The Information Technology sector has seen unprecedented growth in recent years, which has partly been accelerated by the global expansion of semiconductor manufacturing. The IT industry has indeed been the great disruptor to business as usual as part of the ongoing digital revolution, now accelerated by the race for AI. That same race to AI has also sparked debate about the growing ESG impact of the IT sector as a whole. Successful ESG integration in the IT sector can be achieved via IT as an enhancer of data availability and stakeholder engagement, while challenges include a lack of IT infrastructure investment, a lack of organizational and stakeholder commitment, and increasing regulatory compliance risks.
Let’s now briefly discuss the most pertinent ESG topics for IT organizations to consider. This should help any IT organization get started in better understanding their own ESG positioning and progress.
According to McKinsey, Enterprise IT contributes significantly to the world’s carbon footprint, with end users representing the biggest emissions contributor. Though AI insights can actually help optimize energy usage for Internet of Things (IoT) devices, the data required by the AI revolution is enormous and growing exponentially.
In fact, Global AI data center power demand alone could reach 68 GW by 2027 and 327 GW by 2030. More broadly, by 2030, 21% of global electricity consumption will be used for ICT production and operation, according to Digital Information World. Then there are the environmental issues relating to IT hardware, such as E-waste, the annual generation of which is rising by 2.6 million tonnes annually, and is on track to reach 82 million tonnes by 2030. This would represent a further 33% increase from 2022 figures, states ‘E-waste Monitor’.
To tackle this risk, the industry has seen increased regulation, such as the European Union’s Ecodesign for Sustainable Products Regulation (ESPR). Likewise, to help IT companies and customers reduce the impact of their data usage, the Climate Neutral Data Centre Pact (CNDCP) has been a game-changing initiative impacting the wider IT industry. Then there is the broader EU Corporate Sustainability Due Diligence Directive (CSDDD). These are just a couple of recent examples influencing a global push for ‘Green IT’ that goes back well over a decade.
IT is one of the eleven sectors identified by the Global Industry Classification Standard (GICS). This sector is, in turn, made up of three industry groups. Each industry group has its own nuanced ESG issues. We have mapped these in the table below to the Sustainable Accounting Standards Board (SASB) material issues for Technology & Communications. Some issues that occur most prominently within most or at least half of the IT subgroups are:
| SASB Material Issue | Relevant IT Specific Themes (as identified by SASB) | Opportunities |
|---|---|---|
| Energy Management | Environmental footprint of hardware infrastructure: Managing the energy and water use associated with IT hardware infrastructure is relevant to value creation. | Procure or generate renewable energy for IT use and/or ensure that data centres are run on renewable energy or use Renewable Energy Certificates (RECs). Consolidate data center and other IT assets to create CapEx savings and drive sustainable infrastructure growth. |
| Water & Wastewater Management | Water consumption is linked to data center cooling. Water-based cooling improves energy efficiency but creates local water dependency. | Implement closed-loop systems in cooling operations to reduce water usage through recycling. |
| Waste & Hazardous Materials Management | End-of-life management of IT materials like plastic casings, rare earth minerals, and metals. Improper disposal affects health, ecosystems, and emissions. | Drive circular economy through automation to extend hardware lifecycles and minimize e-waste. Use AI tools and Digital Twins to map emissions hotspots and optimize the supply chain. |
| Employee Engagement | Employees are vital to value creation in Software & IT Services. | Enhance employee engagement and work-life balance to improve recruitment, retention, and workplace diversity. |
| Diversity & Inclusion | The industry shows low representation from women and minority groups. | Proactively recruit and develop globally diverse talent pools to address skills shortages and drive innovation. |
| Data Security | Growing cyber threats risk both company and customer data. | Use the cloud to promote ESG transparency and build trust through user privacy, cybersecurity, and data protection. |
| Systemic Risk Management | Risks from programming errors, server downtime, rare earth sourcing, and supply chain disruption due to climate change. | Manage systemic risk with ethical sourcing, responsible governance, and transparent data practices across the supply chain. |
| IT Industry Group | Industry | SASB Material Issues Highlighted |
|---|---|---|
| Software & Services | IT Services | Competitive Behavior Customer Privacy |
| Software | Competitive Behavior Customer Privacy | |
| Technology Hardware & Equipment | Communications Equipment | Product Design & Lifecycle Management Supply Chain Management Water & Wastewater Management Waste & Hazardous Materials Management Materials Sourcing & Efficiency Labor Relations Employee Health & Safety |
| Technology Hardware, Storage & Peripherals | Product Design & Lifecycle Management Supply Chain Management Water & Wastewater Management Waste & Hazardous Materials Management Materials Sourcing & Efficiency Labor Relations Employee Health & Safety | |
| Electronic Equipment, Instruments & Components | Product Design & Lifecycle Management Supply Chain Management Water & Wastewater Management Waste & Hazardous Materials Management Materials Sourcing & Efficiency Labor Relations Employee Health & Safety | |
| Semiconductors & Semiconductor Equipment | Semiconductors & Semiconductor Equipment | GHG Emissions Water & Wastewater Management Waste & Hazardous Materials Management |
ICT companies play a critical role in the global economy for fostering economic and social connectivity, with most Sustainable Fitch-rated companies obtaining either an average or good ESG rating. Of the ICT companies rated by Fitch in 2024, 55% have an average entity ESG rating of ‘2’, indicating a good sustainability profile and impact, and 45% have an ESG rating of ‘3’, indicating an average profile and performance.
For companies providing software, information technology, and telecommunications services, key issues include energy efficiency, security, and customer welfare. Despite rollbacks across ESG in the US, large IT-related companies continue to lead the ESG push. For example, Google has a public-facing carbon policy, IBM employs an ESG framework called Impact, and Microsoft has been very vocal in its fight against climate change.
“Sustainability is becoming a cornerstone of IT strategy, a design premise when specifying IT infrastructure, a compass point for holistic decisions regarding technology, and an aspirational model for tapping into new resources and achieving growth.” – Silke Schelkmann, CIO Advisory Partner at PwC Germany
A KPMG survey recently found that Technology Company CEOs say environmental/climate change is the biggest risk to growth. Yet, according to Capgemini, a global technology consultant, only 18% of 1,000 large organizations surveyed have a specific, comprehensive, and sustainable IT strategy, with well-defined goals and target timelines. Furthermore, nearly half of IT companies in a recent survey say they lack the tools to adopt and deploy solutions for sustainability initiatives.
Even more worryingly, just 43% of executives say they are even aware of their organization’s IT footprint. To tackle this, ESG leaders are incorporating ESG into their overall ICT strategy. To do this, ‘Everything IT’ suggests that IT companies involve their staff in the process, and provide regular training and workshops to help build a culture that values sustainability and social responsibility, and provides opportunities for your staff to contribute ideas and solutions. Conversely, IT can also be used to deliver training for people on ESG matters, ensuring all value chain workers can take part in ESG success.
According to CMS-LawNow, there is still much to be done to ensure ESG success in the Middle East and the UAE. The law practice states that the vast majority of large companies in the Middle East region are calling for strengthened ESG regulation, with less than 20% of companies having teams and systems in place to comprehensively cover ESG functionality. In fact, a recent BlackRock insights study, covering investors with US$25 trillion of assets, found that just over half (53%) of global respondents said they were concerned about “poor quality or availability of ESG data and analytics”.
Furthermore, 31% of organizations in the Middle East believe that a lack of data and measurement was a barrier to the effective implementation of an ESG strategy. With IT and digital technology being an integral lever for ESG data management, there is a huge opportunity for the UAE to lead in creating solutions that enable all sectors to improve their ESG performance and reporting. For instance, digital technologies such as robotics can help environmental initiatives such as waste reduction and carbon reduction activities, and enable a more efficient ESG reporting.
The rise of AI and High-Performance Computing puts IT center stage in the ESG debate, given its role in ensuring IT solutions are energy-efficient and enable low-carbon data-related emissions. In that sense, IT is the ultimate enabler for ESG progress as digital infrastructure is crucial for a functioning, sustainable economy.
Concepts like ‘Sustainable IT’ give ESG leaders a playbook to begin, and IT solutions themselves can enable more accurate and efficient management of ESG data, enabling superior ESG reporting, offering a catalyst for ESG performance improvements for all sectors.
