Booz & Company Publish Paper Titled “ICT for a Low Carbon World: Activism, Cooperation, Innovation” During Davos
Estimates suggest the ICT sector will account for 3% of greenhouse-gas emissions by 2020, however the real potential to be leveraged is the positive environmental impact the ICT sector could have on other sectors through developing “Green” ICT solutions; which could help reduce global carbon emissions by about 15% (by 2020).
In collaboration with the World Economic Forum, Booz and Company; in a workshop during Davos presented a paper titled “ICT for a low carbon world: Activism, Cooperation, Innovation”. The paper highlights that Companies operating in the information, communications, and technology (ICT) sector have a unique opportunity to trigger significant environmental benefits by upgrading their operations and by developing greener products and services for their clients. To date, the ICT sector has taken a fragmented approach to green ICT solutions, which could harm the sector’s prospects to positively contribute to the environmental agenda and could limit the sector’s growth. Worse, it could leave ICT companies in the position of reacting individually and defensively to patchwork regulatory measures imposed by governments, according to a new study by Booz & Company in partnership with the World Economic Forum.
ICT Can Contribute to Change
The ICT sector is growing considerably on a global scale, but as more and more people enter the digital age, the environmental impact of ICT will only get worse, generating rapid increases in the carbon footprint of some subsectors. Estimates suggest that ICT companies will have contributed roughly two percent of the planet’s total greenhouse-gas emissions in 2009, and total ICT emissions are on track for an increase by 2020 to three percent of global emissions. “The sector faces a clear imperative to reduce its direct footprint by reducing the energy consumption of its products and by minimising waste derived from them,” stated Karim Sabbagh, a partner at Booz & Company.
However, ICT companies can trigger much larger environmental change by enabling energy efficiency in other sectors. ICT therefore is in a unique position in regard to climate change. Just as the sector’s products can have a multiplier effect in increasing efficiency and productivity among its clients, it can trigger leveraged reductions in emissions among those clients as well, by creating products and services that allow them to more effectively monitor energy use, identify inefficiencies, and transform value chains to become more eco-friendly. The Smart 2020 report, an analysis of ICT’s effect on climate change that was commissioned by the Global e-Sustainability Initiative, estimates that ICT could enable a reduction of up to 15 percent of global emissions by 2020.
“In addition to environmental benefits, there are significant economic opportunities for ICT products and services in the sustainability category, but despite this potential, the ICT sector, usually known for cutting-edge solutions, is not yet driving the sustainability agenda,” commented Danny Karam, a senior associate at Booz & Company.
In order to improve sustainability throughout the sector, industry-leaders must respond to four imperatives. Only by working on all of these will companies in the ICT sector make the most of all environmental and economic opportunities.
Innovate: Companies must develop new ICT solutions to address environmental issues. The recently announced Green Touch initiative, a global consortium organised by the Bell Labs research arm of Alcatel-Lucent which consists of service providers, academic research labs, government and NGOs, and industrial labs, falls into this category. The goal of Green Touch is a thousand-fold increase in the efficiency of communication networks and aims to assemble reference network architecture and other necessary components within five years.
Grow: ICT players must adapt, enhance and grow ICT solutions to address green issues. For example, VMware increased the market penetration of its virtualisation technology in part by demonstrating its environmental impact.
Measure: Although several measurements exist to gauge the impact of green initiatives on a company’s internal operations, none consider the leveraged effects of ICT products and services on a company’s overall client base.
Enable: ICT players must work in conjunction with governments to establish a regulatory structure that can facilitate the innovation and growth of green ICT solutions.
Measures of Activism
Individual ICT companies have adopted a host of strategies to address climate change and other green issues, which can be considered along an environmental activism spectrum consisting of four dimensions. “By looking at key performance indicators along all four, an environmental activism index (EAI) can be assembled that allows companies’ environmental efforts to be quantified and compared to each other,” said Gregor Harter, a partner at Booz & Company. These include:
Operational consciousness: This measures the degree to which a company takes steps to improve the sustainability and environmental impact of its own operations. Key performance indicators include the carbon footprint from the company’s internal operations, the percentage of equipment with an environmental certification, the percentage of energy consumed from renewable resources, and the percentage of employees using eco-friendly travel alternatives.
Product consciousness: This measures the extent to which a company considers the sustainability and impact of its products. Key performance indicators include the carbon footprint of products, the percentage of toxic materials contained within them, the percentage of suppliers audited for eco-friendly products and practices, the percentage of recycled and recyclable materials used in manufacturing, and the percentage of sales that come from eco-friendly channels.
Green enablement: This measures how well a company reduces the carbon footprint of its customers through improvements to current ICT equipment or services. Key performance indicators include aggregated emissions abatements and energy-usage reductions generated through ICT solutions, and the percentage of workforce and budget dedicated to R&D for green products and solutions.
Green innovation: This measures the performance of an ICT company in developing innovative solutions that reduce customers’ carbon footprints beyond ICT-related products and activities. Key performance indicators include non-ICT emissions abatements and energy-usage reductions triggered through ICT offerings, and the percentage of workforce and financial assets dedicated to R&D for developing products that can generate non-ICT environmental benefits.
ICT companies that are currently taking bold environmental steps are reaping financial benefits and staking out enviable market positions. A survey of IT professionals across multiple industries showed that more than 50 percent of companies already have or are looking to implement green IT solutions within a year. Companies actively developing Green Innovation initiatives will be able to target an even broader market, with products that are tailored to multiple industries and that have an impact on environmental factors other than IT, such as energy use and waste. “Current efforts represent a fragmented approach for the sector. The consequences of a more individualistic approach could be missed business opportunities, diminished results, and lost potential to improve environmental conditions,” noted Sabbagh.
A more collaborative sector approach to “going green” would have several main advantages. Most notably, it would grow the overall market for such solutions and speed up adoption, increasing potential revenue gains for all players. Collaboration would also promote interoperability and standards that improve the customer experience, and would result in stronger, more unified lobbying efforts to promote industry positions on green ICT, which can have a greater impact on policymaking and regulation.
The Role of Regulators
Government regulators play a catalysing role in enabling ICT companies to achieve environmental and economic sustainability. Therefore, a regulatory framework is crucial to engage the ICT sector. The right framework will involve a balance of “push” (i.e., enforcement) and “pull” (i.e., incentive) initiatives.
Push measures include recycling mandates, labelling requirements, and efficiency standards, among other statutory approaches. They tend to apply most directly to a company’s external products and services, as opposed to in-house operations. Pull, or incentive, measures include ventures like education programmes, tax incentives, and R&D financing. They are typically used to influence both internal and external operations in a given company or sector.
“As regulators consider how best to encourage these technologies, they must consider the impact on companies and other entities outside of the ICT sector. With such a wide range of measures available, there is a need for ICT companies to play a greater role in helping governments tailor specific combinations of incentives and mandates that can best serve given markets,” explained Karam. By being involved during the early phases of regulatory construction, the sector will be able to define priorities, agree on technical standards, and ensure that governments spur positive environmental change in the most efficient manner possible.
The Way Forward
To move forward strategically and make the most of current environmental and economic opportunities, ICT organisations should consider several internal and external measures:
- Internal Measures
Devote resources to develop solutions both through personnel to drive the organisation’s sustainability agenda and through increasing the company’s R&D budget for environmental services and products.
Incentivise management of ICT companies to include environmental sustainability in all facets of their operations.
- External Measures
Increase awareness throughout the sector of the value and benefits of adopting green ICT solutions.
Encourage collaboration among sector companies to develop technical standards and establish ICT sustainability centres of excellence and innovation networks. ICT companies should also collaborate with academic institutions.
Develop unified measurements to evaluate progress. Specifically, this should include a metric capable of measuring ICT companies’ net environmental activism.
Engage regulators and participate in shaping green policies with implications for ICT companies.
“There is a growing consensus among industry and activist camps that ICT can contribute significantly to environmental sustainability,” noted Harter. This role can unlock significant business potential for the sector, but will require companies to work together for developing and promoting green ICT solutions.
About Booz & Company and World Economic Forum Partnership
This collaborative initiative between Booz and The World Economic Forum, which started in September 2009 was intended to shape perspectives of leading companies and industry innovators, regulators and policymakers on the subject of ICT and sustainability; in addition to bringing about an understanding of policy, regulatory and business implications in leveraging ICT to contribute to environmental sustainability.
Booz is a global strategic partner to the WORLD ECONOMIC FORUM and has been working with the Forum on a number of projects, including the ICT sustainability project. Booz also worked with the Forum in preparing and facilitating two major sessions on ICT sustainability—India Economic Summit, November 2009 and Davos Annual Meeting, January 2010—which were attended by leaders of major ICT industry companies.