How the communications sector can address the ESG challenges of our digital age

The European Green Deal and the Paris Agreement set ambitious goals for establishing a sustainable economy that respects human and social rights, protects the environment, and combats climate change by cutting down greenhouse gas emissions. In light of these agreements, the role of Environmental, Social, and Governance criteria (ESG) for business conduct and ensuring adequate compliance is becoming increasingly more important. To ensure that businesses align their operations with environmental sustainability targets, the European Union (EU) has adopted, or plans to adopt, various regulations that require them to monitor and report on their ESG performance. These regulations include general mandatory ESG monitoring and due diligence regulations, as well as material cross-sectoral or sector-specific ESG obligations. This outlook focusses on the ESG challenges that the communications sector is facing in the digital age, as well as the sector’s power to shape a greener future.

Sector-wide sustainability challenges

The increasing demand in data is a distinctive sustainability risk, as it inevitably increases the demand for energy. Paradoxically, the global policy objective of solving the digital divide runs counter to the objective of reducing the use of natural resources including fossil energy. In any case, it underlines the need for the green energy transition and development of energy-efficient technologies. According to Global System for Mobile Communications Association (GSMA), data traffic was up 31% in 2021, while electricity was up 5%, but the associated carbon emissions only 2%. Moreover, research suggests that the 5G ecosystem will lead to a 160% energy demands increase by 2030. Additionally, the ICT sector, driven by telecom networks and datacentres, are responsible for 1,4% of greenhouse emissions and 3,6% of the global electricity consumption

With 37% of the world’s population still unconnected from digital communication, it’s clear that bridging the digital divide increases environmental challenges. The way in which communications companies are addressing these issues is becoming more important due to ESG monitoring and due diligence obligations, which follow, for instance, from the Corporate Sustainability Reporting Directive (CSRD) and the proposed Corporate Sustainability Due Diligence Directive (CSDDD).

From carbon neutral to net zero ambitions

The transition from being carbon neutral to net-zero represents an ambitious and comprehensive commitment to address greenhouse gas emissions (GHG emissions). This transition relates not only to a company’s direct CO2 emissions, but also emissions resulting from its energy consumption. 

Becoming carbon neutral means that a company has taken steps to reduce GHG emissions, or offset them with carbon offsets or removals, from its own business operations (scope 1), as well as the emissions resulting indirectly from its purchase of energy (scope 2). Becoming ‘net-zero’ represents a more rigorous and holistic commitment, as it aims to eliminate or reduce all its GHG emissions, not just carbon emissions and, therefore, reflects a deeper commitment to environmental sustainability and mitigating climate change. Many telecom companies have now proclaimed both carbon neutral and net zero ambitions, as well as committed to science-based targets to set carbon reduction in line with limiting global warming

Net-zero ambitions are generally impossible to achieve with offsetting alone. Instead, the focus must shift to actively reducing emissions from internal operations, energy supply and the entire value chain.

Measuring and reducing scope 3 emissions 

Achieving the net-zero target is regarded to be challenging for telecommunications companies as it focusses on scope 3 emissions. Scope 3 emissions are indirect emissions stemming from a company’s value chain (both upstream and downstream), which typically account for the major part of any company’s emissions.  This also means that efforts to create a greener supply chain promise to deliver a proportionately larger impact than efforts aimed elsewhere. 

To measure the carbon footprint of a company’s suppliers, a high degree of transparency, data measurement, disclosure and close partnership is required. Determining the appropriate boundaries for measuring scope 3 emissions can be complicated, as different suppliers may use different methodologies for calculating emissions. This makes it challenging to compare and aggregate data consistently. 

When suppliers along the supply chain may not have robust emission data, or may not be willing to disclose them, it is up to the customer to decide whether this is acceptable or whether changes should be made in order to reach its commitments to the net-zero goal. Lastly, as scope 3 emissions also include downstream usage emissions, it’s important for any service provider to promote customer awareness of reducing their carbon footprint and contributing to the net-zero ambition. 

E-waste and a circular economy

The rapid technological advancements of our digital age, as well as the complex and diverse materials used in the communications industry, has led to the pressing issue of electronic or EEE (Electrical and Electronic Equipment) waste – in short – e-waste. 

A common challenge for the communications industry is becoming a more circular economy. This requires moving from a linear ‘make, take, dispose’ economy, where precious raw materials are wasted after use, to a circular one in which companies are remanufacturing, recycling, reusing and refurbishing products and devices. It will not only require innovation, but also a mindset shift to transform the industry from a linear model to a circular one. 

The European Commission has developed a proposal for a Regulation on Eco-design for Sustainable Products (replacing Directive 2009/125/EC) as the cornerstone of its approach to more environmentally sustainable and circular products. The proposal builds on the existing Ecodesign Directive, which currently only covers energy-related products, and focuses on product design with new requirements to make products more “durable, reliable, reusable, upgradeable, reparable, easier to maintain, refurbish and recyclable and resource efficient”.

Data centres 

Data centres are crucial for the modern digital infrastructure. However, they pose several sustainability risks, which include high power usage, GHG emissions, e-waste, water usage, waste heat, supply chain impact etc. 

Data centres are responsible for 1% of the global energy consumption and 1,4%-1,6% of the total energy consumption within the EU, with an expectation of 3,21% in 2030
Possible solutions to decrease energy consumption could be found in server virtualisation, airflow management, free cooling, renewable energy sources, recycling/circular economy and product life extension. Or speaking in broader, more generic categories, the reduction of emissions can be achieved by energy efficiency improvement, renewable energy solutions, the greening of buildings, and (cooling) water management. 

Perhaps less obvious are the ethical/social and governance challenges. These challenges concern questions like how to address the gender inequality regarding the construction and maintenance of data centres or to ensure a healthy safe work environment. 

Fiber

The switch from traditional copper or coax networks to glass fibre network infrastructures is regarded to have a positive environmental impact. Fibre not only provides more bandwidth and digital connectivity at lower energy consumption, it’s also relatively easy to produce and environmentally friendly. Fiber can be recycled and it carries less risks down the supply chain.

However, potential environmental issues could arise during the deployment of fibre cables in the ground. These issues include nitrogen or other GHG emissions stemming from excavators and trucks, or specific issues arising from fibre cable deployment within protected nature sites, such as the EU’s Nature 2000 Areas. Even though fibre networks may have a relatively less damaging impact on the environment than traditional communications networks, the same ethical/social and governance challenges apply to the fibre industry. 

Mobile communications

Mobile networks require a significant amount of energy to operate, and providers are currently responsible for 2-3% of the global energy demand. Although 5G is up to 90% more energy efficient per bit than 4G networks, 5G deployments, new radio and hardware densification and increasing data usage are all leading to higher energy consumption overall. 

The increasing demand in 5G systems subsequently results in increasing energy demand. Furthermore, the expansion of the electricity network may not keep up with the rapidly increasing demand for space on the network. 

A possible solution, that is being invested in, is the untapped potential of reducing peaks with congestion management. Also, the recycling of electronic waste from network equipment and the proper disposal of mobile devices are crucial to minimise adverse environmental impacts. Equally relevant is ensuring that mobile networks contribute to diminishing the digital divide by providing affordable and accessible connectivity to unconnected areas. 

The path ahead

The integration of ESG principles within the communications sector marks a progressive stance towards holistic sustainability. Initiatives that bridge the digital divide underscore the industry’s commitment to inclusivity, while endeavours towards achieving net-zero emissions demonstrate its environmental responsibility. 

Addressing scope 3 emissions, reducing e-waste, and implementing sustainable practices in data centres demonstrate a comprehensive approach to reducing the sector’s complete environmental footprint. The conscientious integration of ESG principles positions communications companies as key contributors to global sustainability goals. By addressing key challenges such as GHG emissions, the digital divide, and adopting responsible practices across the value chain, the communications sector actively shapes a future that is not only technologically advanced, but also environmentally and socially responsible. This is becoming more important due to ESG monitoring and due diligence obligations seen in the CSRD and the pending CSDDD, so businesses need to address their ESG performance to stay ahead of the curve in this rapidly evolving space. 

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