Companies that take the lead on “sustainability” will be market makers rather than market takers. The Business Case for Sustainability, World Economic Forum, January 2009.
Strategic capability in sustainability is increasingly an important measure of corporate success. From being optional, “nice to have” metrics, sustainability and CSR measures have come to be integral to the c-suite agenda now.
As Sustainability begins to rework the soul of the organization, the roles of the CIO and the organisation’s IT nerve centre become central to companies. Competitive advantage may be gained variously from green or sustainable IT enabled supply chains, or from social or community initiatives. But one thing is clear: the internal and the external faces of the organisation are inextricably linked. The CIO and the IT departments are increasingly being asked to provide crucial input into the sustainability impact of various company initiatives.
The question we asked as we read through the DQ Top-20 was: shouldn’t sustainability be a measure included in assessing the performance of DQ top 20 companies? After all there are key trends that are shaping the world around us.
1. Policy trends will force your hand. Especially if you have global ambition.
Barring a handful, the companies that feature in DQ’s Top-20 have global ambitions. The realisation of these ambitions requires local compliance in the markets that these companies want to enter and do business in. For instance, in Europe, European Union Emissions Trading Scheme (EUETS) was launched in 2005, while the Waste Electrical and Electronic Equipment (WEEE) Directive on waste electrical and electronic equipment and the Restriction of Hazardous Substances (RoHS) Directive became laws in 2003.
Together these set collection, recycling and recovery targets for all types of electrical goods. It is obvious that manufacturers of hardware goods needed to pay attention to these. Estimates of compliance costs, obtained from research in Europe, vary from 0.05 to 5% of turnover. Understandably compliance costs are projected to grow as a share of total cost imposed by these regulations whereas technical costs related to use of alternative materials and product redesign etc fall over time.
The DQ Top-20 however includes not just hardware companies but also software companies as well as companies that run outsourced processes for their clients. For the latter two categories, the problem definition changes ever so slightly.
They may not have manufacturing facilities using mineral resources or belching fumes into the atmosphere but they do have large energy-guzzling development centres and data centres. The consulting firm McKinsey has estimated that between 2000 and 2006 the amount of energy used to store and handle data doubled with an average data centre consuming as much energy as 25000 households.
These development centres and data centres depend heavily on the use of the web to sustain their operations and revenue generating activities. Google, one of the biggest web players, recently revealed that it used 2.26 million megawatt-hours of electricity and generated 1.46 million metric tons of carbon dioxide in 2010.
Many of these DQ Top 20 software and outsourcing companies are located in India. But in the last few years several have acquired and others continue to acquire large players in their target local markets. Further those companies that run outsourced processes for large multinational clients face another moral as well as accounting and reporting dilemma.
Just because the process is outsourced, does it mean that the multinational client’s responsibility for the carbon footprint and GHG emissions is also transferred?
How does the supplier contract with the business process outsourcing provider shape the business of the latter?
And shouldn’t both the companies be reporting on their sustainability initiatives and mitigating measures for the environmental costs incurred by society?
Questions, questions, questions.
The CIO has a full plate in front of her. Keeping current with regulations, successful multi-jurisdictional compliance and clear, responsible reporting will require clear strategic leadership and organisational preparedness. What better time to start than now?
2. A strategic approach to demographic trends makes commercial sense.
In other words, it makes sense to be inclusive in one’s hiring and team-building. A study conducted at the UK’s Cranfield University showed a steady correlation between share price and women in senior positions in companies. Another, longitudinal study by Pepperdine University, of Fortune 500 firms, demonstrated the link between female executives in companies and profit margins being 18%-69% higher than the median Fortune 500 performer in their industries.
As part of their CSR initiatives, the DQ Top 20 companies wanting to be competitive and globally successful cannot turn a blind eye to the population of women, and urban and rural youth. Women make up half of the potential workforce while young persons between the ages of 10-24 make up 30% of the population of India. The talent crunch faced in R&D, sales and IT by India Inc is already quite widely documented, and endorsed by recent research from Manpower Group.
In such a situation what better than for the DQ Top 20 to get involved in their communities? As we demonstrate below, some companies are ahead of their peers in initiatives such as creating training-for-employability infrastructure and digital inclusion. These initiatives would help enable sustainable livelihoods for those communities. It makes not just social sense but also huge commercial sense.
Highlighting such initiatives in the company’s CSR reporting serves both as a signal and as a beacon to sustain such initiatives. The cost-saving and the profit advantages are self-evident.
Our Research
In examining sustainability activities of DQ Top-20 IT and Top 20 BPO companies we asked a few questions.
Is sustainability on the corporate agenda?
A review of the corporate websites of DQ Top-20 revealed some interesting indicators. Of the Top-20 IT companies, only 14 companies have made sustainability reports available; others do not mention them. Out of the Top-20 BPO companies, only 7 companies have sustainability reports, and of these, only one company is a pure-play BPO while the rest are part of IT companies. It is indeed possible that they are working on developing these reports or for some reason those reports have not been shared online.
If on the agenda, does sustainability reporting follow a standard?
We find that of the fourteen IT companies that publish sustainability reports, thirteen companies follow the Global Reporting Initiative (GRI) framework, while one has its own reporting framework. The seven BPO companies that have a sustainability report follow the GRI reporting framework.
The GRI is a network that produces a comprehensive sustainability reporting framework. Sustainability reports based on the GRI Framework are used to demonstrate organizational commitment to sustainable development, to compare organizational performance over time, and to measure organizational performance with respect to laws, norms, standards and voluntary initiatives.
GRI promotes a standardized approach to reporting to stimulate demand for sustainability information – benefitting both reporting organizations and report users. It is now widely used around the world.
Where reports are available, are there any mentions of Green IT initiatives in these reports?
Of the Top-20 IT companies, we find only 13 companies with “Green IT Initiatives”. Off the 20 BPO companies, only 8 companies have “Green Initiatives”. These mainly consist of activities and initiatives focused on the environment.
What exactly these activities are can only be determined after extensive consultation with IT leaders. This highlights the need to resolve differences in nomenclature and definition, before it can be fully understood.
The public discourse on green IT has somehow become quite product centric. We feel that is restrictive and reactive. Strategic questions that need to be asked include: is it central to the business communication?
What can IT leaders do more to make it more visible? Green IT is not about replacing printers but about understanding overall business impact. We find that breadth of approach lacking in our examination of the Top-20 IT and BPO companies.
What kind of Initiatives are these companies involved in?
image 1 – IT companies
Further delving into publicly available information on DQ Top-20 IT companies shows that 17 companies have Environmental initiatives based on
- Water Consumption
- Energy Consumption
- Reduced Carbon footprint
- Waste Management – Reuse and Recycle
- Supply Chain / Procurement
- Sustainable Product / Services
Software companies such as Infosys has even developed apps such as for energy management and individual carbon footprint calculator. These apps often are not only for their clients but also for the end user. Hardware companies such as Microsoft, Dell and HP talk of reducing the environmental impact by creating energy efficient and environment friendly products for the end user.
They promote various recycling programs based on hardware type such as trade-in, return-for-cash, donate-and-recycle. These programs however are available only in select countries. The various activities to save water, energy and waste management appear to be followed and practiced across all company units whether offices or manufacturing units.
We also find that contribution to society forms an important, recurrent element of sustainability initiatives including those based on
- Healthcare
- Education
- Community Development
- Diversity
- Digital Empowerment
- Charity Donations
image 2 – BPO companies
The above grid of the Top-20 BPO companies raises more questions than provides answers, given the context that only 7 companies have published a sustainability report. There is certainly an opportunity for each of these companies to create a clear strategy and implement it. We believe that some of the initiatives mentioned have considerable potential and we hope there will be additions by the time next year’s DQ Top-20 is released.
Conclusion
As is evident this is an overview of the DQ Top-20 IT and BPO companies. The research can be improved and expanded. The data are incomplete. For instance, a top-ranked company mentions sustainability on their website, but there is no sustainability report. The very same company is pitching sustainability based solutions or products to their clients, which makes their own lack of commitment to sustainability quite concerning.
Similarly we note that hardware companies (both manufacturing and distribution) talk of green products but the efficacy of the claim greatly depends on recycling programmes and their supply chains. The lack of data here hampers analysis.
Further we feel that the classification of activities requires standardisation. For example, even in our tabulated comparison, some areas are ambiguously defined. We also feel that many initiatives are nice PR material but not seen as central to the business, such as the charitable education initiatives.
The analysis therefore has limitations. With the available data, we have but one aim: to ignite conversation with CIOs and in the board rooms of these technology companies. In particular, we are keen to emphasise that societal discourse is changing and forcing transparent responsibility on corporations.
The change is also effecting a shift in the balance of power between corporates and society. Governments and regulators as well as boards of companies, private or public, pay attention to such trends and want to be seen to do the “right thing”.
What does that mean for the DQ Top 20 companies?
Simply that if your company’s leadership is not proactive and does not operate with a finely tuned social responsibility compass, the oversight will bring substantial costs to the company. In addition to the direct impact on shareholder wealth, such costs may include damage to long-term brand equity and goodwill creating “unsustainability” for the business. Smart leaders are tuned into the social discourse and choose strategic proactivity over reactive damage control.
We would like to hear your views.