Marta Munoz (Research Director, Technology for Sustainability and Social Impact Practice in Europe)

In our regular conversations with technology providers and users, one question keeps popping up: How do you prove the value of sustainability?

The question is actually twofold:

  • How can senior executives prove this value to their boards to secure budgets and investment? How can they quantify and track the value to the business that sustainability would deliver to areas as diverse as company operations, portfolios, employee engagement, sales, value chain or customer perception?
  • Equally, how can IT help technology users — and in turn IT providers — prove how investing in sustainable technologies, partners and solutions can deliver value to their own organisation and to their customers?

In the past, proving the correlation between corporate value and sustainability initiatives was limited to anecdotal evidence. The idea of generating long-term sustainable growth — financial, social and environmental — was difficult to prove. Until now.

2020 Marked a Turning Point for Sustainability

Companies around the world are investing in their sustainability goals and initiatives. We have also seen increasing transparency and reporting around environmental and social governance:

  • Companies are adopting new KPIs to reflect carbon adjusted earnings per share.
  • Investment funds and asset managers are clamping down on organisations not adhering to their sustainability goals and objectives.
  • The green bond debt market has reached record highs ($64.9 billion in 3Q20 versus $1 billion for the whole of 2019).
  • IT vendors are showing that their sustainability portfolios are boosting sales, with HP Inc., for example, driving over $1.6 billion in new sales in 2019.

Digital technologies have enabled organisations and individuals around the world (in education and healthcare, for example) to continue their day-to-day operations during a worldwide pandemic. The case for technology as an enabler of sustainable growth — supply chain transparency, carbon calculators and so on — has become a key strategy for resilient organisations.

According to IDC’s EMEA COVID-19 Impact Survey from November 2020, 65% of IT executives across European organisations were planning to dedicate 10%–50% of their strategic budget to sustainable products and services.

Other Benefits of Adopting Sustainable Measures

The effect of sustainable actions on talent retention, customer satisfaction and brand perception is difficult to quantify. However, the opportunity cost of not adhering to certain ethical practices — or having your suppliers and partners not adhering to them — can be high. An example is UK retailer Bohoo, which in 2020 lost most of its market value in days as a result of malpractice within its UK suppliers.

IDC surveys show that sustainability is becoming a key differentiator in the decision-making criteria for IT partner selection. 46% of European organisations, for example, say they value health and safety activities, and 31% mention circular economy business models as a key differentiator in RFPs. Microsoft recently announced its intention to require transparent disclosure of carbon emissions to its suppliers.

Microsoft is not the only company requesting this type of data in order to choose business partners, and it won’t be the last. The UK government recently announced plans to launch a social contract for all public sector suppliers, requesting credentials of their environmental and social activities.

The monetary value of sustainability is suddenly starting to become quite obvious.

Regulation as a Driver of Sustainable Investments

The current focus on environmental and social issues from both regional (the European Commission) and national policy makers, combined with current COVID-19 financial stimulus packages, will drive investment in sustainable initiatives across Europe — if only to ensure compliance and avoid potential penalties.

Inevitably, organisations will need to factor the effects of the environmental and social crises into their risk assessment exercises to prove their long-term sustainability. They will also need to consider the negative impact that any wrongdoing in these areas would have on their reputation, share price or valuation.

Admittedly there is still some confusion about standards, reporting methodologies and taxonomies, but initiatives such as the European Non-Financial Reporting Directive review (due in March 2021) and the Sustainable Corporate Directive (due this summer) should give organisations better clarity of what is expected from them, as well as what data to report and how. This should help companies demonstrate the non-financial value of sustainability.

Ultimately, it comes down to managing risk, trust and reputation.

 

If you want to learn more about this topic or have any questions, please contact Marta Munoz, or head over to https://uk.idc.com and drop your details in the form on the top right.

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