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Europe keeps sustainability on the corporate agenda, despite the double-edged sword of cloud and gen AI

Cath Everett Profile picture for user catheverett May 24, 2024
Summary:
Has sustainability been sidelined in Europe due to economic and geo-political troubles? Research from Pierre Audoin Consultants would indicate a pretty resounding ‘no’ - although technology can prove a double-edged sword in getting your approach here right.

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(Pixabay )

Despite ongoing economic pressures and an increasingly troubled geo-political landscape, sustainability remains a corporate priority in Europe.

Such a statement may seem counter-intuitive given the apparently relentlessly negative headlines about the climate crisis, growing bio-diversity collapse, and corporate greenwashing scandals.

But according to a survey conducted among 550 C-suite executives in major European countries by Pierre Audoin Consultants (PAC), sustainability remains firmly on the boardroom agenda. At a webinar last week entitled ‘Has Sustainability Been Sidelined?’, Nick Mayes, PAC’s Principal Analyst, said the answer to that question is “a pretty resounding ‘no’”:

Sustainability remains a topic that’s seen as vital, if not existential, to the future of many businesses across Europe. More than 80% say it’s critical to their future survival at least to an extent, and there’s also pressure from multiple stakeholders.

As a result, more than four out of five respondents either strongly (37%) or somewhat agree (47%) that sustainability is one of their organization’s top strategic goals. Some 88% either deeply (40%) or somewhat (48%) believe their strategy here is key to attracting and retaining customers. A further 81% respectively consider sustainability as both critical to their ability to attract the best talent in future and to securing investment.

To illustrate the point, Mayes pointed to companies, such as German multinational sports brand Puma. Despite a volatile trading environment last year, it increased sales by 6.6%, while also cutting greenhouse gas emissions by 24% after moving to the use of renewable energy and recyclable materials.

Mayes also indicated that among 48% of those surveyed, sustainability has increased in importance over the last 12 months. For a further 38%, it is as important as it ever was. Only 14% say it has become less of a priority.

Even more significantly though, European organizations appear to be putting their money where their mouths are. Some 55% expect to increase their investment in sustainability this year, with only 17% anticipating budget cuts.

But employers do face multiple challenges in implementing effective programmes here. Top of the list is meeting new regulatory compliance requirements, which 31% perceive to be a major issue. Next comes access to the right tools, technologies and platforms, (28%). Third is the perennial problem of finding the right skills and talent (25%).

Tackling key sustainability challenges

In tech terms though, Mayes pointed out that a key issue was simply the splintered nature of the software and tools market here, which is making it a “tough one to navigate”, saying: 

Given the explosion that we’ve seen in the number of tools that are available for collecting and processing and reporting data relating to sustainability, perhaps too much choice is one of the issues here. We’re seeing the big ERP platform providers ramping up their ESG reporting functionality in recent years in asset-centric industries like manufacturing and utilities. You’ve also got organizations that are having to process data across the operational technology, the OT environment, as well. There are few magic bullet solutions that actually cover the whole piece today. You have to identify and work with a number of different tools in many cases. So, it’s not a straightforward task.

Another big challenge is the need to change the organization’s culture to embed sustainability into ways of working. As Mayes observed:

This is something I think is absolutely fundamental to the success of any sustainability strategy. You can throw all the investment, software, marketing you like at the issue, but unless you fundamentally change the way the entire organization works on a day-to-day basis, it’s going to be very, very difficult to turn the oil tanker around, so to speak. So, 70% of organizations cite this as an issue.

As to what companies are focusing on here, changing procurement practices in line with their sustainability targets is top of the list. This is because it is “seen as a kind of armor-piercing tip” to drive real change (60%), Mayes said. BT was cited here as an example of good practice in that it prioritizes sustainability criteria when selecting partners.

But a full half of the senior executives questioned also indicated that sustainability targets were driving their business investment decisions. To this end, they are “practically harnessing AI” and using it to guide them in making the right choices here, Mayes said.

Other approaches to encourage change in day-to-day working practices though include adopting new leadership incentives (36%) and salary incentive packages throughout the organization (25%).

For instance, Mayes cited an unnamed manufacturing company that was keen to improve the energy efficiency of its core production machinery. As a result, it presented systems performance data to its machine operators via a screen. It also promised a bonus on top of their hourly basic rate if they hit efficiency targets.

The upshot was not only a cut in carbon emissions and reduced energy costs. It also led to changes to way the machine operators did the job.

Legislation as a sustainability driver

One of the drivers behind European companies’ growing focus on investing in sustainability, meanwhile, is European legislation. This includes the Corporate Sustainability Reporting Directive. German companies are also subject to additional national regulation in the form of the Federal Climate Change Act and Supply Chain Act.

As to how ready organizations believe they are to deal with it, a majority (55%) indicate they are in the process of putting the necessary processes and tools in place. A quarter – “rather optimistically”, believes Mayes - say they are fully on top of the issue. A further 18% admit they are “just starting to get the wheels in motion”. But, Mayes pointed out:

The stakes are going to be very high here, particularly for mid-sized organizations that perhaps don’t have the same sort of financial safety net as larger enterprises. But if you look at what non-compliance in a country like Germany could mean, we could be talking fines of up to €10 million or five percent of annual revenue. These are very, very meaningful figures that we’re talking about, and something that needs to be addressed at speed.

But there are undoubted barriers to making such regulatory compliance easy. A lack of adequate skills is considered the biggest one (33%). This is followed by poor quality data (31%) and a lack of data processing and analytics tools (30%). As a result, Mayes said:

Technology represents a major opportunity, I think, for sustainability strategy leaders to improve the level of insight and how quickly they can move on this topic. One of the big challenges highlighted by the study was an ongoing overdependence on manual efforts. We found that pretty much half of businesses still rely at least partially on manual effort to track and measure their carbon footprint, and only 18% claim to have a single pane of glass view across the whole organization.

This means there will be a very strong, short-term focus on data collection, management and reporting activities in these markets, Mayes believes. He added:

There’s a very close correlation between those organizations that have made real momentum on their sustainability strategies so far and organizations that have got a very robust approach to their underlying data strategy. In the electronics space, Philips would be a great example.

The double-edged swords of cloud and gen AI

As for cloud computing, Mayes expects to see a steady increase in investment in both hybrid and public cloud services over the year ahead. But although more of the data organizations need to harness in their sustainability programs now resides in the cloud, he warned:

Almost half of businesses state that sustainability considerations play a major role in shaping their cloud strategy. But the adoption of cloud services can represent something of a double-edged sword. Of course, there are some potential energy efficiency gains that can come with the economies of scale the big hyperscalers provide. But many companies are also struggling to keep on top of both the scale at which cloud services are deployed across different parts of the organization and the parallel rises in cost and energy consumption. So, what we’re seeing now is a period of reflection for many cloud strategy leaders who are looking at how they can take it forward in the next phase in a much more efficient manner than they have done to date.

Mayes pointed to generative AI as another such sword in terms of its potential sustainability impact:

There’s some really interesting medium-term potential perhaps in terms of how you can generate reports on ESG data, particularly the potential to hook it into IoT sensor connectivity to harness that data and automatically report it. It will be a very compelling proposition for many organizations down the line. But at the same time, it consumes massive compute resources and underlying energy resources at the back end. Most of us have seen the stats that a single image produced on the Dall-E platform is equivalent to a single mobile phone charge in terms of power consumption.

My take

While technology will undoubtedly have an important part to play in helping organizations create an effective sustainability program, as ever, it needs to be treated with caution. To use a cliché, there are no silver bullets and if used carelessly, it can do more harm than good. It’s also vital not to underestimate those all-important cultural aspects because if you can’t embed behavioral change into the organization, you’re on a hiding to nothing.

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