In our introduction to Managing the risks and opportunities of climate change in the TMT industry, we described the juxtaposition of the TMT sector as both a contributor to climate change and as a key actor in driving and facilitating the solutions that could make net zero possible. This section examines that juxtaposition.
With the need to transition towards net zero, the focus has been on industries with the greatest potential to accelerate action such as smoke-stack industries, mineral extraction, energy generation, and livestock production typically dominate the conversation.
That doesn’t mean the challenges of reducing environmental impacts in the TMT sector are any less real given the growing pressure from regulators, consumers and investors around ESG (environmental, social, and governance) factors as a whole, including all sources of emissions, on all industries. To meet global warming targets and secure a sustainable and resilient way of life, all sectors and levels of society will need to take action to meet the ambition gap. The TMT sector has a key role to play with technology sitting at the heart of many of the solutions being explored.
In many ways, sustainability actions are not new to the TMT sector as actions are often focussed on operational efficiencies however, in our opinion, greater efficiencies are required and those who embrace it will have a competitive advantage in the years ahead.
The biggest issue facing TMT companies through 2023 will be inflation and high energy costs. Inflation has been high across the Euro area with energy costs compounding the worst effects. Whilst the TMT sector does not generate large direct emissions, the electricity needs of the TMT sector are significant, accounting for an estimated 4-6% of global electricity use in 2022 according to research from the POST Research team at the UK Parliament. Whilst high, there is evidence to suggest that figure was as high as 10% in 2015 (Global Electricity Usage of Communication Technology: Trends to 2030).
It is the opinion of the authors that, while the various statistics quoted may be debated, energy efficiency improvements are allowing the same technological tasks to be performed using less energy. Some stakeholders note that this has resulted from energy use of technology remaining relatively flat in the last decade despite the growth in demand. Others suggest that improvements in energy efficiency can themselves cause increased demand and hence a focus on future improvements in energy efficiency without additional regulation may not reduce energy use.
The 2015 figure was derived from an estimation of global electricity usage that could (then) be ascribed to communication technology between 2010 and 2030, including three scenarios (best; expected; worst case) for use and production of consumer devices, communication networks, and data centers. The scenarios also include annual numbers of sold devices, data traffic, and electricity intensities/efficiencies.
What is of note, regardless of the scenario, is that wider processing and storage in the cloud is reducing electricity consumption from consumer devices. And for good reason: in the 2018 Microsoft-WSP collaborative study, the authors hypothesized that cloud computing can improve energy efficiency by 93%, and produces 98% fewer greenhouse gas emissions than on-premises IT infrastructure. In 2022, Open Access Government revisited the topic, arguing that the cloud could help provide a greener government. These various studies illustrate that it is essential to understand where emissions are produced across the supply chain and how to properly account for them.
Consequently, the key focus for energy transition is reducing electricity consumption across the supply chain of data centers (whose expected growth will drive increased demand), logistics processes, and telecommunication equipment. There is a clear momentum within the TMT sector, driven by both companies and their customers, to shift existing and new electricity demands to renewable sources.
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|Climate risk and technology: the state of the industry