How the IT sector is showing the way in ESG advocacy and leadership
When technology and digital solutions transform industries, they bring in their wake both opportunities and threats alike. While cheaper, faster and efficient services continue to underscore the spirit of Informational Technology (IT), the sector also encounters a significant challenge at the moment. Massive digitalisation of data is creating a parallel demand for more energy.
The International Data Corporation (IDC) has estimated that the world’s data will increase exponentially from 33 zettabytes in 2017 to 175 zettabytes in 2025. Energy consumed by data centres continues to double every four years, which invariably points to a rapidly-growing carbon footprint in the IT sector.
The new wave of Internet of Things (IoT), a mushrooming cryptocurrency market and ‘soon to take-off’ 5G services call for more server farms.
Here are more startling facts:
- Five years ago, the United Nations reported that out of the 44.7 million tons of e-waste that was disposed of, only 20% had been properly discarded.
- An academic study three years ago predicted that the contribution of Information and Communication Technology (ICT) to greenhouse gas emissions could go up to 14% by 2040. The study claimed that the use of smartphones accounts for a major projection of the increase. Data is not entirely environmentally cost-free.
- The CIO, an IT digital bulletin, estimates that data centres consume roughly 3% of the global electricity supply and account for approximately 2% of total Greenhouse gas (GHG) emissions.
- It's feared that by 2030, data centre energy usage could even surpass more than 10% of the global electricity supply.
- In adopting digital solutions – like video conferences over physical meetings – we end up avoiding emissions on account of transport. However, online activities, even sending an email, use a small amount of energy. With companies increasingly adopting work-from-home policies, these emissions could add up on a global scale.
It’s imperative that IT firms find cleaner ways of managing businesses and pursue the cause of sustainability more vigorously than they’re doing now.
ESG ratings for the IT industry
Essentially, it means the IT sector will have a huge bearing on the evolution of ESG (Environmental, Social and Governance) and in creating a more equitable and sustainable world. Understandably, IT companies are reviewing key aspects in their operations such as:
- Waste disposal practices, renewable energy use and CO2 emissions in the environment category.
- Diversity in workplaces, diversity and inclusion and community relations in the social impact space.
- Auditing, compliances, and information disclosures among others in governance.
In this regard, ESGRisk.ai, India’s first ESG rating company, had highlighted how “companies specialising in computer programming with a higher market capitalisation have focused more on supporting and developing the community, quality of employment, and employee development policies and practices. Most of the companies in the IT industry have better overall ESG performance compared to other industries because of better disclosures, initiatives, and strategies related to ESG material issues.”
Such organisations are keen to steer their businesses in the direct direction, improve sustainability performance, and achieve impressive ESG ratings for positive market recognition. From the investors’ point of view, ESG ratings of IT firms serve as a key indicator of the potential risk and returns from allocating capital there.
How can investors benefit from ESG reports for the IT industry?
And accessing consolidated ESG reports enable them to avoid stocks of IT companies that might pose a greater financial risk. These reports offer an all-comprehensive analysis on whether IT firms are complying with General Data Protection Regulation (GDPR) guidelines, delivering on energy management, corporate governance, and adopting data privacy and security policies, the key material issues in the industry.
ESGRisk.ai’s reports, for instance, offer a comparison of companies and a summary of financial and nonfinancial material ESG factors.
How ESGRisk.ai's assessment can help...
ESGRisk.ai’s ESG Ratings have been developed to help investors understand a company’s ESG performance and link it to the investor’s portfolio risk. These ratings are a summary of financially material ESG factors. The rating report provides the performance on all these factors. It can be used for portfolio construction and management as well as for ESG performance comparisons and benchmarking.
Following is the summary of ESGRisk.ai’s ESG reports on the IT sector made public:
- A comparison suggested that Infosys Limited, Hexaware Technologies Limited, Tata Consultancy Services Limited and Vakrangee Limited outperformed their peers on ESG practices.
- Infosys Limited topped the ESG disclosures category with overall transparency of 87% followed by Mindtree Limited. The average transparency of the industry is 73%. The average score for BRR transparency in the IT industry is 71.42 %.
- Infosys Limited was also the leader in governance on account of its management structure and compensation and board diversity practices.
- Mindtree Limited led the environment category due to its efforts towards mitigating GHG emissions and energy management.
- In the social category, Larsen & Toubro Infotech Limited outperformed its peers with a score of 61%, followed by Infosys and Tata Consultancy Services. In the Information Services industry, Vakrangee Limited outperformed its peers in the environmental and social categories with scores of 70% and 58.80% respectively.
ESG India Leadership Award for Equal Opportunity and Overall ESG Leadership:
Infosys Limited
ESG India Leadership Award Data Privacy and Security:
Vakrangee Limited
ESG India Leadership Award for Leadership in Board Independence:
Mindtree Limited
ESG India Leadership Award for Leadership in Employment Quality:
Tata Consultancy Services Limited
What should be the ESG strategy for the IT industry?
Yet, the IT sector has immense scope to achieve its true ESG potential. Green IT ought to become a way of business. Creating green data centres makes both environmental and business sense.
The negative impact of IT operations on nature can be reduced by manufacturing, designing, operating and disposing of computers and paraphernalia in an environment-friendly manner. Organisations could recycle e-waste rather than accumulating electronic scrap heaps with harmful chemicals and hazardous materials.
It’s rightly said that IT firms should find cleaner ways of managing businesses and pursue the cause of sustainability more vigorously than they’re doing now. Temperature-controlled data centres are being advocated to process vast amounts of information in an interconnected world. Underwater data centres are proving to be practical, reliable and energy-efficient.
The reach of IT is such that it can also help achieve sustainable development in food security using advanced software tools. It can disseminate information to grow different crops and identify the right weather and soil conditions.
Is the IT sector doing enough to have strong leadership structures and governance practices? The general opinion is that companies specialising in computer programming with a higher market capitalisation have focused more on supporting and developing communities, quality of employment, and employee development policies and practices.
However, there are calls to identify possible tricky areas in using data more ethically, especially employee information. As Brian Kropp, head of research at Gartner, says, “No employee will trust their organisation to do the right thing for society if they can’t trust it with their own data.”
Infinite possibilities
It wouldn’t be an overstatement to say that IT, regardless of the challenges, is showing the way in ESG advocacy and leadership.
Organisations such as Amazon, Facebook and Microsoft have outlined their net-zero goals. IT giant Microsoft has pledged to remove all the carbon it emitted through electricity or directly since it was founded in 1975.
Industry leaders such as Wipro, Infosys, Tech Mahindra and Tata Consultancy Services are now offering sustainability solutions to clients eager to go green. Given the infinite possibilities to expand the scale of sustainability in their operations, IT leaders shouldn’t stop here.
