ESG is now more than just a tick-box exercise for organisations. Amidst the backdrop of the sustainability conversation, there is a flurry of EU regulatory changes coming that will put the onus on organisations to do more. In this, telecommunications providers play a crucial role in shaping the way forward.
pertains to a company's stewardship of the natural world, focusing on sustainable practices and the mitigation of ecological impacts.
encompasses the management of relationships with employees, suppliers, customers, and communities, aiming to foster equity, inclusion, and well-being.
involves the frameworks and processes that guide corporate decision-making, ensuring accountability, transparency, and ethical conduct in business operations.
When you consider that ESG regulation has increased by 155% over the past decade, it’s easy to see how organisations may struggle to know how to navigate the complex landscape. Progress has certainly been made, but the flurry of these regulations shifts the perspective from a ‘nice-to-have’ to an essential requirement that organisations must transition to. Notably, within the EU, these ESG regulations are set to become legally binding, necessitating compliance.
Of particular note is the introduction of the Corporate Sustainability Reporting Directive (CSRD), a piece of EU regulation designed to mandate ESG reporting standards and the integration of that information in annual reports, alongside financials. CSRD came into force at the start of 2023, with a phased rollout over the next several years, and will affect around 50,000 organisations overall, including EU-based public companies and large to medium-sized private companies within the EU.
That being said, the telecoms sector is uniquely positioned to positively contribute to ESG goals – both within their own sector and through enabling others – as a player at the forefront of technological innovation. There are challenges to face, of course, but myriad opportunities as well. For instance, telcos can benefit from:
Climate change is a priority to address; ESG issues are gaining more prominence amongst a wider audience and, with that in mind, here are some trends we can expect to shape the telecommunications sector in 2024.
The advent of 5G technology brings with it low latency, enhanced data capacity, and greater flexibility in wireless services, making it a pivotal force in driving energy efficiency across various sectors. Telcos, as the architects of this technological revolution, are superbly positioned to lead innovations and advance energy-efficient objectives significantly. With customer demand for data witnessing an unprecedented surge, 5G offers a more efficient solution to meet these needs compared to previous generations.
Despite 5G's superior efficiency per unit of data, the overall increase in data consumption is anticipated to more than double power requirements by 2030. This reflects a landscape where the benefits of 5G's efficiency become increasingly critical amidst rising energy demands.
Within the scope of CSRD, coupled with increasing demands and higher stakeholder expectations, organisations will be prompted to prioritise ethical sourcing along their supply chains, as well as scrutinising their initiatives targeting the reduction of environmental damage within it. The supply chain needs to have circular economy principles in mind when conducting business, where the focus is on minimising waste and maximising the lifespan of products, whether that’s device lifecycle, e-waste, or closed-loop supply chains.
Employees, investors, customers, suppliers (and many others) are choosing to work with organisations when they have a strong ESG performance. In fact, 76% of consumers say they will stop buying from companies that treat the environment, employees, or the community in which they operate poorly. This sentiment is generally echoed in other stakeholder groups and, with the formalisation of frameworks such as CSRD, this trend will only continue.
Only around a third of Europe’s biggest companies have set targets that aim to address deforestation and protect biodiversity, but organisations are starting to shift their focus to this area in 2024. We can expect to see more concrete objectives set by companies that move beyond tracking greenhouse gas emissions to proactively facilitating a healthier ecosystem through a range of initiatives.
Amidst this wave of ESG regulations and subsequent initiatives, the impact of the telecommunications industry is becoming increasingly apparent. The Boston Consulting Group's latest findings reveal a notable advancement within the telecom sector towards its sustainability objectives. Specifically, the industry achieved a marked improvement in its efforts to curtail Scope 1 and Scope 2 emissions, a crucial step given the backdrop of escalating demand for telecom services and data traffic – projected to increase by a staggering 60% per year.
Scope 1 emissions are direct greenhouse gas emissions from sources that are owned or controlled by the company, while Scope 2 emissions are indirect greenhouse gas emissions from the generation of purchased energy that the company consumes.
Further investments in energy efficiency and renewable sources are crucial, while telcos that invest in integrating cleaner energy and infrastructures into their networks can provide cleaner services for customers and can make a meaningful dent in reducing their environmental impact.
That’s where a circular economy can be transformative.
Put simply, the circular economy aims to get the most value from resources and materials by maximising the product lifecycle and minimising waste. For telcos, this presents an opportunity to assess different areas of their operations and drive improvements across the board. Some areas to consider are:
These are just some of the ways organisations can make a difference, although adopting circular economy principles aren’t without their challenges. Access to capital, a complex supply chain and a lack of organisational knowledge regarding sustainable practices and circular economy principles all pose significant challenges and require a concerted effort from all relevant stakeholders, not just telcos. But, what can telcos do themselves to make an impact?
Data centres and data transmission networks each account for about 1-1.5% of global electricity use a figure comparably lower than those seen in industries like manufacturing, transportation and power. However, the global consumer internet traffic is rapidly increasing, especially from video streaming, leading to higher electricity usage and, consequently, greater carbon emissions. This underscores the critical need for sustainable infrastructures and operations within the sector.
Here are some ways they can take action to offset the effects within the sector:
With the rollout of 5G, telcos can replace energy-intensive infrastructure with energy-efficient technologies. This includes utilising advanced cooling systems, optimising hardware configurations, and adopting energy-efficient equipment
Transitioning to electric vehicles for the company fleet is a tangible way for telcos to minimise their carbon footprint
Embracing renewable energy sources, such as solar or wind power, for powering network operations and data centres, as well as collaborating with renewable energy providers
Generative AI and other machine learning technologies are primed to be integrated intelligently into operators’ networks and can dynamically optimise data traffic and resource allocation for better outcomes
Perhaps most crucially, instilling a culture of energy efficiency and empowering employees within an organisation to feel connected to the same green goals, will have a profound impact on the commitment towards achieving organisational objectives.
There are numerous other ways telcos can reduce their environmental impact, but this gives a sense of the scope. Now let’s look at the relationship between investors and ESG in today’s climate.
Recent research took a deep dive into the role that ESG issues play in investor decision making processes; it’s clear the landscape is shifting. The interest in ESG ETFs is anticipated to rise in the coming years, driven by worldwide initiatives for a green recovery. Projections suggest that by 2025, ESG assets will surpass $53 trillion, accounting for over a third of the expected $140.5 trillion in overall assets under management.
The growth in ESG ETF assets over the last eight years has been remarkable, with annual net inflows increasing from $4.7 billion in 2014 to $169 billion in 2021, culminating in a total of $449.5 billion in ESG ETF assets by February 2023.
Investors are choosing to invest in organisations that are taking meaningful steps to combat ESG challenges. What this tells us is that organisations that demonstrate a clear and authentic commitment to meeting present and future legislative requirements signal to investors that they are valuable investments for the long-term. So, even when you consider the upfront costs of moving towards more sustainable operations – which aren’t insubstantial – businesses stand to benefit from stronger earnings growth and may even see higher returns.
Melita is a telecom service provider based in Malta. We are on a mission to deliver communication products that delight our customers and enrich our future digitally. We’re committed to guiding our diverse society towards an increasingly digital future, to connect, grow and advance, whilst minimising our impact on the environment so that our future is one to look forward to. As a large company on the small island of Malta, we have the opportunity to lead by example on ESG issues and make a positive contribution to our society. The challenges we face with sustainability are only equal to the ways we can leverage our technologies to create a cleaner, better future for everyone. The task in front us is leveraging them in the right way.