Europe

Data-intensive Firms Tackle Supply Chain Emissions

Vodafone, RELX highlight strategies to reduce Scope 2, 3 emissions at UNGC Network UK Climate Event.

Reducing greenhouse gas emissions from data-intensive businesses requires sustained coordination across the supply chain, according to speakers at this week’s UN Global Compact virtual event, including Joakim Reiter, Director of External Affairs at Vodafone, which recently outlined a net zero 2040 strategy.

According to Reiter, the UK-based telecommunications firm’s approach to emissions reduction has been informed partly by concerns over the steep data-driven growth in energy consumption across the information and communications technology sector.

“There is nothing in this that is charitable,” he said. “With data driving higher energy use, it makes utter business sense to focus on energy efficiency. We have approached this from the point of view of always pushing ourselves to find new opportunities, both from a cost efficiency and business expansion perspective.”

On November 23, Vodafone committed to cutting its overall carbon emissions to net zero by 2040 and confirmed its 2030 reduction targets have been approved by the Science Based Targets initiative as being in line with reductions required to keep global warming to 1.5°C.

The firm aims to eliminate Scope 1 and 2 emissions, i.e. those arising from its own activities and from energy it purchases, by 2030, while also halving Scope 3 emissions, which covers joint ventures, supply chain purchases, and use of products sold. Vodafone intends to eliminate Scope 3 emissions by 2040, ten years ahead of its previous 2050 ambition.

Carbon reduction enablement

In July, Vodafone set itself a target of saving 350 million tonnes of carbon emissions between 2020-2030, equivalent to the entire UK’s carbon footprint in 2019, by working with clients to reduce their emissions. “Our own carbon footprint is relatively small compared to the opportunity for enablement,” said Reiter.

“This requires us to think deeply about new propositions that help our businesses clients through IoT solutions and other means to save their carbon footprint. Investing in those business opportunities will create momentum for a bigger societal and structural change in the economy.”

With Scope 2 emissions accounting for approximately 90% of its carbon footprint, Vodafone committed last year to developing a ‘Green Gigabit Net’ to provide its services to 11 European markets solely from renewable energy sources by 2025. The firm has brought forward completion to July 2021 and claims to have reduced by 90% its energy use per unit of data. “In the UK, we’ve gone beyond flattening to reducing our energy consumption, saving £10m from energy efficiency measures,” said Reiter.

Reiter said Vodafone’s global transition to 100% renewable energy sources was challenging both due to the geographic dispersal of its base stations in individual markets and the multitude of regulatory regimes and electricity generation options across markets. Vodafone has adopted a hierarchy of preferred options, using the greenest energy source in each market, but is also working with local authorities to develop new sources.

This includes plans to build a solar energy plant which will link into Egypt’s electricity distribution network and working with partners to invest in renewable energy options in several other African markets. “We are clear that we will achieve our Scope 1 and 2 elimination of carbon emissions by 2030,” said Reiter.

Partnering with providers

Vodafone, which purchases products and services worth approximately £24 billion, from 11,000 suppliers, is also working with its network of vendors to reduce Scope 3 emissions. Responses to a questionnaire issued by the firm suggest around 80% of firms have set their own emissions targets. From September, the firm started to include ‘purpose’ criteria in its supplier evaluation process, which includes an assessment of environment and climate impact.

This section has a 20% weighting toward the total valuation of a vendor, the same as their technology functionality. “We are nurturing a dialogue about our expectations of what they should do if they want to be a supplier,” said Reiter.

Fellow speaker Marcia Balisciano, Director of Corporate Responsibility at information and analytics provider RELX and Chair of the UN Global Compact Network UK, also warned of “hidden emissions in the cloud”.

Noting the complexity of monitoring and calculating emissions arising from services and processed outsourced to cloud service providers, Balisciano flagged an initiative led by the University of Bristol to quantify and manage the carbon impacts of generating and distributing digital content. Launched late last year, the project aims to create an online carbon calculator, DIMPACT, which will be available to any company offering digital products and services. In addition to RELX, peers participating in the initiative include BBC, Informa, ITV, Pearson and Sky.

“I hope that over the next five years companies are going to get better at understanding what’s really happening in our supply chains, so that we get a much more realistic picture and be more transparent about data,” said Balisciano.

Investor activism

Co-panellist Paul Simpson, chief executive of CDP, a non-profit environmental disclosure service provider, said investor activism was also driving change. The Paris Climate Agreement and UN Sustainable Development Goals had “sent a signal” to the capital markets, resulting in a significant change in investor attitudes over the last five years. “Almost all large investors are developing an ESG strategy and their expectations are rising,” he said. “Investors want disclosure, but they also want to see specific actions.”

Investors worth US$20 trillion, including Nikko Asset Management, Legal & General Investment Management (LGIM) and AXA Investment Managers, recently sent a letter to 1,800 large firms asking them to  set emissions reduction policies in alignment with the Science Based Targets initiative’s (SBTi) Business Ambition for 1.5°C campaign.

LGIM also recently renewed its Climate Impact Pledge, increasing to 1,000 the number of firms covered by its climate ratings. The UK-based asset manager rates firms against a range of climate-related indicators, which ratchet up over time, reserving the right to impose sanctions up to and including divestment if they fall short.

“Investors are forming a view of what managing sustainability risk looks like and assessing whether companies are good enough,” said Simpson. “Investors are becoming very sophisticated, which is a risk for companies if they don’t demonstrate a good ESG strategy, but there is also an opportunity to have great access to capital, higher share price, lower price of debt for firms that can prove their ESG credentials.”

Reiter agreed with Simpson about the influence of investors in driving change, but called for a reduction in the administrative burden of meeting non-standardised information requirements. “I wish we could get to a point where we are developing a common language or framework for how we are being assessed,” he said, noting the volume and range of information requests from investors.

 

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