Post-COP26, the tech sector is squarely in the spotlight. COP26 gives us a clear direction of travel – and the world needs the tech sector to lead the way. Those operating in this space will need to make firm choices to future-proof their business – choices around which "ESGtech" solutions to pursue, “ESG by design” and investment options for growth.
The opportunity for the tech sector
While global COP26 government commitments might not have delivered everything for which we had hoped, COP26 has now firmly established a clear direction of travel: net zero is the imperative. It is not a case of “if?”, but “when?”. There is also undoubtedly a groundswell of global social opinion and impetus from the investor community in the same direction.
With many details still to be ironed out (including issues of taxonomies and metrics) and with a landscape (and ESG rules of engagement) likely to change even further over time, the tech sector is no stranger to operating in uncharted territory and it now truly has the opportunity to step up and deliver. The world needs it to do so. Those brave and fast enough to act will reap the rewards of competitive advantage and can seize the high ground.
Tech solutions, the tech stack and data
The world needs the tech sector to deliver technology solutions to power the net zero transition - solutions like:
- deep science solutions (think clean hydrogen solutions and carbon capture tech)
- tools for optimisation and efficiency (think robotics)
- low or no carbon substitutes (think drone delivery and Teams meetings as alternatives to transport).
The tech sector will need to develop and roll-out not only tech end-solutions to help solve our climate crisis, but also key components of the tech stack and ecosystem of the future to support this – think quantum computing, IoT, AI and blockchain (for example, to ensure sustainable provenance of critical raw materials like lithium). Data will also play a key role: what data we collect, and how we manage, share and use it (for example, to track climate change and deforestation).
We are likely to need a balance between tech solutions which can be implemented in the short term (such as moving to the cloud) and also in the longer term (such as clean hydrogen and carbon capture tech which are still a fair way from commercial reality). Key areas likely to be revolutionised by this drive for new technologies include energy, mobility, land use and agriculture, the built environment and industrial and business process.
ESG by design
The global community will be looking to the tech sector to lead the way by conducting business responsibly. While each business is at a different level of maturity in framing and delivering on its net zero commitments, all those operating in the tech sector will need to get their house in order, and should consider an “ESG by design” model:
- ESG strategy - This starts with a “top-down” approach: a robust and credible ESG strategy setting out crystallised ESG objectives (which, in this fast-paced landscape, will require regular review). The strategy should permeate the business at every level and function, such that the business can be built from the “bottom up” - every decision should align with the overall ESG strategy.
- Transition plans and disclosures - Some governments are starting to consider requiring climate transition plans - in the UK, this will be mandatory from 2023 for listed companies, asset managers and regulated asset owners (read more). Some regulators are already calling for business to make decisions on ESG objectives and disclose those to stakeholders (read more here and here). Even without prescribed climate targets, this creates a framework for each business to be measured against its voluntary climate commitments. Every decision and action will also need to be assessed to ensure it does not amount to greenwashing (read more). There will be nowhere to hide.
- Holistic view of ESG - Gone are the days of only looking within – each business should adopt a birds-eye view over its entire value chain for a holistic understanding of its ESG impact, including upstream and downstream. The shift towards including Scope 3 emissions compounds this for the tech sector.
- Stakeholder engagement - Those in the tech sector will need to work more closely with suppliers, employees, customers and other stakeholders to ensure their business is built on sustainable foundations, and to ensure that all functions in the business are working to achieve aligned ESG goals.
A more competitive investment landscape
Against the backdrop of increased public sector investment promises (read more here and here), coupled with heightened social pressure (no more “blah blah”) and investor scrutiny (read more), the tech sector is likely to see a far more competitive investment landscape, with more funds chasing net zero opportunities. Here, we are likely to see a chasm developing between businesses that embody sustainability objectives, and those that do not. We will also need to find solutions to bridge additional risks posed by investment opportunities located in emerging markets.
Those developing “greentech” solutions and operating sustainable business models will likely be courted by a range of investors circling net zero investment opportunities, while stubborn reliance on carbon intensive tech, without a clear articulated vision to transform, may impact on access to and the cost of capital. This could result in a natural culling from the market – in this new world, sustainability may be key to survival.