Digital sustainability: The new priority for business leaders

Mounting pressure from multiple sources – policymakers, investors, consumers, activists and climate-related business disruptions – have pushed sustainability to the top of the business agenda. In a recent global poll conducted by Deloitte, over 80% of executives claimed their organizations were concerned or very concerned about climate change. Operational challenges stemming from climate-related disasters, growing scarcity of resources and political uncertainty are among the main impacts businesses are bracing for, or have already experienced.

The Glasgow Climate Pact, sealed at the 2021 United Nations Climate Change Conference (COP26), was yet another wake-up call to corporations that managing their carbon footprint is imperative, and that failure to do so will carry reputational and financial consequences.

The top environmental challenges affecting, or likely to affect, businesses

Source: Deloitte

Few organizations or business leaders object to sustainability commitments in principle. As Lisa McNally, Head of Cleantech and Sustainability at Thoughtworks, notes: “It’s no longer optional to be a sustainable business. Sustainability is a requirement now to be a competitive business. That’s the starting baseline.” 

The question is how to translate those commitments into meaningful action, especially when, in many industries, there’s a lack of clear targets to aim for and no standard playbook to follow. 

Most often, climate action takes the form of policy statements and awareness raising; perhaps efforts to reduce waste or promote the use of recycled materials. And as technology becomes more integral to every business, organizations will begin to grapple with sustainability in the digital dimension – a process most have yet to undertake.

“As we accelerate the adoption of technology in our daily lives, particularly in a post-pandemic world, it’s even more apparent that it needs to be considered as part of the total carbon footprint of an organization,” says Elise Zelechowski, Global Head of Sustainability, Thoughtworks. “But the idea of the digital carbon footprint is something that’s so new that people are still trying to wrap their heads around it, and may not even actually know what to look for. There’s a need to raise awareness that sustainability is something everyone should be evaluating when they design and build technology, that they should be making decisions in the creation of software that minimizes its carbon footprint.” 

According to George Earle, Global Director, OCCO, Thoughtworks, there’s relatively little awareness among businesses that technology is an area ripe with the sustainability equivalent of low-hanging fruit – chances to optimize practices or operations to realize quick environmental gains that can also directly benefit the balance sheet. 

“Our own experience has taught us that in technology there are clear opportunities to improve processes, to attack the supply chain scientifically, to find better ways of doing the same thing that are cleaner, that save the company money and contribute to profitability,” he says. 

Financially as well as morally then, there’s a clear case for businesses to make constructing and integrating more environmentally conscious approaches to technology a priority as they gear up for a new year. 

“Every company that considers itself a modern business, that wants to be ready for the new economy, needs to put a plan in place to start reducing their digital carbon footprint, to investigate the investments they’re going to need to make and how they’re going to transition their business, at least at a high level, right now,” says Zelechowski. “If they’re not in at least the evaluation stage, they need to be.”

i. The two sides of technology 

When it comes to sustainability, technology is something of a double-edged sword. The shift to tech-enabled services has been supported by energy-intensive infrastructure, particularly data centers. By some estimates the IT industry is already as big an emitter as aviation, and will account for close to 10% of global electricity demand by 2030.

At the same time, new solutions in areas like artificial intelligence (AI) and cloud computing are also making more sustainable approaches possible. Research firm IDC, for example, estimates the efficiencies realized through cloud computing could prevent the emission of over 1 billion tons of carbon dioxide by 2024. And while the AI algorithms behind some of the latest software applications require significant resources to train, modifying design, energy sources and computer hardware can dramatically reduce their environmental intensity.

Digitalization isn’t always environmentally friendly

This means companies have a choice – and that a sustainable technology strategy is within reach for organizations willing to embark on an effort that will, at times, be challenging. 

“To determine your current sustainability profile across the business, it requires an immense amount of work and commitment to uncover the location of that data, to aggregate, synthesize and analyze it, and then to use that information year after year to monitor and manage progress towards stated environmental goals,” Zelechowski says. “But tech is also an enabler, and there are a number of new tools out there that can make all this easier to understand.” 

Identifying and working with the right data plays a huge role in transforming sustainability commitments into tangible progress, but is still a struggle for most businesses. One study found just 16% use data from established commercial databases to measure their carbon footprints, and even fewer (14%) employ high-quality, industry-specific data to conduct baseline assessments at the product level. Reliance on less than optimal data can increase the chances of inaccurate outcomes.

To add to that, misconceptions about technology’s carbon impacts are common. “When companies are moving to the cloud, that’s sometimes perceived as a positive in the area of carbon mitigation,” Zelechowski notes. “But as we’re coming to understand, not all movement to the cloud necessarily means a reduced carbon footprint. There’s a much deeper analysis that’s required of the underlying emissions of different decisions.” 

As Earle points out, the two main forces pushing for ESG adoption – policymakers and investors – tend to focus on metrics, which can encourage businesses to generate and report the bare minimum of data needed to remain compliant, and stop there. “It’s essentially a shame-oriented process,” he says. “When a policy is established, businesses will acquire software that digs through their data and figure out how to report on it, so they can say ‘here’s where we are.’ It’s just checking a box from a reporting policy point of view.”

Regulatory compliance and market value are top drivers of ESG efforts

Source: Deloitte

What’s more, even among regulators and investors, “standards are not yet fully developed, adhered to, or agreed upon,” notes McNally. “Everyone’s waiting for various players in the market to catch up with one another, and looking for a leader to drive a certain standard.” While there are expectations for progress from bodies like the US Securities and Exchange Commission, for the time being businesses are often left in a state of limbo. 

Technology-related emissions pose additional difficulties in that they tend to fall under what are known as ‘Scope 3’ emissions – those generated indirectly by a company in the course of doing business, as opposed to the ‘Scope 1’ and ‘Scope 2’ categories that cover emissions directly generated by power consumption and owned assets, such as a company’s vehicle fleet.

“Scope 3 emissions are not a mandated category for reporting, so there isn’t a lot of incentive right now to measure them,” McNally says. “They also happen to be one of the hardest categories to measure.” 

How Scope 1, 2 and 3 emissions compare

Scope 1

• Fuel combustion
• Company vehicles
• Fugitive emissions

Scope 2

• Purchased electricity, heat and steam

Scope 3

• Purchased goods and services
• Business travel
• Employee commuting
• Waste disposal
• Use of sold products
• Transportation and distribution (up-and downstream)
• Investments
• Leased assets and franchises

Source: Carbon Trust

ii. Grasping the green tech opportunity

Given all these uncertainties, why should businesses take the plunge now and begin to delve into the environmental impacts of their tech solutions and practices? 

Leaving aside any ethical arguments for doing the right thing, Earle notes adopting more sustainable technology approaches can produce clear and substantial efficiencies in the short and long-term – an opportunity that he believes policymakers need to do a better job of communicating. 

“There is a mathematical way to approach this that will produce financial returns, so why would any company view it as a waste of time?” he says. “But that’s been the missing link in the discussion. There’s no clear financial incentive to do it; instead it’s based on punishment. It’s all stick and not a lot of carrot.” 

“The whole notion of sustainability is to reduce waste in a system,” Zelechowski agrees. “In looking at their sustainability initiatives, companies can prioritize where they’re going to save water, save energy, and achieve short-term ROI. When it comes to our own carbon footprint, we’ve certainly seen opportunities to make reductions that immediately save money for the business.” 

Over the mid-to-long term, given increasing scrutiny of technology as a source of emissions, investors and consumers will also pressure companies perceived as slow to reduce their tech-related carbon footprints, and reward early movers. “(Sustainable technology) may increase your costs to begin with, but you’re also going to gain momentum and start to attract more quality investors over time,” McNally notes. 

A sustainable technology practice also presents businesses a chance to lead by example, by helping define the measurement, reporting and management of Scope 3 emissions when all are still nascent. 

“Any work in this area has the potential for a significant impact, for tech companies and other companies as well,” says McNally.

iii. Beginning with buy-in

To leverage the competitive edge sustainable technology confers, companies should “think big and boldly” about making change, advises Zelechowski. “There’s a race to innovate as quickly as possible, to stay relevant, because once regulatory pressures catch up with certain industries, they'll be at a disadvantage.” 

Then again, no change can be successfully implemented in one fell swoop. “You need to break transformational sustainability initiatives down into smaller steps,” she says. “When it comes to truly transforming a company's sustainability profile, much of it is about culture and a willingness to look at the business model, identifying the big contributors to the environmental footprint that need to be fundamentally reconsidered.”  

This will be easier in some industries than others. “Some organizations, such as tech or digital native companies, can move more quickly and adapt,” Zelechowski explains. “But companies with a large physical footprint, energy-intensive processes or practices, or very complex, resource-laden supply chains, are going to experience a greater shift in how they work.”

According to Zelechowski, real progress depends on aligning and helping everyone in the company connect with the vision of the planned evolution – a process that depends on “empathy, patience and communication.” Diversity is also an essential part of the toolkit. 

“We've seen with our own environmental sustainability initiatives that you get more, and better, results faster if you have a diverse group of people representing different functions within your organization at the table early on,” she explains. “It’s important to ensure everybody has a shared understanding of the sustainability goals you’re trying to accomplish, as well as what the opportunities and needs are.”

Bringing a range of senior leaders on board can help ensure sustainability goals are connected to financial realities, which contributes to their longevity and overall organizational buy-in. “Ensuring the chief procurement officer has a seat at the table, for example, is essential, as they are ultimately in control of the company’s supply chain – which is where many sustainability opportunities lie,” notes Earle. 

There’s a strong argument for embedding financial considerations such as short and long-term ROI into the process of identifying the biggest opportunities for carbon mitigation. 

“Our past experience has shown that if sustainably updated processes are associated with operational improvements or supply chain resilience that result in profitability, businesses are absolutely willing to take the plunge and invest resources in those processes,” Earle says.

However, investing in new areas often requires dedicated budgets, which, given the siloed nature of many businesses, aren’t always available. “Each business unit typically has its own budget, which does not have a line item for sustainability initiatives,” says McNally. “It's harder to pull funds together and invest in something new, as opposed to just seeing the savings on business as usual.” 

In that sense, reviewing and optimizing what the business is doing today instead of funding a massive new initiative can be an easier sell and a better way to gain momentum.

Buy-in across the business’s operations also equips the company with the inclusive representation it requires to assess its entire operations holistically for optimization opportunities. 

“An evaluation of the biggest areas of potential impact is the place to start when companies are trying to understand what their sustainability plan should look like,” says Zelechowski. “There needs to be a deep dive on carbon emissions across their business.”

“Helping businesses define their footprint starts with carving out the tech elements of the work that they do,” says McNally. “Once we can focus on and understand that component of a business's day-to-day operations, we can start to look at opportunities to optimize and reduce emissions right away.” 

This is where the hard work of data collection, analysis and insight-gathering begins. The good news is there’s no shortage of tools for companies to choose from to identify where environmental impacts can be mitigated – in fact, the contrary often holds true. 

“In some ways, it's such a crowded space for tools that it's hard to know where to get started, or where to take the first step,” Zelechowski says. “Bigger global initiatives like the Science-Based Targets (SBTi) are becoming broadly adopted and recognized as a reporting standard, and can provide a great starting point for companies that want to make a commitment and tackle the carbon baselining and target setting process.” 

The Net-Zero Standard, established by the SBTi, guides companies towards developing clear short and long-term targets for reducing carbon emissions across their entire value chain, with the ultimate goal of keeping the global temperature rise to no more than 1.5°C by 2050. This framework has gained substantial traction, with about one-fifth of the world’s largest publicly traded companies committing to net-zero emissions targets.

iv. Defining what good looks like

For all the good intentions, Thoughtworks’ experience shows that attempting to measure carbon emissions is no easy feat – especially when it comes to deciding whether the data collected is of sufficient quality and quantity to develop a starting point. 

“The first step we took was to do carbon baselining to really understand where we were at a moment in time that reflected our business's usual carbon footprint,” says Zelechowski. “We then used that baseline to set meaningful targets that align to the 1.5°C benchmark.” 

“While it takes time to get good data that gives you a genuine snapshot of your carbon baseline, companies also need to find a balance and realize at a certain point that they have gathered a sufficiently statistically relevant amount of data to work with, rather than aiming for absolute precision,” she adds. Partnering with a reporting body like SBTi can assist with the process.

While tools exist to reliably assess company-wide carbon emissions, the missing piece in the sustainability puzzle for technology has been a lack of standardized measurement of Software Carbon Intensity (SCI), the carbon emissions rate of a software application. This is one of the chief issues being tackled by the Green Software Foundation, of which Thoughtworks is one of the founding partners. The SCI Specification developed by the foundation enables companies and developers to calculate an SCI score for applications to better grasp the carbon footprint of any tech solution.

“The goal of this standard is to bring a level of commonality to our understanding of how to measure the impact of any software product,” explains Zelechowski. “That will go a long way towards setting a foundation for broader measurement of the digital carbon footprint of any organization or any software tool that we build.”

This is to some extent a work in progress, especially given the rate of change in the technology industry. “We are trying to depict what we believe should be the standards for how to do this,” notes Earle. “But one of the main debates we’ve had is whether we’re genuinely capturing everything. Much of the discussion is about metrics and those present problems that still need to be worked out.”

One fundamental caveat surrounds how emissions are conceived of and defined. “When we calculate emissions, we need to be mindful that often we’re quantifying emissions as opposed to actually measuring them,” explains McNally. “Quantifying has more to do with estimating based on proxy data and coefficients that are often averages.”

Further to that, the net-zero concept itself might be subject to challenges. “There are a lot of critiques right now about the whole notion of net-zero as a concept because to operate any business, you're going to create emissions,” says Zelechowski. “Often when businesses are talking about net-zero, they're saying they're going to get to a certain point and then they’re going to buy carbon offsets to get to that net-zero footprint, ultimately.”

“To really reduce emissions, companies need to make changes a lot earlier in their value chain," says McNally. 

Offsets are proving controversial as a sustainability mechanism, with environmental groups like Greenpeace dismissing them as a “scam” designed to cover up continued polluting, and issues such as double counting - that is, two parties claiming the same emissions reduction ‘credit’ - increasingly evident.

Procurement that includes operations through to IT retirement can be a much more powerful zone for technology emissions reduction. As McNally points out, by deciding where to invest, a company can change outputs even before they’re generated, rather than coming in with a tool to measure them afterwards. 

“Procurement is where the rubber hits the road in terms of assessing carbon intensity across your vendor relationships,” she says. Building sustainability criteria into all of a company’s tech requests for proposals (RFPs) is one relatively quick way to drive real progress. 

“We’re seeing that becoming a business-as-usual approach, and vendors are having to respond, which creates a lot of motivation around making better procurement decisions,” McNally adds. 

Earle notes even seeing cases where a company’s sustainability officer reports to the chief procurement officer, who in turn has the ultimate say on any technology investment decisions with input from the CIO or CTO – creating a ‘closed loop’ where choices on things like cloud providers are subject to both financial and sustainability criteria.  

The circular economy – which requires considering what happens to IT equipment after retirement – should also play into vendor selection. For example, having RFPs weigh vendor protocols and requirements for leasing or purchasing technology, and policies on taking back retired equipment. “Given the amount of IT equipment and software businesses go through, this is a natural way to realize tangible and feasible emissions reductions on the ground,” says McNally. 

Generally, having relationships with vendors based on understanding of their sustainability priorities, and shortlisting those that have explicit environmental standards or certifications can make it easier to develop and maintain a sustainable supply chain. This particularly applies to the procurement of data center and cloud services, which are a big component of any company’s IT operations. 

“Data center and cloud strategy work is a promising area for companies to be making changes in how they do business and rely on their IT infrastructure,” says McNally. “It impacts everyone – in retail, food, through to oil and gas. You don’t have to be a Google or tech company. Anyone who's doing business digitally can make positive choices.”

v. Improving approaches to infrastructure  

While there are already great examples of the ‘greening’ of infrastructure, studies suggest there’s much more that can be done to assess and act on its carbon intensity – and that there’s a lot at stake.

“We’re only beginning to come to grips with the environmental implications of digitizing everything, with some innovations, like virtual currencies, likely to prove a massive drain on resources,” notes Earle.

One comprehensive study of hundreds of data centers and IT service providers found just 33% of data center operators were monitoring the carbon impact of their data centers and internal IT operations. By contrast, more than 70% monitor energy efficiency and 82% track electricity consumption. 

The disparity boils down to the business risk these factors present. While energy consumption impacts data center uptime, carbon emissions pose little immediate operational risk, even as operators pledge to adopt more sustainable practices. This inaction trickles down to the many enterprises that rely on cloud computing solutions.

Data center carbon emissions one of the least likely metrics to be included in sustainability reports

Source: Thoughtworks

“One of the challenges is that even though major cloud providers like Microsoft, Amazon and Google provide their own carbon cloud calculators, most companies, especially large organizations, are probably multi-cloud,” says Zelechowski. 

Indeed, a recent survey of tech professionals indicated that 76% of their organizations had a multi-cloud strategy, and that such strategies are pursued by the overwhelming majority (90%) of large organizations with more than 5,000 employees.

To help address this issue, Thoughtworks has created an open-source Cloud Carbon Footprint (CCF) tool that draws on data collected by various cloud operating systems and measures how much processing power is being used by any given piece of software, so companies can approximate the carbon output for what they are doing. The CCF tool also identifies areas of hidden emissions and potential savings, such as storage that has lain dormant for months and is costing the company money. 

The tool is capable of offering recommendations like deleting unused storage or shifting the workload from one data center to another that uses more renewable energy, providing additional avenues to support companies’ green cloud initiatives. “There’s a visual interface to allow you to easily grasp the load and identify opportunities for optimization and improvement,” explains Earle.

The CCF can also be customized to pull data from companies’ on-premise data centers to help businesses understand their current baseline, and projected impacts and costs if they move to the cloud.

“This CCF tool puts the agency and decision-making back into the hands of the business by making it clear that although the cloud providers ultimately decide where they locate their data centers and how much energy they use, companies can still make changes on their side to make better use of those resources,” notes McNally. “For companies that are looking at ESG reporting and already have methodologies to determine their emissions for Scope 1 and 2, the CCF can help them start to wrap their head around cloud and data usage, which fall under Scope 3 emissions.”

vi. Extending sustainability frontiers

Developments like the CCF show that while sustainability measurement and progress will remain a moving target, the range and capabilities of the tools companies have at their disposal to make strategic decisions about cloud computing (or business process) investments are also evolving. 

“We’re working to push data analysis even further by bringing modeling and simulation of business scenarios and associated emissions deeper into the supply chain, using tools like Monte Carlo simulations to help companies analyze the probability of various outcomes and aid better decision-making,” says Earle. “AI neural network models have the potential to condense time-intensive analysis into a much shorter timeframe.” 

“Advances in electric vehicle (EV) technology and infrastructure will also create opportunities for companies to reduce emissions throughout their supply chains, while green building standards will continue to shape larger real estate investments,” observes McNally. 

While carbon emission reductions can be realized by optimizing current processes, really pushing the frontier of digital sustainability will likely call for new investments. Emerging solutions to support greener technology practices could provide the much-needed boost towards true net-zero targets even as companies rely more heavily on data and energy-intensive resources to meet both operational and sustainability-related demands. However, these will also require significant initial capital outlay. 

“If you are operating a data center that runs on dirty energy, for example, and you want to make the transition to renewables, you have to make an investment,” explains Zelechowski. “And there's going to be some consideration about the timeframe of the return on your investment because ideally, at some point, if it's a renewable energy source powering your data center, it's going to produce power and not cost you anything anywhere, anymore, except for the grid connection fees.” 

The list of what’s feasible in terms of energy sources could expand significantly in the years ahead, notes Earle. “We are only beginning to explore the potential of renewable energy, and there’s significant potential in fields like space-based solar power,” he says. 

Even before a full transition to clean energy, carbon mitigation technologies such as carbon capture, storage and utilization (CCUS) may prove a good bridge to propel the industry forward. “There is a lot of public funding available to help innovators and certain industries pursue this approach,” says McNally.

However companies pursue their sustainability drive, Zelechowski advises business leaders to carefully consider each new technology or emerging practice they wish to adopt in the context of the broader goals they are trying to accomplish, as well as its sustainability characteristics and implications. 

“Companies have to move away from simply chasing ‘shiny objects’ or opting for the easiest solution available,” she says. “The procurement of new, more efficient laptops, for example, has to be weighed against their performance, the ability for people to work efficiently on those computers, privacy considerations and all other dimensions. There's a tension with many new technologies in that companies are often trading certain efficiencies for other ones.”

Over and above target-setting or the adoption of certain solutions or practices, sustainability has to be a mindset shift. 

“Embedding sustainability thinking into the product design process early on, in the same way we advocate incorporating accessibility or human-centered principles, is the best way to drive positive outcomes and ensure the most efficient use of resources in anything you deliver,” says Zelechowski.

To hear more on building resilient supply chains, check out this episode of Pragmatism in practice.