When one considers the communications sector, ESG may not be the first thing that comes to mind. That’s perhaps because the very nature of communications itself could be viewed as ephemeral and divorced from the realities of environmental impacts. However this couldn’t be further from the truth: In a world increasingly reliant on data, be that written or quantitative, there is a growing environmental cost to the creation and consumption of content. In fact, a recent European study estimates that the ICT sector accounts for around 1.5–5% of global GHG emissions. Of this percentage, around 70% is associated with the actual consumption of content on smartphones and computers. Given that most content today is digital, the communications sector therefore has a clear obligation to engage with sustainability, ideally in conjunction with the ICT sector among other Media players. Adding to this ‘communications emissions’ challenge is the fact that 37% of the world’s population is still not connected with digital communications, increasing environmental and social challenges for the sector to tackle.
According to MSCI, the Communications service industry includes companies from the Information Technology sector that are in the business of facilitating communication, as well as media companies formerly classed (prior to 2018 updates) as purely consumer discretionary such as streaming platforms like Netflix, Comcast etc. A similar nuanced approach can be seen in the current SASB materiality classification for the Technology Communication sector. We have mapped these against their broad ESG themes in the table below.
| Communications and ICT- Crossover impact drivers | Issues to consider | MSCI GICS Communications sub- sectors and components (high level) | Related SASB material issues for ‘Technology & Communications’ (closest category to GICS ‘Communications Services Sector’). |
|---|---|---|---|
| Data Centers | While strictly part of the ICT sector, data centers have a huge impact on the sustainability of the communications services industry. Data centers are responsible for 1% of the global energy consumption. Ensuring they are powered by 100% clean energy is a priority which should help communications services reduce the impact of its product offering. | NA (Classed as IT Sector, though has a direct impact on the environmental impact of many Communications services players) | Hardware
Software & IT Services |
| Fibre | The switch from traditional copper or coax networks to glass fibre network infrastructures will have a positive environmental impact according to Bird&Bird, though the environmental impact from vehicles excavating for cables is still significant. | Telecommunications services | Telecommunications services |
| Mobile Communications | Mobile networks require a large amount of energy to operate, and providers are currently responsible for 2-3% of the global energy demand. While 5G is 90% more efficient than 4G, fixed networks are still more efficient than mobile/wireless ones states an IEA study. | Telecommunications services
Media & Entertainment Interactive Media & Services
| Internet Media & Services
|
| E-Waste and Circular economy | With content creation and consumption comes the E-waste associated with the ‘upgrade’ culture of the ICT and smartphone industry, which generates vast amounts of E-waste every day. The proposed Regulation on Eco-design for Sustainable Products perhaps shows a way forward. | Telecommunications Services
Entertainment/Interactive Media & Services | Electronic Manufacturing Services & Original Design Manufacturing
Semiconductor |
| Communications Networks | Three distinct areas of impact from networks are: Deployment, Operation, and Decommissioning. Of these phases ‘Usage’ (i.e. part of the operation) of networks accounts for over 90% of all GHG Emissions from Networks as a whole, states Rambol | Telecommunications Services | Hardware
Internet Media & Services
Telecommunications Services |
According to Fitch Ratings (Sustainable Fitch), the Telecoms Sector has a ‘Good’ ESG Ratings, compared to an ‘Average’ rating for both the Technology Sector and ICT. Despite this, there are growing challenges. For instance, an AXA study states that the 5G era could result in a potential rise in traffic data of up to 1,000 times. To address this rise in data-related emissions, climate action in the sector could act as an enabler for other sectors to address their own communications-related GHG emissions (so-called Scope 4 emissions). For instance, major European players in the telecoms industry have set net-zero carbon commitments for 2040-2050, though progress is being hindered globally by rollbacks in ESG commitments in countries like the US. The largest global ESG opportunities are: Switching to renewable energy, energy efficiency investments, social impact via digital access initiatives, and cybersecurity governance excellence.
Though ESG investing is a relatively new focus for UAE, the nation is leading the way with its UAE Sustainable Finance Framework. For instance, BNP Paribas recently harnessed the framework to create the 1st leverage sustainability-linked loan (and 1st S&P ESG rating aligned loan) for Spanish Telecoms provider Masmovil. However, along with Sustainable Finance, there is a large opportunity for communications services companies to address ESG closer to home, notably within their own operations. In fact, SASB designates direct operations as a crucial material issue for the Communications Services sector to address. As one UAE example, Sustainalytics highlights that for the Emirates Telecommunications Group, the majority of the Group’s revenues profits and assets relate to its operations in the UAE. ESG progress here would improve its ESG rating infers Sustainalytics. However, this does not mean the sector can ignore value chain impacts. In fact, McKinsey & Company, emphasize that communications sector supply chains can contribute up to four times the emissions of a company’s direct operations. One sub-sector example is that of global hyperscalers operating in the MENA region, who are increasingly focused on the ESG credentials of their local MENA telco partners, as are their enterprise and cloud customers using local providers.
According to S&P Global, greener UAE supply chains in the sector can be most easily realized via SME’s using on-site or near-site renewable energy, and by optimizing network efficiency by adopting energy-saving technologies. One best practice example of supply chain ESG integration is Vodafone, which has set emissions targets for its suppliers. ESG scores now count for 20% in Vodaphone’s assessment of new vendors.
Along with climate action, Digitalization is an opportunity for the sector to help bridge the social ‘Digital Divide’, and bring SMEs to the table for win-wins. In fact, a recent survey also found that 92% of the 25 leading global mobile operators today are reporting on their digital inclusion initiatives, with Gender Diversity being a specific driver in the sector. Furthermore, I-Prove states that Telecom SMEs can help not only protect customers but also strengthen their own brand reputation, and that of the larger systems they support.
Though in its early phases, there are some encouraging examples of UAE Communications Services and global sector players stepping up their ESG game. Key areas of opportunity encompass digital access and cybersecurity as well as working on reaching broader net zero goals through procuring clean power. According to SASB research, the ESG/Sustainability issues that will drive competitiveness within the Telecommunications Services industry (a major component of the GICS Communications Services sector) include:
| Environment | Managing the environmental footprint of large and expanding network infrastructure and equipment Managing the end-of-life of telecommunications equipment and devices in a responsible manner |
| Social | Ensuring the privacy of customer data through effective data use policies and managing government relations or business strategy on issues related to data privacy Balancing the need to expand revenues in the face of increasing competition with preventing engagement in anti-competitive practices |
| Governance | Managing the increasing risk of cyberattacks, particularly for cloud-based services and business or government customers in sensitive sectors
Managing risks to networks and operations that could potentially create systemic or social disruption |
