The heat is rising for tech firms to decarbonise

Tech companies are usually seen as disruptors and pioneers. However, tech companies are struggling to define and navigate a strategy that effectively meets decarbonisation objectives. So how can tech companies implement green strategies that also give them positive business outcomes, and unlock new markets, products, revenue, and value propositions?


This is a contributed article by Ian West, Head of TMT, KPMG UK.

It was already a topic of huge significance in the business and public consciousness, but the COP26 climate conference in Glasgow at the beginning of November has shot decarbonisation towards the top of the corporate agenda.

Alongside COP26, the announcement in the UK of mandatory carbon reporting for large companies by 2023 will certainly focus minds. In many ways, it fires the formal starting gun for technology firms (and all businesses) to make decarbonisation a key strategic item.

Technology firms cold on climate

The fact is that for the tech sector, there remains a lot to do. KPMG’s Technology Industry Survey, conducted earlier this year, found that over half (53%) of technology firms do not yet have a decarbonisation strategy or targets. Amongst smaller and private businesses, the proportion is even higher.

The research also revealed that nearly two-thirds (64%) of technology firms have not calculated the financial impact of climate-related risks. And a separate piece of KPMG research found that only half of global tech companies even acknowledge the risk of climate change in their financial reporting, much less assign a quantitative impact to it.

This is going to have to change. Regulators, investors and consumers will continue to ramp up the pressure for businesses to demonstrate how they are moving to a low carbon footprint and factoring the risks of climate change into their business models, along with clear, auditable reporting to back up their plans and provide credibility. Delayed action will increasingly create headwinds in the cost of capital, the war for talent, access to necessary material inputs, and consumer confidence.

Decarbonisation strategies and levers

Amongst those organisations that do already have a decarbonisation strategy, we see some clear areas of focus. The most widely cited action (by 76% of respondents) is the procurement of renewable energy, followed by achieving greater energy efficiency (64%). These are key areas, of course, not least because data centres can consume huge amounts of electricity – so greening the supply to these, and finding ways to reduce their power consumption, should be a priority.

However, it’s noticeable that other key measures rank much further back. Only a fifth of companies (21%) say they are focusing on their supply chain (Scope 3 emissions) and just 11% on the circular economy.

Action across the supply chain

Technology companies generally have complex, decentralised footprints so it is key that, firstly, they know what the size of the carbon footprint from their supply chain is and, secondly, that they find ways to drive this down such as by imposing mandates on suppliers and other third parties with which they do business.

In this age of climate emergency, I would suggest we’ve reached the point where technology firms really need to look beyond surface-level vendor value and pricing when making contract decisions. The carbon and environmental agenda must be a genuine competing factor too. A key question should be: Does this supplier’s approach to sustainability align with our own strategy? Similarly, when renewing contracts, tech firms should be asking for evidence that their suppliers have a clear roadmap and actions to reduce their carbon impacts.

Opportunities as well as threats

It is not all on the threat side, however. In fact, the carbon agenda could create new revenue-generating opportunities. Most obviously, any tech firm that can innovate around its products and services to make them less energy intensive and more sustainable stands a strong chance of greatly boosting market share as carbon consciousness continues to grow.

There will also be opportunities created by the decentralised energy markets that are opening up – with the possibility, for example, for companies to produce their own renewable electricity through solar and wind and sell the excess to utilities to feed into the power grid.

Reporting requirements

Then there is reporting. Large, public UK companies will be required to report their climate-related financial and risk information in line with the requirements of the Taskforce on Climate-related Financial Disclosures (TCFD) guidelines. This will require capture and measurement of carbon information together with an assessment of the potential impacts and the measures being taken to mitigate risks and meet carbon or net zero targets. But reporting is a complex field, with several other reporting standards available, including the Global Reporting Initiative (GRI) standards, the Sustainability Accounting Standards Board (SASB) guidelines, and others. Companies need to quickly assess their options and develop their timetables to report appropriately.

Across all of these activities and areas, technology firms will need to ensure that executives and senior decision makers are fully engaged and working towards agreed goals. And yet our research finds that only 13% of businesses have implemented remuneration incentives for directors to achieve decarbonisation targets. This is an area where more needs to be done.

Taking a lead

Technology firms are rightly seen as first movers and trendsetters in so many aspects of commercial life. But they are in danger of falling behind other sectors on climate. The time has come to pick up the pace and show leadership in this key area too.

Ian West is Head of KPMG’s UK Technology, Media and Telecommunications (TMT) sector. He is also Joint Lead for KPMG’s C-Suite Programme which supports clients on their development to the C-Suite.

West joined KPMG in 2001 and has just under 20 years’ experience in client relationship management for Financial Services, IT, media and professional services entities.