After a year like no other, the digital transformation of our society has accelerated faster than ever before. As lockdown gripped the globe, we were all forced to move to a completely different way of life. Within days we were immersed in a steady stream of video meetings, online shopping and virtual pub quizzes. Thrust out of the office and into the ether: our technology usage has surged.
These digital activities however come with an often unseen environmental cost. Just because we can’t see the tell-tale plumes of smoke pumping from our devices, it doesn’t mean that our increasing reliance on the digital world isn’t leaving its mark on the planet.
From many headlines over the last year, we may be led to think that 2020 has been a boom year for environmental causes. The slowdown of industry and the reduction in international travel have certainly led to a decline in emissions with estimates put at around a 7% drop globally. It does mean however that we are seeing those impacts being pushed to other areas, like tech. Just because we aren’t flying, doesn’t mean our new behaviours don’t carry their inherent costs.
Our increased usage of digital technologies relies on a vast hidden network of infrastructure. In particular, this increase in compute power relies on data centres that consume significant amounts of energy to power them, water to cool them and land to house them.
A startling recent study shows that an hour arguing with your boss over Zoom emits 157g of CO2e. While cooling off afterwards by streaming a single HD episode of Bridgerton can generate over 400g of CO2e. The annual carbon footprint of data storage and transmission now lies at an extraordinary 97 million tonnes of CO2e – equivalent to that produced by Sweden and Finland combined.
And while Bitcoin’s price might cheer crypto-enthusiasts, the on-going mining frenzy continues to be a major drain on the earth’s resources. The Cambridge Centre for Alternative Finance estimates that Bitcoin currently consumes more electricity than Argentina – with consumption more than doubling since the autumn. The huge amounts of energy required are from the sheer amount of compute power used to sustain the blockchain network. Computer networks are run by ‘miners’ around the world in the pursuit of earning Bitcoins from their digital activities. And with the surging prices we can likely only see an ever-expanding interest in the area.
There is an additional macro trend of ever more people being plugged into the global digital economy. We’re already seeing roughly 875,000 new internet users each and every day, and lockdown has pushed up daily use by as much as 40% since the introduction of stay-at-home orders. The consequences are stark. Experts predict that if remote working lasts for the remainder of 2021, the global carbon footprint of increased COVID-19-related internet usage alone could hit 34.3 million tonnes of CO2e – with a land footprint over ten times the size of Manchester, and a water footprint capable of filling over 300,000 Olympic size swimming pools.
While individual actions from consumers (whether turning off their cameras during a conference call or switching their streaming from high to standard definition) will make a difference, change will ultimately have to come from the innovators responsible for the technology that is transforming our lives.
Scaling tech firms and fast growth businesses have much to gain from understanding the true scale of their impacts and working towards ambitious and credible environmental and social goals that align with wider strategy. It’s not simply about helping turn the tide of the climate crisis, but about these businesses seeing the inherent value from such change. Below we highlight the key issues and why tech firms should care alongside the roadmap to reap the available rewards.
The pace at which technology is evolving is ever increasing – and people are eager to embrace it. Consider this – in 2019 there were 5.112 bn mobile users, 4.388 bn internet users and 3.484 bn active social media users. These figures have continued to grow throughout 2020 and into 2021. Digital firms are typically known as innovators and change makers. And with change being the only constant, we may think that such companies are well adapted to stay abreast of mounting sustainability issues and in providing solutions to solve them. They can however potentially be blind-sided through a lack of data, behavior change from investors and an ever-shifting list of opportunities and risk presented by climate change.
Here we identify why tech needs to sit up and pay attention.
The first step before any kind of change occurs, will be for digital businesses to map their impacts. As Peter Drucker once said: ‘what gets measured, gets managed’. Increased visibility of impacts and reporting of emissions will be a good first port of call for many. And while many digital organisations may find their operational Scope 1 and 2 emissions low by comparison to other industries, they must look to Scope 3 emissions across their supply chains. This is where the majority of an organization’s environmental impact will reside. Typically, outside of travel, the impacts will lie heavily within energy usage from data centres.
Many organisations choose to omit or not disclose their Scope 3 emissions. We believe they need to look at the issues head on, diagnose the real problems and take bold action.
It should be seen as a chance to gain greater visibility across the entire supply and value chain, understand the negative impacts, and identify how to minimise them. Changing to greener procurement channels and consciously reviewing moving local server usage to the cloud presents an opportunity to strike better deals with both upstream and downstream suppliers and reduce overall costs for the organisation.
Without having data in the first place however, businesses will be caught short and unable to make the disclosures sought by colleagues, clients and investors. An unacceptable position to be in today’s world.
Sustainable strategies are playing an increasingly prominent role in investor relations. Across industries, we’ve seen investor pressure groups wield their influence (and considerable assets) in insisting that carbon-intensive businesses turn towards net zero. And the tech world is not immune to these demands. Strong ESG metrics, anchored by credible climate commitments and transparency, are fast becoming a business imperative for all start-ups and scaling firms. Silicon Valley global seed investor 500 Startups recently implemented ESG screening into its due diligence process, with new portfolio companies expected to monitor and report metrics and progress. It’s a move that is likely to be replicated by more and more VC firms and angel investors moving forward.
But these environmental obligations shouldn’t be viewed as a hindrance, but rather as an opportunity for attracting further investment. Organizations that take their ESG commitments seriously are considerably surer prospects for investors, having long been shown to outperform those that don’t. Recent BlackRock research revealed that the “majority of ESG-titled portfolios… outperformed their non-sustainable counterparts during (last year’s) market downturn”, while Bank of America Global Research previously reported that firms with high-performing ESG metrics outperformed the wider market by at least 3% each year between 2014 and 2019: exactly the type of edge canny investors are on the look-out for.
Climate-related risks and opportunities continue to grow in prominence.
Some climate-related risks are slow in their onset (such as changes in temperature and precipitation leading to droughts, or agricultural losses), while others happen more suddenly (such as the horrific wildfires that devasted a large part of California last year). It is now widely recognised that climate-related impacts are not just a future threat.
Tech companies therefore need to understand their exposure to climate risk. Whether it’s the damage to server farms and physical infrastructure caused by heat and fire, the impact of drought on data centre water demands, or challenges to supply chain resilience wrought by escalating severe weather scenarios; the climate crisis brings concrete consequences.
The 2018 Lights Out: Climate Change Risk to Internet Infrastructure study projected that rises in sea levels could affect some 4000 miles of fibre conduit Internet infrastructure within 15 years. And these tangible dangers are matched by regulation risk in the form of potential future carbon taxes and the lingering danger of litigation for failing to act on climate change. It’s little wonder that a survey of tech sector CEOs found that climate change is considered to be the single largest threat to industry growth.
The need to understand risk to business is now being given structure through TCFD. Mandatory required reporting will capture all listed and large corporates with a deadline to comply by 2025. For many digital businesses they will either meet those criteria, grow into them, or be captured by them as the legislation inevitably expands to capture ever more entities.
We have outlined the risks and opportunities… but what should you do about them? Below we outline steps to make a direct impact.
It’s high time to map your emissions. It’s the first vital step. Too many digital and tech organizations don’t have effective oversight of the scale of their Scope 1 and 2 emissions Avieco’s Disclosure service can give you the full picture – working alongside your organisation to produce your carbon footprint and to quantify its impacts.
We leverage enterprise software and expert analysts and consultants to help organisations make this step.
Growth companies will likely need to record and report this information sooner rather than later anyway, as the UK’s SECR (Streamlined Energy and Carbon Reporting) regulations will likely capture more and more businesses as time goes on. While it currently only affects large companies (defined as those meeting two of the following three criteria: a turnover of £36m, balance sheet assets of £18m, or 250 employees), there is a strong possibility of further expansion and tightening requirements. Best to get ahead of the curve before being legally required to do so.
The digital sphere, of course, relies on a network of interconnected systems and organisations, and you’ll need to engage and collaborate with suppliers and clients to fully account for your Scope 3 that maps the emissions embedded across the entire value chain. It’s a complex and sometimes daunting task, but there are useful tools out there to help bring this vital information together.
Microsoft has also shown real leadership in this area by offering Azure enterprise customers access to a Sustainability Calculator that tracks the emissions and energy usage related to their account activity. It’s a good example of the ways in which the tech industry can be served by technology itself.
You’ll want to identify how to decarbonise your business and design an effective sustainability strategy that meets stakeholder expectations and boosts those investor-coveted ESG metrics. Your focus may be primarily on carbon, but you should also consider wider issues such as the circularity of sold products. This might take the shape of moving from carbon and land intensive in-house hosting infrastructure to green certified cloud hosting that offers the ability to scale up and down at speed – or otherwise following in the footsteps of industry giants Apple and switching your own electricity supply to fully renewable sources. Now is an opportunity to update your approach to procurement, to tighten your electronic waste policies, or conduct a review of your company’s travel guidelines as we hopefully begin to tiptoe towards some kind of return to normality in the coming months and years. There’s no better time to put strategies in place for a sustainable future.
As the world continues its dizzying digital transformation, and more of us spend the greater part of our lives online, it’s important that we shine a light on the environmental implications. All digital businesses – from promising start-ups to industry behemoths – have a responsibility for their carbon footprint. It’s time to map these emissions, engage supply chains, and take action. Digital is far from clean, but – with a conscious collective effort – it can be. Here at Avieco, we can help you take the steps needed to get there.
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