and knowledge in order to help executives make the correct decisions. The topic is fairly complex and will require separate articles detailing the different steps from data collection to data analysis, visualization and knowledge creation as well as addressing the type of data (Primary, Secondary, External, Structure, Unstructured).
However let’s already point out that open datasets can offer excellent benchmarks and guidelines. For instance, incorporating these into predictive models can provide more accurate forecasts of Scope 3 emissions (by participating to boavizta for instance).
Next Challenges ?
Integrating and leveraging ESG data is not enough obviously as TMT companies like any other companies start to think about their true impacts on society. Several companies such as Orange and Vodafone have understood it by starting an Impact Investment Fund for Orange linked to their core impact themes (Climate, Digital Inclusion and Caretech) and a foundation for Vodafone. Collecting Impact data can help TMT companies really understand the social impacts if not responsibilities that they carry.
Thinking about the true impacts products and services have can open ways to new business models such as Device as a Service (Vodafone in this case), design a full offering around second hand phones (Telia).
TMT companies will also need to start including biodiversity measures as it is becoming a hot topic for all the stakeholders, noise and light being seen increasingly as negative for biodiversity along side disturbance to marine life and wildlife (see ENCORE for more information)
The impact of technology, especially telecommunications technology on public health will increasingly become scrutinized as illustrated recently with the debates raised from concerns on the potential impact of electromagnetic radiations coming from 5G antennas on human beings and biodiversity. It is important for the TMT sector to act and not react and be transparent about it (see KPN for instance especially on its usage on beamforming).
Enabling a better tracking of waste management especially of the non-recycle waste will be a major challenge for the next 12 months.
Finally, it’s worth mentioning that increasingly cybersecurity is seen as a major risk that should actually be part of the ‘ESG’ agenda.
The challenges ahead are not trivial and will require industry collaboration, the TMT sector can take inspirations from initiatives such as RCB Rubber from Michelin and Bridgestone that partnered to develop a joint roadmap to incorporate more Carbon Black in tires or like the Renewable Carbon Initiative that gather several companies from the chemical, food, flavour and fragrance industries to promote the usage of renewable carbon for all organic chemicals and materials.
