As global economies race to curb climate change the telecommunications industry is positioned to make a substantial difference, and the first step is "really understanding where their emissions are coming from,” said Tim Weiss, Co-Founder and CEO at Optera.
The International Telecommunication Union has said that to reach a critical goal of limiting global warming to 1.5°c above pre-industrial levels, the Information and Communications Technology industry would have to reduce greenhouse gas (GHG) emissions by 45% from 2020 to 2030. If we don’t reach that goal, scientists believe that the globe will reach “tipping points”—irreversible and major shifts in the climate system.
Optera is an ESG and carbon management software that, with support from a team of sustainability experts, helps multinational companies quantify and manage the whole value chain of their emissions. That includes Scope 1 emissions (direct greenhouse gas emissions from sources owned or controlled by the company) and Scope 2 Emissions (indirect emissions from purchased electricity, heat or steam).
But Optera is mostly focused on helping companies cut their Scope 3 emissions: the indirect emissions from activities outside the company's operational boundaries, such as supply chains, transportation and product usage and disposal.
The true value of a company’s Scope 3 emissions can be particularly hard to understand, but essential, as Boston Consulting Group (BCG) estimated that up to 90% of emissions from telco companies come from those activities; though this is not unique to the telco industry. The EPA found that across verticals, organizations' supply chains often account for more than 90% of their GHG emissions.
“You need to look across everything from how your products are made and sourced to your internal operations and the energy that you use,” Weiss said. “Then also the energy that’s used downstream when your products are out in the market in customers’ hands. You have to ask yourself, does any of that fundamentally need to change?”
What many companies—especially those in the telecom industry—find, is that most of their GHG emissions stem from activities external to their operations, from the actual manufacturing of products (upstream Scope 3 emissions) to the use of those products over their life and their disposal or recycling (downstream Scope 3 emissions).
Weiss said for actionable steps toward reducing Scope 3 emissions, companies must pinpoint their most impactful suppliers and products and stack rank them.
“You have to figure out which suppliers have the most energy-intensive operations, which commodities that you buy, what inputs to your products are most at risk or need to change for you to develop products that are conducive to the low carbon economy,” he told Fierce.
Supplier engagement
A company in the telecom industry might have thousands of suppliers, and engaging with all of them is impractical.
Many organizations have deep connections with certain suppliers, some of which even have entire factories dedicated to their products alone. As such, if an essential supplier is responsible for high Scope 3 emissions but can’t be dropped without risking business outcomes, “organizations have to develop an engagement plan,” Weiss said.
Questions to ask of a supplier’s Environmental, Social and Governance (ESG) program include: Have they reported quality data? Have they set meaningful emissions reduction targets? Do those targets align with your company’s business objectives?
“If so, great. But are they performing relative to those targets? If not, how can you help them actually improve their performance,” Weiss said.
Optera has seen some large companies help invest in decarbonization solutions with their suppliers, whether by helping suppliers procure renewable energy, figure out which production materials can be swapped out to reduce emissions or fund research and development (R&D).
“All of this, I’d put under the tent of deeper engagement with your supplier base,” Weiss said.
For a lot of suppliers today, the focus is figuring out how to electrify more of their manufacturing practices and use renewable energy as much as possible, which Weiss called “low-hanging fruit” as one option to reducing supply chain emissions.
Still, at the base of every supply chain there are certain elements that are going to be “quite hard” for organizations to untangle—much harder than shifting to renewable energy, Weiss noted.
One of the biggest challenges the electronics industry faces is the emissions associated with manufacturing semiconductors, for instance. The actual chemicals used to manufacture semiconductors emit high levels of GHGs, leaving the industry to find “new inputs,” Weiss explained.
Other strategies critical to limiting Scope 3 emissions entail more structural changes to the supply chain. Companies might consider more vertical integration of their value chain, for example, bringing some upstream manufacturing practices in house.
Companies can reduce downstream Scope 3 emissions by selling products as a service instead of as hardware solutions, enabling “greater control over the use of that product and the energy sources that go into it,” Weiss said.
As of now, pressure to adopt more sustainable practices is coming mostly from investors who are scrutinizing which companies will successfully transition to the low carbon economy, and which won't.
“Investors believe that there's money to be made with companies that are going to be the driving force of the future economy,” Weiss said.
If suppliers want to maintain their business with those large brands, they must follow suit.
“Tier one suppliers are the next in line for tremendous pressure, and that won’t come from investors, it will come from customers,” Weiss said. “When you have Cisco, HPE, Dell, Apple and Microsoft, and all these big tech companies that are making very big claims, and very ambitious Net Zero commitments, their tier one suppliers are being held to very high standards now.”
Is ESG just a front?
Despite net-zero claims from some organizations, Weiss said it's important to note that “right now there's not a single company in the world that is net zero.”
“It's just not true. It doesn't exist. The net zero claims out in the world do not align with the actual Greenhouse Gas Protocol, which is kind of the holy grail in our industry,” he added.
Some have called out the telco industry for greenwashing—deceptive marketing to create a false or exaggerated perception of their sustainable practices. However, Weiss said that while a lot of ESG marketing has caveats, he believes most companies are pursuing their sustainability initiatives with genuine intentions.
“There is a lot of greenwashing going on in our market, but I would say that it is not malicious in nature. It's because this is really hard,” he said. “I would say that big businesses are actually being honest with what they are disclosing. The problem is the asterisks that are applied to these disclosures are not well understood to end consumers, to the general public.”
Weiss maintained that he sees a “really strong appetite” from large companies to meaningfully solve the climate change problem, but they don’t yet have enough clarity from standards and regulators to make legitimate claims.
“Today, investor pressure, followed by customer pressure applied to supply chain are the two driving forces in the market. The next is going to be regulatory, which is already happening in the EU… And once the regulatory environment is more codified, that will be the new driving force for action.”
In March 2022, the U.S. Securities and Exchange Commission (SEC) announced plans to standardize climate-related disclosures for investors from public companies. Such regulatory action could apply “a much more consistent rules of the road to our market, clarify in a lot of folks’ minds what claims can be made and what claims cannot be made,” Weiss said.
When asked if telcos and the global economy are on track to curb climate change, Weiss said, “We are 100% not moving fast enough.”
“A big systemic, human challenge is that we procrastinate as a species, it's what we do, we will delay hard things as long as we possibly can. And then we will start to act when we start really feeling the pain. We're now feeling the pain. There's no doubt that is why things are actually starting to move now,” added Weiss.
“The question is really whether the globe will start acting quickly enough to matter. We have seven years, roughly, to cut emissions in half across the globe. In theory, that should be possible, given the technology and where we are in terms of solutions out in the market. But in practice, it's going to require a lot of action across thousands and thousands of organizations across the world, all to happen very quickly.”