Bracing for Sustainable Technology

In the last few years, industries across the world have become increasingly aware of sustainability measures as well as Environmental, Social, and Corporate Governance (ESG) criteria. This has had the effect of throwing open fresh opportunities for the Indian IT sector. The sustainable technology market could emerge as the next big growth driver for domestic IT services providers; however, are we serious about sustainability? Read on as we analyze the sustainable technology landscape as well as the ground reality of its adoption

Amit Singh

With the world experiencing unpredictable weather conditions, people and global leaders are taking cognizance of the need to address climate change. In fact, the rising demand for environmental, social, and governance (ESG) accountability from customers, employees, shareholders, governments, and regulators is driving corporate attitudes about sustainability across many sectors.

India, at COP26, announced its ambition to become a net-zero emitter by 2070—an important milestone in the fight against climate change. While having low per-capita emissions (1.8 tons CO2), India is the third-largest emitter globally, emitting a net 2.9 gigatons of carbon dioxide equivalent (GtCO2e) every year as of 2019. Six industries—power, steel, automotive, aviation, cement, and agriculture—are responsible for the majority of these emissions (about 70 percent).

Interestingly, sustainability also found prominence in the Union Budget 2023 presented recently. Green growth – from green credits, green energy, and green mobility to green farming – was among the seven main priorities that made it to the Budget this year.

High on priority

As per the BCG report, COP26 has mobilized the private sector globally, with 5,200+ businesses and 450+ financial institutes, accounting for 40 percent of financial assets, committing to science-based net-zero targets. These commitments and growing awareness of net-zero places technology firms at the cusp of breakthrough growth, driven by companies embedding sustainability in their business models, instead of focusing on standalone use cases. This is evident given more than 60 percent CXOs across industries focus on sustainability when considering a digital project.

According to IDC’s Future Enterprise Resiliency & Spending Survey, sustainability is one of the top three business concerns of Indian enterprises. “Large enterprises in India have traditionally taken a more structured approach with dedicated functions to focus on sustainability initiatives and Chief Sustainability Officers in place.  On the other hand, medium to small-sized organizations have been relying on their ESG-focused teams or CSR teams to drive their sustainability agenda. However, with SEBI mandating ESG reporting and Business Responsibility and Sustainability Reports (BRSR), there is certainly an increased focus on sustainability. Besides, regulators, even customers, and employees are choosing to engage with corporations that are committed to sustainability,” highlightsChittaranjanMeher, Principal, IBM Sustainability Software Business Unit, India/South Asia.

As per Gartner’s report, 74 percent of CEOs agreed that bolstering ESG efforts attracts investors. Of the 80 percent of CEOs who intend to invest in new or improved products this year and next, environmental sustainability was cited as the third largest driver, just behind functional performance and general quality.

There is also a growing realization in the industry that ESG is not just about carbon reporting. Rather, it’s about deriving the right insights on sustainability and bringing those insights back to action for business benefits.

Gartner says that by 2025, 50 percent of CIOs will have performance metrics tied to the sustainability of the IT organization.

Huge tech opportunity

A recent report from Nasscom and McKinsey says sustainability will catalyze $150-250 billion of additional technology and operations spending by 2030. The report says Indian IT services leaders are already reorganizing to build $500 million to $1 billion sustainability service lines in 2-3 years.

The report states that as over 75 percent of global CEOs view sustainability as the next big differentiator, technology plays a very meaningful role in addressing sustainability challenges. Organizations that are ahead on technology tend to be much more agile in being able to make purposeful moves in areas like tracking their emissions and reducing them, and in creating new sustainable businesses.

“In fact, 42 percent of Indian organizations increased their spending on technology associated with their sustainability program in 2022 as compared to 2021,” adds SharathSrinivasamurthy, Associate Vice President, Enterprise Solutions & ICT Practice, IDC India. Sustainable technology growth is driven by the increasing adoption of sustainable use cases across IoT (Internet of Things), cloud computing, data platforms & analytics, digital twin, and blockchain.

However,despite the growing interest and demand by companies, green tech in India is still at a nascent stage. Tech companies must focus on building a strong portfolio of sustainability products, by identifying priority use cases for clients, to capture this opportunity and disrupt the market.

The focus could be on the highest contributors to global emissions. Interestingly, 16 percent of global emissions are caused by transportation, 19 percent by agriculture, 27 percent by energy production, 31 percent by construction and production, and the remaining 7 percent caused by heating. Green technologies can be applied in all of these CO2-emitting sectors, thus offering broad solutions for sustainable growth.

In India, industries that are leading sustainable technology adoption are data center providers, packaging, power & energy, agriculture, healthcare, and transportation. Businesses in these segments are increasingly using technology to reduce carbon emissions, better yield, plastic waste, as well as costs, shareAmit Luthra, MD – India, Lenovo ISG.

Broadly, industries such as oil and gas, automobiles, manufacturing, BFSI, textile, IT, retail and distribution, and facility & real estate are at the forefront of the sustainable technology revolution in India.

Crucial tech investments

Over the past decade, technologies such as AI, IoT, and robotic process automation (RPA) have dramatically changed how businesses function and take products and services to market. Organizations are now harnessing new technologies to achieve their sustainability objectives.

“Most innovations are happening around the supply chain and there is a significant investment there. We have also seen IT Services companies and startups making a lot of progress in terms of coming out with solutions and many of them have built their ecosystem,” shares DD Mishra, Senior Director Analyst, Gartner.

AI and automation to support sustainability agenda

Businesses are deploying AI and automation in tandem, not only to obtain granular insights into their operations but also to measure the impact on the environment across functions. According to a recent Capgemini Research Institute survey, nearly 60 percent of organizations said they were using AI and automation to achieve their sustainability objectives. In the energy (72 percent), retail, telecom, and utility sectors (65 percent each), it is even higher. TCS deployed its Clever Energy, an enterprise-level energy and emission management system for Landmark Group across its retail stores, warehouses, offices, and malls to ensure energy and cost efficiency, decrease carbon emissions and achieve carbon-neutral goals. Accenture helped develop and implement a self-learning AI-based ventilation system that minimizes energy costs by 25 percent and cut C02 emissions by 1,800 tons annually for Metro de Madrid.

IoT technologies to reduce energy consumption

IoT allows organizations to collect and analyze large amounts of data in real-time to optimize operations. With IoT, organizations are better placed to ascertain wastage levels and identify potential efficiencies and can streamline operations by predicting energy demands and usage patterns to reduce energy consumption. The Capgemini survey found that 56 percent of organizations globally are investing in IoT or IIoT to monitor and reduce energy consumption. Telecom (63 percent) and utilities (61 percent) are the two sectors with the largest proportion of organizations engaged in this.Capgemini bagged a systems integration deal from Siemens for implementation support to develop an IoT platform for next-generation building energy management solutions

AR/VR and collaboration tools to reduce travel carbon footprints

As remote and hybrid working is now the norm at many companies across many sectors globally, organizations are in a better position to reduce non-essential travel. Digital technologies can make virtual interaction much more engaging and immersive and reduce the need for in-person meetings. The Capgemini survey found that over half (54 percent) of organizations globally are investing in digital technologies such as AR/VR or collaboration tools to reduce employee travel and, ultimately, carbon footprints. By sector, healthcare and life sciences have the largest proportion of organizations adopting tools to reduce employee travel (59 percent), followed by utilities (58 percent).

Further, there are a lot of sustainable initiatives by private sector firms in India. “One of the largest banks in India reduced emissions by more than 10 percent by leveraging IoT solutions. World Economic Forum has recognized Hindustan Unilever for innovation at their facilities for technology solutions related to sustainability in manufacturing. In addition, many other large Indian conglomerates are taking initiatives to reduce their carbon footprint which is a step in the right direction,” informs Srinivasamurthy of IDC. He further adds that Bengaluru Water Supply and Sewerage Board (BWSSB) is planning to implement an AI-powered operational intelligence platform for Sustainable Water.A large private bank is going sustainable with an IoT-enabled solution. The AI-enabled IoT platform enabled the bank to monitor the energy consumption of their systems across branch networks and reduce energy consumption by 12.7 percent using predictive insights.

In addition, Lenovo launched the fifth generation of Lenovo Neptune Direct Water-Cooling technology along with a range of sustainability services to help customers reach their sustainability goals. The technology helps industry-leading data centers with a broader range of servers that recycle loops of warm water to cool systems and enable customers to reduce power consumption by up to 40 percent.

Further, we are seeing multiple hyper scalers like AWS, Azure, GCP, and other data center players like Equinix and Adanisetting up massive data centers in India focusing on sustainability.

Creating an accountable value chain 

Most people think of sustainability as somebody else’s problem. Technology leaders and solutions providers have a great responsibility and incredible opportunity to combine the power of technology and leadership to impact not just sustainability but all three pillars of ESG. Tech leaders generally focus on the tech domain and technology’s impact on the environment, but they need to think about how to use technology to advance sustainability for their entire company and their entire industry.

To make a significant impact, they should tackle indirect emissions that occur through the value chain.

This approach will likely require tech leadersto carefully analyze data exchange norms and procedures and reevaluate not only whom they work with but also how they hold those partners responsible for sustainability goals. For example, CIOs intending to invest in cloud services can take into account the type of energy and power usage of their providers’ data centers and give preference to those that are signing renewable energy purchase agreements and have increased the grid’s capacity for renewable energy.

Tech leaders should also collaborate strategically with businesses in their sectors to standardize the data needed from shared suppliers. While it is undoubtedly possible to influence partners through KPIs and reporting requirements, they can genuinely change the way the supply chain operates.

“These goals revolve around the genuine cause of inducing sustainable practices across the supply chain. The idea is to create acircular economy withthe recycling of products and components, and responsible manufacturing by sourcing materials from qualified smelters. We also have an e-waste management program wherein customers can recycle their old computers and other electronic equipment so that we can recycle components before it ends up in a landfill,” states Vinay Shetty, Regional Director, Component Business, Asus (India & South Asia).

Sustainability and profitability at the same time

Investments in sustainable technology have the ability to improve operational resiliency and financial performance while opening up new growth opportunities. “Our surveys indicate that organizations are exploring improved brand visibility, resource efficiency, and customer satisfaction as the top three benefits of sustainable practices. But, less than 5 percent of businesses view sustainability to enable improved revenues and profitability. However, there are enough studies that indicate that sustainability translates into better economic outcomes,” elaborates Mishra of Gartner.

“Customers are increasingly choosing to do business with sustainable organizations, thus making sustainability even more critical to the bottom line,” addsMeher of IBM.

A recent study by Oxford Economics and SAP has revealed that Indian businesses today recognize the potential of sustainability to unlock business value, with 62 percent of companies noting it’s not difficult to be sustainable and profitable at the same time.

“Sustainability initiatives help organizations in brand building leading to increased sales, profits, and ultimately market share. Through improved corporate governance, they can attract and retain talent as we are seeing a trend where employees are increasingly evaluating their employers’ sustainability-related initiatives,” explains Srinivasamurthy of IDC.

ESG initiatives not only make a company more impressive to lenders, but they may also enhance a company’s overall financial performance. Even simple steps toward sustainability, such as going paperless, recycling, or installing energy-efficient equipment, may boost a company’s financials.

“To stay on top of ESG initiatives, we monitor critical parameters like energy use, raw material usage, and waste treatment, which finally leads to lower energy bills and cost savings. Companies that maintain ESG compliance face fewer fines, risks, and penalties, which benefits their bottom line,” shares MinakshiSamant, Executive Director – HR,Ingram Micro.

“It’s a positive sign that Indian organizations believe it is viable to improve profits and protect the environment at the same time,” saysKulmeetBawa, President & Managing Director, SAP Indian Subcontinent. “The use of technology can aid us strategically to assist companies to realize real, genuine, and quantifiable business value,” he adds.

There’s more smoke than fire

While sustainability has become a buzzword and its significance is well understood, the Oxford Economics and SAP study revealed that much work remains to be done to ensure sustainability ambition translates into action. The study found that just 17 percent of respondents have calculated their total organizational carbon input. More importantly, only 7 percent of firms that have implemented a sustainability plan are reaping considerable benefits from it.

While some companies are willing to invest to achieve a sustainability posture, many organizations are not investing, or at least not a sufficient investment.

“The share of organizations that have translated their aspirations into action is not significant while the efforts are underway. What surfaced from one of our studies is that only 36 percent of Indian organizations have annual CO2 emission reduction targets, irrespective of whether they have a specific net zero date. Furthermore, 62 percent of organizations indicated that they do not currently collect data and report on CO2 emissions,” reveals Srinivasamurthy of IDC.

Although a majority of companies include sustainability as a key agenda item for top leadership, this is not necessarily translating into action. While organizations may have long-term objectives for 2040 or 2050, many are failing to define clearly and prioritize sufficiently their sustainability initiatives in the short term. As per the recent Capgemini Research Institute survey, less than 49 percent of executives said their company has defined a priority list of sustainability initiatives.

The study reveals that the average annual investment in environmental sustainability initiatives and practices across industries represents 0.91 percent of total revenue. While total spending on sustainability trends upward with company size, larger companies are investing less as a percentage of total revenue – on average, only 0.41 percent of total revenue compared to 2.81 percent among smaller companies.

In fact, many organizations have not transitioned to green cloud architecture. For instance, a mass migration to a cloud architecture that uses renewable energy sources could prevent 629 million metric tons of CO2 emissions by 2024. The Capgemini research found that only 48 percent of executives say their organization uses low-energy-consumption green cloud architecture for its data centers. By sector, 57 percent of respondents in automotive say the same, compared with only 43 percent of respondents in telecom.

“We have seen just a few isolated commitments across the board for environmental, social, and governance-related parameters, and CSR expenditures. Most of these commitments are driven by mandatory CSR spending or regulatory compliance by organizations,” says Mishra of Gartner.

Regulatory compliance is both driver and a challenge

Starting with the FY2023, the Securities and Exchange Board of India has mandated that the top 1000 enterprises in India by market capitalization must file a Business Responsibility and Sustainability Report (BRSR) alongside their yearly filings to the stock exchanges.

According to the Oxford Economics and SAP study, 60 percent of Indian respondents noted that regulatory mandates are the primary drivers of their sustainability strategies. This is in line with the fact that regulatory compliance (45 percent) is the most significant advantage ahead of lower carbon emissions and better operational visibility.

It’s evident that organizations may need to refocus their strategies to derive more value from sustainability. Too much emphasis on compliance was rated as the third most significant impediment to long-term success by Indian respondents.

Data is the major gap to going green

Access to reliable and insightful data throughout the business value chain is crucial to maximizing sustainability outcomes. However, as per theCapgemini Research Institute study, just four in ten (44 percent) of respondents said they have invested in data analysis to measure sustainability in their business, and a similar amount (43 percent) said they were training staff how to capture sustainability data.

Many Indian organizations still rely on manual methods to collect internal ESG data such as water consumption, carbon emissions, workforce demographics, and so on, and as a result, these data resources are frequently scattered across databases in various formatsAccording to a Dun & Bradstreet survey outlining top compliance and procurement concerns, 51% of respondents stated they needed additional data to verify entities, and 43% said it was difficult to discern the application of ESG rules while conducting due diligence on a customer. Such difficulties are rooted in inefficient data utilization and management.

“Identifying the right sources of data, identifying the right technology to monitor, record and transmit the data, and implementing the right technology to analyze the data is still a lingering challenge for Indian enterprises,” says Srinivasamurthy of IDC. Organizations must use technology to gather data, optimize business processes, and make more sustainable business decisions.

Sustainability is seen as a cost driver, not an investment

Sustainability is frequently seen as a cost center, rather than a value center, particularly in light of budgets imperiled by the Covid-19 pandemic, geopolitical tensions, and macroeconomic factors. Over 57 percentof executives in the Capgemini Research Institute survey shared that the principal reason for their organization’s focus on improved environmental sustainability is to preempt stricter future regulation, which can be interpreted as spending now to avoid much more costly potential outlay down the line.

The business case for sustainability is often underappreciated as executives still fail to perceive it as a source of strategic value creation.Only one in five (21 percent) respondents believe that the business case for sustainability is clear. Over half (53 percent) of respondents believe that the cost of pursuing sustainability initiatives outweighs the potential benefits. The research suggests that organizations often see sustainability initiatives as obligatory and unprofitable. However, organizations that consider sustainability an obligation fail to realize that sustainability is fast becoming the ‘license to operate.’

Governments across the world have drafted regulations that call for reduced emissions, started green taxation, and are enforcing stricter regulations and allowing grants and subsidies for meeting environmental standards. For example, the EU is overhauling its Energy Taxation Directive, which taxes energy products such as motor fuel and electricity to ensure that the directive reflects its climate-neutral ambitions.

Road toward sustainability

Businesses and their executives are under unprecedented scrutiny from investors, clients, staff, legislators, and society at large. Against this backdrop, companies must operate sustainably, and bake sustainability principles into product and service design, while striving to create a positive impact on their ecosystems and workforces.

To transform effectively requires enterprise-level coordination, functional involvement, and a redesign of the operating model and business processes to allow sustainability to permeate the organization and not just at top-level strategy.

Importantly, sustainability cannot be handled as a project for compliance. Instead, a comprehensive enterprise transformation is needed, much like when corporations implement digital transformation initiatives across all of their businesses and operations.This transformation affects all parts of the business – from business model and product design to operations and IT – and needs proper governance headed by a C-suite leader.

“Globally, digital transformation and societal transformation are getting intertwined and design thinking and societal thinking are increasingly seen complementing each other. Sustainability is being considered as a part of the decision-making process globally, but it will take some time in India,” says Mishra of Gartner.

He further adds that there are three reasons companies go for sustainability: meet compliance requirements,improve brand reputation, and commit to society. “We see that the majority of the businesses fell into the first and second categories.The business has to be sustainable, built around purpose and empathy to sustain for a long time. Unless digital transformation revolves around societal transformation, it is difficult to achieve those goals. The shift towards sustainability first and profits second makes sense as both complement each other. Mindshare can be translated to market share.”

In fact, the role of leadership will determine organizations’ progress on sustainability. Decision makers need to make more conscious decisions (by assessing potential risks) when choosing technology for their sustainability purposes. “However, it is not just about technology, so the strategy needs to be stakeholder centric; it needs to address the demands of investors, employees, and customers. Hiring the right skills (technology and social skills) while keeping in mind diversity and inclusion, creating sustainable products to keep up with the customer’s views, and finally satisfying the investors by demonstrating progress around sustainability will be the key,” concludesSrinivasamurthy of IDC.