How to invest in sustainability by investing in technology—the “Genius of the And”
In 2023, should you invest more in digital transformation or more in sustainability projects? With the “Genius of the And,” you can do both. Explore this insight and more from our annual global survey of IT decision-makers worldwide.
If you just have 30 seconds, read this. If you have a bit more time, jump ahead.
Welcome to the 2023 Reality Check
In every challenge, there is opportunity. And the world has not been short of challenges in the last few years. Taking them all on—even listing them—is a monumental task, but we can broadly group them into two buckets: economic and altruistic. On the economic side we see the macro and micro forces that are pushing companies to be more efficient, more diverse and more risk averse. On the altruistic side we see the need to be more conscious of the environment, of society and overall responsibility.
These two seemingly opposing forces have been on a collision course for some time. Creating questions for business leaders around ‘how can we do what’s in the best interests of all stakeholders’. The ‘responsible’ or altruistic options are rarely the cheapest, so when faced with a squeeze from an economic perspective, it seems impossible to continue with them whilst keeping investors and shareholders happy with annual or quarterly returns.
While the specifics of the sustainability challenge may be relatively new, the complexity of this kind of decision making is not a new paradigm. It’s what business writer Jim Collins labelled the “Tyranny of the Or”—the idea that these very different goals have to be in opposition to one another. The solution is the ‘Genius of the And’: the ability to embrace two extremes at the same time and using dialectic methods to synthesize these initiatives, turning a challenge into an opportunity.
The definition of digital transformation is often debated, but we would define digital as being able to collect, collate, analyze, share, operate and act on data. Becoming a truly connected enterprise requires the kind of transformation where that data flows throughout every corner of the business and is accessible to anyone. So, what is sustainability transformation? It’s very similar. It’s the process of bringing together the cultural, technological and process changes needed to be more sustainable. Can these two things be fused with the Genius of the And?
This theory is very easy to buy into, but extremely hard to execute. Especially when looking at balance sheets that show that something has to be cut, something has to skew the numbers back into the right margins. The things that go are almost always the investments that don’t directly contribute to revenue coming in, they’re on the altruistic end of the scale. As a result, one of the things that is often top of the list is sustainability.
But does it have to be so? We commissioned some independent research to look into the issue. To try and find out what’s stopping companies from achieving more when it comes to sustainability. Can organizations find the Genius of the And when it comes to their digital roadmaps?
One of the first things we found is that companies are no doubt committed to sustainability as a mission—95% say that it is either a top or a high priority. But on the surface, they are struggling to truly connect it with other priorities: 84% candidly admit that sustainability takes a back seat to commercial objectives in tougher economic times.
By contrast, technology investment has become a mainstay of corporate strategy. Investment in technology remains high in the face of economic uncertainty, according to a Software AG-commissioned poll of CEOs. A large majority (83%) say that they will, in fact, increase their investments in their existing technology in times of economic downturn. Investments in new tech, new talent and employee development are also slated to increase.
The fact that business leaders are bullish about weathering the economic storm is likely a sign of their experience that these situations pass. They have also seen that investment in digital transformation makes them more resilient. So much so, that 69% of CEOs plan to divert resources from other areas into their digital transformation efforts, with 27% saying that they don’t need to because they already have enough budget.
Doubling down on existing investments makes a lot of sense—we know from previous research that the COVID-19 pandemic caused a significant increase in technical debt. We also know from this year’s data that around 21% of IT budgets are being focused on managing that technical debt—an essential part of not only ensuring ROI, but also of optimizing digital transformation.
The investment and confidence shown by business leaders in digital transformation is highly encouraging and should ensure greater resilience for their organizations. However, sustainability does not enjoy the same level of confidence. That could be because 84% of companies see digital and sustainability transformation as separate initiatives. However, that only strengthens the need for the Genius of the And to be applied.
84% of companies see digital and sustainability transformation as separate initiatives.
Why drop sustainability if it’s good for business?
One of the first misconceptions to address is that sustainability initiatives don’t help the business. While it’s true that the link between sustainability and the bottom line isn’t always the most direct one, there are a number of ways in which strong, transparent sustainability initiatives do support the growth of the business.
Companies want to buy from other companies who are serious about sustainability. Almost every one (97%) says that the sustainability credentials of an organization are either essential or important in their buying decisions. The same number say that the sustainability positioning of a product they’re buying has a strong influence on whether they will buy it. This is a strong connection between top line sales and sustainability policy and could be enough on its own to prompt more investment. But there’s more.
Employees, especially younger generations, value sustainability. In fact 84% of companies believe that they are likely to lose employees without a clear sustainability strategy. The skills gap, especially in technology, is vast. Getting the right skills in place is essential for ensuring both efficient operations and high quality products and services for customers. The connection between skills and sustainability is clearly already real. Deloitte research shows that 90% of Gen Z and millennials make an effort to reduce their own environmental impact, with only 18% saying that their employers are committed to fighting climate change.
You get a compelling picture when faced with 37% who reject jobs based on personal ethics and 29% who would leave their employer within a year because that company doesn’t match their values (the latter data coming from EY research). The skills gap is a major issue for organizations, and while a majority are increasing their investments in hiring, they may not be setting themselves up for success if they aren’t able to retain that talent. Another strong reason to think about sustainability. And yet, there’s more.
Investors will look at sustainability. A large majority of companies (87%) believe that they will lose investors if they don’t have a clear sustainability strategy. It’s easy to dismiss this stance as overly-fearful, but there are signs of this being institutionalized. In the US, the Labor Department issued new pro-ESG rules, the EU and the SEC have both either issued disclosure rules, or are preparing them, and investment rates in ESG are ‘soaring’. While these regulations don’t represent the will of individual investors, they are likely to usher in a cultural change that will trickle down
While the topic of investing on the basis of sustainability or ESG is a fiery one at present, the emergence of Activist ESG (AESG) investors gives a signal for the future. These are investors who look for strong financial returns and strong ESG credentials…not one at the expense of the other. That’s right, there is a new breed of investor seeking out companies who have mastered the Genius of the And when it comes to sustainability.
With these factors in mind, we can predict a tension in most organizations. Sustainability can contribute to commercial performance, but is put on the back burner by most companies. Many (82%) would even make the cost-driven decision to pay regulatory penalties instead of spending on sustainability. This points to a perception that sustainability is too expensive or too difficult to take on, on its own merits. But we’re here to say otherwise.
The Cultural Change of sustainability
Cultural change has been a critical success factor for digital transformation. The willingness and ability of people within the organization to accept and use new technology is not only hard to win, but also takes a lot of time.
Similar trends affect sustainability initiatives and transformation. Of course, you need buy-in from employees, but at the moment 47% of businesses don’t believe that every employee understands the strategy. Most generations will buy into sustainability, but do they know what your goals are? This could be a simple communications challenge, however it’s also possible that the strategy itself is too complex or unclear.
To compound the challenges around awareness, sustainability goals are often not baked into the company culture in practical ways. For example, 82% of businesses say that employees don’t have clear targets, incentives or reporting on sustainability, the likes of which that are already in place for commercial goals.
A pioneer of this kind of incentivization was Intel, which nearly 15 years ago started linking remuneration with sustainability targets. Intel understood that it needed every person in the business to play their part in achieving success. It also knew that people most often do what they’re targeted to do. By putting incentives in place it was able to achieve a 35% drop in emissions.
More recently, Unilever has made public extensive resources and transparency on how it trains, tracks and reports on its sustainability. It has a thorough process for disseminating its goals and strategy, for example managers are mandated to communicate these goals to their teams, and compulsory training is rolled out throughout the year. In a company of that size, this kind of cohesion is hard to accomplish, but fundamental to success.
This drive needs to start from the top. Only half of business have got their sustainability goals aligned to company processes. When sustainability sits on the outside of the established order like this, it’s very difficult to make it stick. But finding ways to include it in company culture and processes—even if that means forcing it at first—gives employees more empowerment to play their part.
But it’s not just the cultural barriers that are making sustainability difficult.
Technology for sustainable and digital transformation success
The challenge of cultural change is only relevant if the technology and tools are in place to allow employees to do what’s asked of them. If they’re unable to do that, the point of cultural acceptance is very much moot. And yet many companies don’t have the right technology available—either because it’s simply not there (32%), or that it’s poorly implemented (47%).
Companies need more or better tools in order to understand the success of sustainability initiatives, with over a third (36%) saying that they don’t have them. The barriers here include data collection and analysis issues, monitoring and reporting. Most organizations are able to collect data and perform monitoring and reporting in different areas of their business, though. So is it a case of cultural change holding them back from doing this around sustainability? Or are there some specific technology issues at play that stand in the way of progress despite continued investment in this area?
The root cause of those struggling to get the right tools in place is often that the technology roadmap is separate from sustainability initiatives. When 87% of companies tell us that sustainability and digital transformation are separate initiatives, connecting the dots is going to be difficult.
Most companies see themselves as mature when it comes to digital transformation and they’re investing in technology, but it’s not making its way through into the hands of those that need it for sustainability purposes.
Some find a way: 33% do integrate sustainability plans into their technology roadmap. Others will have processes in place to secure IT resources for sustainability projects, but this is riskier as priorities can and do change, as we’ve seen with commercial objectives taking precedence.
Within these different approaches are the examples that we’re looking for. The 20% of companies that found a way to integrate sustainability plans into their technology roadmap despite them being separate initiatives. They are the ones mastering the Genius of the And.
Applying the Genius of the And
1. Journey to Cloud:
Moving to the cloud in itself is a sustainability initiative. Azure cloud has said that it is 93% more energy efficient and 98% more carbon efficient than on-premises alternatives. On top of that, new innovations within cloud platforms, such as the AWS Graviton 3 Chip, helps further reduce energy by 60%. All in all cloud migrations are the equivalent of taking 22 million cars off the road per year, according to Accenture.
Not all organizations should be trying to move all their technology into the cloud; it’s not an all or nothing proposition. In fact, hybrid cloud will be the best of both worlds for most organizations. But it’s easy to see why nearly half of companies (45%) have it as a big value add for sustainability.
Functions that benefit the most from cloud are those where data needs to be accessible for multiple groups, or extra computing power is needed on-tap. Making data more accessible and unifying key functions will be a huge help to the third of companies who struggle with data collection and analysis for sustainability.
Every organization will understand that making data available is foundational to its analysis. However, many infrastructures still restrict who can access information, or how they can use it, which hinders this analytical mission. Running these processes through the cloud is the best way to go beyond simply centralizing data and actually empowering teams with what they need. This also helps the 36% that say that they aren’t able to understand the success of their sustainability efforts because they can’t track new initiatives effectively.
Cloud technology may be the perfect demonstration of the Genius of the And – it is central and beneficial to both digital transformation and sustainability. As organizations change, so too must their infrastructure. In order to support new ways of working, application modernization, new service models, and rapid innovation are all on the table. They often deliver immediate benefits in terms of total cost of ownership (TCO) as well as long-term benefits in the form of new revenue streams, competitive advantages, and improved performance. But cloud isn’t a simple answer.
Cloud technology may be the perfect demonstration of the Genius of the And – it is central and beneficial to both digital transformation and sustainability.
As multi-cloud environments become the norm, the requirement to connect all the different parts of the business together is paramount. An Integration Platform as a Service (iPaas) does this seamlessly. Not only does it help with sustainability by virtue of having energy benefits, but it connects disparate sustainability initiatives, helping to unite information and processes. In the same way that it does for an array of different functions and industries, including distributed supply chains, service channels, partners networks and internal operations.
Beyond this, an API-enabled, hybrid cloud environment can allow much greater creativity and innovation when it comes to developing services and applications. As more and more companies are delivering to customers ‘as a Service’, what could be more fundamental than the flexibility to create better service options when they’re needed?
Bolloré, a French logistics company that transports 800,000 containers over the ocean and 6,000 tons of airfreight every year, implemented a new transport management system and overhauled its digital client platform to stay nimble and boost profits. At the same time, Bolloré is continuously moving toward a more sustainable, intelligent supply chain by tracking carbon and other pollutants, reusing materials, and, whenever possible, offsetting emissions, and shifting to low-carbon modes of transport. All of this is driven by data: at any given time, Bolloré monitors 41 sustainability performance indicators.
2. Data integration:
Sustainability is a wide-reaching issue and as such relies on many different processes. To fully understand not only the initiatives in play, but also their success and operational efficiency, requires a level of integration beyond simply laying a pathway between two platforms. This is perhaps why 28% of organizations said that data integration had a significant positive impact on their sustainability efforts—the second highest ranking technology.
Data movement in the past has typically been from A to B. From a system of record with an extensive remit—such as SAP or Oracle—into a platform for analytics. However, the distributed nature of the sustainability challenge means that there is no system of record and therefore no consistent or coordinated source of data. Companies need to establish virtual systems of record—which requires a data integration platform with the ability to combine multiple data streams (and the myriad formats that entails) so that they can be analyzed.
Companies are more distributed than ever. Delivering a high-quality experience relies on integrating many, many data streams.
A look at the Green House Gas (GHG) Protocols, for example, shows how complex the data challenge can be when it comes to some issues of sustainability. The data to properly ascertain performance around sustainability requires the combination of a multitude of sources, translating the data and presenting it for analysis. This distributed nature of information is also becoming more commonplace in other areas: customer experience, supply chains…even HR and employee issues.
Companies are more distributed than ever. This doesn’t necessarily mean geographically, although many organizations are balancing their operations ‘at home’ versus overseas. This means that between the wider web of their supply chains and the increased number of customer touchpoints, delivering a high quality experience relies on integrating many, many data streams.
Add to that, within an organization line of business leaders have more control over their tools and platforms, so more data repositories exist across the business. This isn’t a problem if the processes are contained to those systems, but as we have seen, most processes now spread across multiple departments, teams, geographies or platforms. The data streams that are created across these different areas have to be managed, and whether they look like spaghetti, or managed pathways comes down to data integration.
The multiplication factor of your more distributed business with the spread of your customers and partners should bring home the requirement to integrate into new systems of record, virtual or otherwise. Sustainability efforts are not alone in trying to get their arms around a broad scope of interests and information.
As part of a plan to achieve net zero emissions by mid-century, the shipping giant DHL Express is investing seven billion euros in carbon reduction efforts, including a new fleet of electric cargo airplanes. DHL is also putting its faith in a range of backend technology solutions, including business process analysis and management, in a quest to enable data automation and improve both its business and environmental efficiency through technology.
3. Edge Computing:
We’ve already talked about how sustainability initiatives require an understanding of a range of different operations, including emissions across offices, efficiencies in the supply chain, effectiveness of manufacturing. Many of these processes are primarily analog—they either don’t produce data or they are not technologically enabled. The fact that edge computing is a key contributor to sustainability success is no surprise in this context. IoT sets the table and edge computing operates upon it.
Pushing computing power and automated decision making to the point of impact can boost sustainability as well as efficiency, whether it’s managing the emissions of a combustion engine, the efficiency of a wind turbine or the output of a particular machine. For example if power consumption need to be reduced by 1-2% in order to meet sustainability targets, having the capability for a computer to recognize the situation and make the change automatically speeds up the impact of the decision. Relaying data to analytics software and then back to the device could be a process done in stages with batches of data and therefore take hours or days. Edge computing solves that challenge by enabling devices to make these decisions when they capture the data. This approach also reduces the requirements for data transmission, further reducing energy consumption.
It should be no surprise that this is not something that only affects sustainability. Many processes in manufacturing, agriculture, energy and field maintenance of any description benefit from being more digital and automated. In addition to automating decisions, edge computing can manage the information transmitted back to data centers to better manage energy and gain cost advantages.
Australia’s QTRS, is using IoT for real time monitoring of its refrigerated trucks—which helps reduce foods spoilage, decrease emissions, and minimize agricultural waste. Others, including providers of renewable energy, are using IoT for predictive maintenance, which minimizes costly disruptions and reduces the environmental impact of servicing. In all these cases, enterprises are tackling operational risks in ways that benefit the planet and their bottom lines.
The macroeconomic climate has reduced the focus on sustainability for some, but it can’t be put on the shelf for a few years without consequences. A wait and see approach goes against what stakeholders and shareholders are expecting: a reduction in environmental footprint and greater societal impact. The research shows that digital transformation maturity helps companies make better decisions and understand their organization more deeply. It’s a small leap to make digital transformation work for sustainability gains too. The standardization, analytics and reporting that characterize digital efforts can bring sustainability benefits as well as economic ones.
Dipping your toe into the plastic free ocean of sustainability is far from easy, but also essential. Navigating these waters, on the face of it might seem like a mission of compromise…but it doesn’t have to be. Sustainability isn’t a discussion about altruistic projects that hinder financial performance, it’s a discussion about using the right tools and resources to achieve more meaningful impact. With this mindset, every organization will be able to invest in initiatives that bring multiple benefits. The up-side to technology can be economic, social and environmental all at the same time. And that’s the genius that we’re all looking to tap into.