COVER STORY: How the technology sector is operationalising sustainability

Accelerating digitalisation is helping companies to build better customer experience and operate their organisations much more efficiently, but it is coming at a significant carbon cost.

All that extra demand on data centres drives electricity consumption, and with it greenhouse gas emissions. Some media reports suggest that data centres are responsible for as much as 5 percent of global emissions (although 2-3 percent is a more commonly accepted measure).

A lot of that growth in recent years has come from demand from cryptocurrency and AI, although the latter captures less attention.

Bitcoin uses more electricity than a small country such as New Zealand according to the Bitcoin Energy Consumption Index, from Diginomica which also reveals that by late 2021 a single Etherium transaction had "the equivalent carbon footprint of 226,910 VISA transactions or 17,063 hours of watching YouTube.”

While the heat (and presumably energy consumption in the crypto markets) has retreated with the crash in valuations, nothing is slowing the inexorable rise of artificial intelligence – another huge carbon hog.

According to Analytica Vidhya, “Researchers from the University of Massachusetts, Amherst, conducted a life cycle analysis for training several typical big AI models in a recent publication. They discovered that the procedure may produce almost 626,000 pounds of CO2 equivalent.”

All of this puts the global technology sector squarely in the frame for scrutiny. However, unlike other carbon-intensive sectors such as mining, the tech sector sees building sustainability into its processes as a driver of growth and an opportunity for profit, rather than grist for a greenwashing campaign.

Take VMware for example, the company's leadership in the global shift to computer virtualisation over the last two decades has significantly reduced electricity consumption around the world amongst its corporate clients.

According to Nicola Acutt, vice president, environmental, social and governance at VMware,  “Corporate social responsibility is no longer a nice-to-have position or a value-add. Today, driving innovation through environmental, social and governance practices can be a crucial competitive advantage for companies around the globe. CSOs, or ESG officers, are key to driving business outcomes." 
 
Acutt told Digital Nation Australia that VMware wants to amplify its impact even further by baking ESG into its organisation and culture. “However, this takes time and effort to operationalise.”
 
She said having a formal ESG office with a leader that is aligned with the executive team is crucial to implementing an effective and accountable ESG strategy that can mitigate risks, capture innovation opportunities, and generate a positive impact for all stakeholders. 
 
“Customers are increasingly looking for us to help with their energy and carbon reduction goals in their data centres – by leveraging our product solution to help their GHG (greenhouse gas) commitments.”

Indeed VMware’s ESG office engages in customer deals, executive briefings and technical discussions. “The majority of our top customers have been or will be impacted by regulations.”
 
Her team also works with investors who she said are increasingly connecting climate change impacts to long-term profitability. “ESG investments are on the rise, and our investors want to know about ESG strategy in human capital management, climate and ESG governance."
 
And of course, on the talent side of the ledger, where the competition for software talent is intense, having ESG as part of company culture and core values is a differentiator in both attracting and retaining talent, said Acutt.

According to Microsoft Australia’s chief sustainability officer Brett Shoemaker, sustainability cannot be decoupled from business growth or business opportunity,

“It has to be about economic opportunity and business opportunity, and growth. When you decouple those, there's a real risk in terms of being effective.’
 
He said it’s the same as running a business, where you can’t focus only on the cost line.

“There's a natural tension or contrast there that really has to be focused on the things that are the growth of the business and also growth in terms of your emission reduction goals.”

While the CSO may be the key driver of sustainability in a business, their relationship with the other members of the c-suite is critical in generating business-wide outcomes. Shoemaker stressed the importance of being able to view sustainability through the lens of his peers.

“When I think about a partnership with the CFO or procurement officer or my CEO or CTO, I want to very much be showing up and talking in a language that’s familiar with to them and understand what their objectives are how the efforts around sustainability can help advance [those objectives].”

The right stuff

Finding the right executive to lead sustainability efforts (and corral all those senior management egos around a single purpose) requires a particular style of management.

Brian Ferreira, vice president and managing executive partner at Gartner said it starts with understanding how the role is best applied to the particular organisation.

He said, "It's not a functional role by itself as an enterprise role. You've got to find a person and a leadership style that is integrative and can talk across all of the functions. Then the second part is do you give this person a centralised mandate to make decisions on behalf of all the other functions like finance and HR and technology, and operations?

"Or is this person an advisor and an influencer of setting the strategy in the principles and then execution happens in each of the functions?"

Ferreira explained that the chief sustainability officer will have an input to the HR function to say, these are the type of people that you want to employ from a leadership culture and talent point of view.

He said, "I'll give you a simple example. In the technology space, you've got people with cloud capabilities and they will have a very specific way of configuring hardware for energy consumption, people are very passionate about that. I've got that skill to do that I can negotiate with vendors about what the energy usage looks like, compared to how the company needs to use the cloud. "

"Now that comes from a talent point of view people that they've got the talent to build those capabilities and they've got the passion and they believe in it. Your chief sustainability officer will give input to that HR strategy."

Measuring success

Kelly Asimus, global program manager, sustainability at Xero believes measuring the success of a business's sustainability agenda requires aligning measurements to the organisation's strategy.

“We're very fortunate to have a very focused leadership team that's embedded our sustainability agenda into our company, what we call OKRs, or our results and key performance measures. It's embedded in our organisation across everything that we do.”

She told Digital Nation Australia, “It's completely embedded into our risk radar, our strategy development, and we have measures where we're looking to continuously improve on how we deliver our sustainability agenda.”

Management accountability sits at the heart of the Xero approach with each department head carrying some responsibility for sustainability objectives.

The company's ESG steering committee includes executive general managers from all of the critical functions across the business.

“They input into that process and our decision-makers on all of our environmental initiatives and strategy, which is then presented back to our leadership team.”

"The company’s CFO is the company’s climate sponsor, while the chief customer officer is the overall sustainability sponsor.

"So at a c-suite level, we have absolute transparency, visibility of all of our sustainability initiatives,” she said.  

Accountability

For global infrastructure services business Kyndryl, accountability at the individual manager level is core to the approach, according to global sustainability officer, Faith Taylor.

“What's really interesting about me is that I created this role in another company over 15 years ago that didn't exist. Today, it is a strategic priority because of climate change. If you look at what is happening with the Intergovernmental Panel on Climate Change (IPCC), they've said that you have to reduce your carbon emissions by 1.5 degrees centigrade to mitigate the worst of climate change," said Taylor.

“What that means for a company and why that's so important is that we have to manage that. How do we reduce our carbon emissions? How do we manage the risk? How do you we become resilient as we tried to adapt to ongoing climate change, which we're seeing happening today, whether it's the heat waves in Europe, whether it's the flooding here in Australia, whether it is the wildfires in California?

“If you want to be a company, and you want to be resilient, and you want to have sustainable growth, then you need to address it in your companies, ” she said.

With a greater focus on sustainability, find in particular climate risk at the board level the pressures and expectations on CSOs are only going to increase.

Quoting BlackRock’s Larry Fink in his 2020 letter to CEOs Autodesk's Joe Speicher, Vice President of ESG & Impact, said "You can’t separate climate risks from business risks anymore."

"Climate change and inequality are big risks to manage – and, at the same time, opportunities for business growth. Helping customers manage their climate goals, and ensuring a diverse and inclusive workforce, is associated with better financial returns," Speicher said. 

"Companies are missing the boat if they’re not currently embedding ESG approaches into their work – particularly as it relates to climate. The future of ESG will be how companies are reducing inequality and contributing to decarbonisation in their industries. As it stands now, we lack a common language for talking about climate in financial statements. This leaves companies unsure about where to aim to make a positive environmental impact.

He said this lack of a common language also leaves consumers and investors not knowing whom to trust.

"Transparency—regularly reporting on ESG progress to investors — can restore trust and imbue rigour and standardisation into the discussion," he explained. 

"At Autodesk, measuring our footprint enables us to manage our climate impact, thereby providing investors and other stakeholders with an accurate view of climate-related risks and opportunities within our business. It also gives us the street credibility and expertise to help our customers do the same."