Why companies should be sustainable and how IT can help
Pressure is mounting for the business sector to address its environmental footprint and become more sustainable. Here's a look the key drivers and how technology can help.
A movement to go green is gaining traction, and business and IT leaders need to make sure they don't miss out.
Companies must care about environmental sustainability for a host of reasons -- consumer demand, legislative and investor pressure, talent retention and to ensure the planet can support life. That means business and IT leaders must make sure they are doing their part.
Here are five reasons companies should be sustainable and ways they need their IT departments to help.
1. Employee demand
During a time where widespread talent shortages are the reality, companies that demonstrate concern for environmental, social and governance (ESG) issues can better attract and retain employees.
Environmental sustainability has grown in importance for more than 51% of consumers and employees, according to "Balancing sustainability and profitability: How businesses can protect people, planet and the bottom line," a study released in April by IBM's Institute for Business Value (IBV).
Sustainability is even driving which jobs candidates accept or prioritize.
Two out of three respondents said they are more willing to go for a job (67%) and accept it if they believe the company is environmentally sustainable, according to the IBM IBV study. And that figure rose to 80% for companies that prioritize planet and people. On the other hand, only 21% of survey respondents believed their current employers are sustainable.
In a competitive talent market, that's a big risk.
One in three of people who left their jobs last year took their skills to an employer they believe to be environmentally sustainable (35%) or socially responsible (40%), according to the IBM IBV study. For one in three of those job changers, the role was one in which they could directly affect environmentally sustainable outcomes. Not only that: About the same percentage of those who accepted a new job in the last year accepted a lower salary for the opportunity to work for a sustainable or socially responsible organization.
2. Consumer demand
Companies should care about the environment if they want to keep and win customers, since more consumers are viewing their buying behavior through the lens of climate action.
Consumers all over the world are increasingly using environmental sustainability to determine their purchasing decisions, according to the "Global Sustainability Study 2021," a study of more than 10,000 people across 17 countries conducted by global strategy and pricing consultancy Simon-Kucher & Partners. Consumers increasingly see themselves as agents of climate action -- and believe for-profit companies are agents of climate action too. This heightens the call for business and IT leaders to care about sustainability. How much do consumers care? One-third, or about 34%, are willing to pay more for sustainable alternatives.
3. Investor demand
Investors are among the stakeholders most actively demanding that companies care about the environment.
Investors are placing an increasing amount of importance on ESG, said Shivin Kohli, senior manager of AlphaBeta, a research and advisory firm in Singapore, now part of Access Partnership, headquartered in London.
Investor focus on climate issues has only increased since COVID-19, and with all the other factors prompting increased focus on environmental issues, it's only expected to grow.
For example, about 74% -- almost a full three-quarters of institutional investors -- said they are more likely to divest from companies with poor environmental sustainability and ESG track records, according to "Global Institutional Investor Survey," published in 2021 by EY. The pressure for better climate disclosure is also increasing, and companies need to get more strategic about ESG by -- among other things -- becoming more rigorous about materiality, aligning better with finance and better understanding climate risk disclosures.
4. Governmental pressure
From the punitive -- such as taxes on plastic -- to the motivating -- such as clean energy incentives in the Inflation Reduction Act -- legislation to spur climate action is increasing.
"Governments are now far more in tune with addressing environmental crises -- and not just in broad brushstrokes like net zero plans in some distant future," Kohli said.
Shivin KohliSenior manager, AlphaBeta
Instead, they're increasingly focused on specifics.
"[They're developing] policies, like mandatory integrated ESG reporting for large companies and extended frameworks for carbon taxes," Kohli said.
5. To keep the planet livable
Headlines about how climate change is already causing disasters and biodiversity loss tend to induce panic and an extreme urge to binge-watch movies or otherwise escape thoughts about the complex actions needed to address global warming. Still, at heart, this is the critical factor.
To meet the goals of the Paris Agreement, for-profit companies are critical to helping stop global warming from exceeding 1.5 degrees Celsius, ideally, compared to pre-industrial levels. That's because exceeding that translates into more record-breaking heat waves, droughts, fires and weather events, such as hurricanes.
It's difficult to think of a business that won't be affected, and that's especially true for any business that depends on a supply chain, that's global, that depends on data centers -- just to name a few categories. In other words, arguably nobody is exempted.
More than half the world's GDP -- $44 trillion -- is highly dependent on nature, and therefore at risk when nature loss occurs, according to "Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy," a report published by the World Economic Forum in collaboration with PwC in January 2020.
Albert Einstein reportedly once said, "In the midst of every crisis, lies great opportunity."
Business and IT leaders should keep that in mind right now. CIOs and their IT teams have a particularly important opportunity to drive environmental sustainability initiatives.
Benefits of caring about sustainability
Companies can gain a number of benefits from focusing on sustainability and other ESG issues. Focusing on sustainability offers a number of benefits, including the following:
- Focusing on climate action attracts investors.
- Customers feel better about buying from the company, and new customers are attracted to the company.
- A focus on sustainability attracts new employees, and current employees feel better about working for the company.
- Focusing on climate issues will help provide a livable planet for kids growing up today.
While the challenges in achieving sustainability are considerable, these challenges also present significant opportunity, Kohli said, pointing to a new World Economic report.
A nature-positive economy holds $10 trillion worth of opportunities, according to "New Nature Economy Report II: The Future of Nature and Business," published by the World Economic Forum in collaboration with AlphaBeta in July 2020.
"Everyone is affected but everyone has a way [to contribute to improvements] if they take action now," Kohli said.
From Kohli's perspective, it's rare that CIOs are behind the initial organization-wide push toward sustainability in the enterprise. However, they are viewed as an enabling function.
"The beauty of being an enabling function is that it can be used to enable any transition," he said. "[CIOs] should be the ones who have as much of a role to play … as a CFO or a CEO, for that matter."
The role of IT and enterprise technology
Technology leaders have a critical role to play in helping support a company's commitment to sustainability, and there are a number of ways they can execute that support.
In particular, CIOs and IT teams have a two-fold role in addressing climate change, said Julia Binder, a professor of sustainable innovation and business transformation and director of the Center for Sustainable and Inclusive Business at the International Institute for Management Development (IMD), a business school based in Lausanne, Switzerland. That two-fold role applies to greening IT and contributing to the business in the following ways:
- IT can decrease the overall carbon footprint of their organizations.
- IT can apply technology that actually contributes to minimizing their organizations' carbon footprint throughout the supply chain.
For companies to succeed at decarbonization, business and IT leaders need to have a clear picture of their carbon footprint in the first place, Binder said.
"Digital plays an important role in providing this transparency and providing traceability," she said.
Technology's monitoring capabilities can be especially helpful in addressing Scope 3 emissions, Binder said.
Greenhouse gas emissions fall into the following three main categories:
- Scope 1. Direct greenhouse gas emissions from company facilities and vehicles.
- Scope 2. Indirect greenhouse gas emissions from purchased energy, including electricity, steam, heating and cooling
- Scope 3. Indirect greenhouse gas emissions, not included in Scope 2 emissions, from upstream and downstream activities in an organization's value chain, including end-of-life treatment of sold products, waste from operations, e-waste, business travels and much more.
Enterprise software -- from ERP systems to ESG software to track material issues -- can help identify the biggest carbon-related pain points along the entire the supply chain.
Digital technologies can also streamline processes related to the circular economy and "closing the loop" on materials used in production, Binder said.
"Traceability of materials is really at the heart [of a number of corporate sustainability efforts], and traceability is largely enabled -- if not completely enabled -- by digital technologies," she said.
Green computing, or green technology, has other components, including lowering device and energy consumption and taking a more sustainable approach to e-waste.
Smarter data for better environmental sustainability
The "big data mindset" often results in companies gathering as much data as they can -- information that isn't necessarily optimized, or even of significant use, Binder said. To meet the growing ESG reporting pressures, organizations will start narrowing their focus on collecting higher quality data that serves to inform decision-making in a more concrete manner.
The CIO can truly drive ESG data collection strategies.
"This really is something that could be driven by a CIO, this notion of: How do we collect better data?" Binder said. "And therefore, less data -- which reduces, quite fundamentally, the digital footprint."
Collecting data to improve environmental sustainability and other ESG issues is complicated, to put it mildly.
The challenge is that data must be gathered from multiple sources, such as HR systems and environment, health and safety systems, said John Mennel, managing director of ESG and sustainability strategy at Deloitte.
"That requires IT to help maintain both the data and the systems to pull that together, and to make it transparent and auditable," Mennel said.
There is also data that needs to be collected from the physical world, Mennel said.
"You need to integrate physical sensors; you need to integrate satellite data; you may need to work with digital twins to understand changes in the physical world and how that affects the company," he said. "Those are new challenges for CIOs but also, frankly, the most exciting areas to play in both from a technology and a business perspective."
Reducing the digital carbon footprint
IT's energy footprint is increasing at a rate of 9% annually, according to "Lean ICT: Towards Digital Sobriety," a study published by The Shift Project, an energy transition-focused think tank based in Paris, France, in 2019. Equipment such as servers, networks and terminals factor into that. Demand for rare metals, used in the manufacture of digital technology, is also increasing.
Julia BinderDirector, Center for Sustainable and Inclusive Business at the International Institute for Management Development
This is another area where CIOs can make a positive environmental impact.
Many IT departments are starting to examine how they can decarbonize their infrastructures, Mennel said. Deloitte advises companies to move away from on-premises IT infrastructures to hardware-as-a-service and cloud computing. CIOs should also vet software vendors' and partners' sustainability efforts. For example, do they follow IT asset disposition best practices used by providers that oversee the recycling, repurposing and disposal of IT assets?
From there, CIOs can seek out other opportunities for digital carbon footprint reduction.
"We have clients that are thinking about how they can switch to more renewables in their data centers, even down to chip sets that are less energy-intensive and carbon-intensive," Mennel said.
Technology is not a silver bullet
At the heart of climate change and environmental issues is overconsumption by first-world countries. Finding ways to lower consumption -- across all sectors of society -- is critical.
While technology may help companies reduce their carbon footprint, tech shouldn't be viewed as a panacea, Binder said. There isn't a linear answer to addressing sustainability, and in many cases the solution to one problem causes another set of issues.
"[We have to move] away from this expectation that there is a fantastic technology that will solve whatever problem you come across," she said. "It's one puzzle piece in a larger combination of factors -- consumer behavior changes, lifestyles, regulatory changes."
Addressing environmental issues -- along with social, another critical component of ESG -- requires partnership across sectors.
"[Sustainability problems] are systemic problems, and oftentimes technology can be one part of the solution piece," Binder said. "It's not the solution itself."
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