Extracting value from sustainability in the TMT industry

The TMT industry, which encompass the Technology, Media, and Telecommunications sectors, has the potential to make a highly positive environmental impact globally, both through its own actions and as an enabler of other sectors.

Currently, the industry accounts for between 2% and 4% of greenhouse gas emissions and is estimated to reach 14% by 2040, due to an increase in the use of data and devices worldwide.

The report "Extracting value from sustainability in the TMT industry," developed by Monitor Deloitte, examines how companies in the sector can seize all the opportunities offered by investing in sustainability and enhance their financial objectives.

The importance of sustainability in the TMT industry

In order to gain a deeper insight into the environmental impact of the TMT industry, it's important to highlight certain key facts. For instance, manufacturing a smartphone requires 70 kilograms of natural resources and generates CO2 emissions equivalent to those produced by 80 washing machines. If we take computers instead of smartphones, these numbers increase significantly, as 240 kilograms of natural resources are needed for their manufacturing.

The demands on the TMT industry in terms of sustainability are not only driven by these figures but also at a legislative level. The number of EU regulations and normatives facing the sector's companies is growing, demanding specific measures to reduce the environmental impact of businesses and increase the reporting requirements on environmental aspects.

Although some of these initiatives are accompanied by financial assistance to ease the transition and mitigate its impact on organizational financial outcomes, significant private investments are still necessary to meet the economy's decarbonization goals.

There is a shared opinion among TMT industry CEOs whereby sustainability is conceived not only as a social responsibility but also as a business opportunity

Accelerating sustainability in the TMT industry

Indirect emissions produced in the value chain of companies in the TMT industry account for more than 90%, of which 20% to 40% are attributable to suppliers. This highlights the importance of acting on sustainability with both suppliers and consumers.

If we analyze the commitment to sustainability among sectors, Telco has set the most ambitious reduction target (66% by 2030), although it has only achieved a 18% reduction as of 2021. Meanwhile, the Tech sector has made the most progress towards meeting its 2030 goals (49%).

Regardless of the degree of progress and previous commitment, the report identifies four key enablers that companies in the industry are working on to achieve emission reduction goals. These range from the generation and consumption of green energy sources, increase resource efficiency, reducing the impact of markets, products and services, and enhancing resilience.

However, accelerating sustainability in the TMT industry requires generating a greater impact with the initiatives, since there is potential for improvement in the ESG ratings of companies in this industry.

Four mechanisms for creating value and financial impact through sustainability

Funds allocated to sustainability should not be seen as an expense, but as a valuable investment. As the study shows, sustainability strategies can enhance EBITDA by a range of 5% to 15%, depending on the measures adopted and the effectiveness of their implementation.

For industry companies to create value and financial impact through the implementation of sustainable initiatives, the report identifies 4 key mechanisms:

1. Social perception and brand: Generationof a strong social commitment with the client for their involvement in thebrand's values
2. Attraction of external investment: Attractinginvestors whose focus and prioritization lies in the search for companies thatare socially responsible.
3. Creation of new revenues: Commercialization of sustainable products that allow customers to optimize energy consumption and the use of natural resources.
4. Cost optimization: Through the integration of new technologies or the improvement of infrastructure, carrying out intelligent resource management.

The value of the opportunity associated with sustainability

Placing the customer at the center of sustainability initiatives will be crucial, as more than 80% of the potential value from sustainability in TMT lies in initiatives related to the development of new markets, products, and services.

It is estimated that currently, TMT industry companies only extract between 0% and 25% of the opportunity's value, considering the time component and performance. Most of the identified and reported initiatives consider the medium term (around 2030) for their initiatives to be deemed mature. It is expected that in the long term (between 2040/50), all companies will complete their commitment to net-zero emissions. In this sense, defining a detailed plan for the development of sustainable initiatives is key to maximizing the value of sustainability.

To accelerate value creation process and achieve improved outcomes in the medium and long term, Monitor Deloitte identifies five key levers, which must be integrated into a framework that triggers the initiatives with the greatest impact. Accelerating this dynamic will require a transformation plan, as each lever needs different capabilities and resources for implementation.