Most business leaders would like to run an environmentally sustainable company, one that does little harm to the natural world and that leaves its employees and customers healthier. Few companies have been able to put that ideal into practice because they haven’t had the data. But now they do.
Enevo, a Finnish company that makes devices for “smart” waste disposal, could not exist if it weren’t for the Internet of Things. Its devices feature embedded sensors and analytic software. They enable waste companies to plan pickups when waste bins are full, rather than at set time periods, making collection of waste more efficient and reducing costs.
In traditional industrial terms, digital technology and environmental sustainability seem mutually exclusive. The factors that propel them are unrelated. One is driven by sweeping technological change brought about by the Internet of Things, artificial intelligence (AI), and robotics, all promising to transform global manufacturing, industrial processes, and labor. Put simply, it’s about efficiencies.
The other is driven by a combination of climate and environmental degradation and geopolitical instability, all of which demand a new approach that prioritizes resource conservation and environmental governance — and in particular redoubled efforts to de-carbonize the atmosphere. Businesses increasingly recognize that it will be impossible to meet the world’s growing demand for products and services purely through a linear increase in production and consumption. People won’t be able to address the ecological and social challenges of the day without fundamental business model innovation. Moreover, unsustainable practices such as the release of toxic emissions can no longer be hidden.
But the two concepts, digital technology and environmental sustainability, are often mutually reinforcing. And we would go further: Without digital technology, it is hard for companies to ease their pollution footprint or manage waste. Without a full understanding of sustainability, the energy drawn by computers can be wasted.
Bringing digital prowess and sustainable practices together should be at the forefront of strategic thinking for any business — as a way to differentiate itself and gain long-term viability among customers, regulators, and the communities where businesses operate. In fact, it may even be essential.
Combining Digital Expertise and Sustainability
In practical terms, the two concepts, properly combined, can bring myriad benefits. In a report (pdf) published in January 2018, PwC identified 80 ways in which AI technologies could be used to benefit the environment, including optimized energy system forecasting; demand-response charging infrastructure in transportation; analytics and automation for smart urban planning; “hyperlocal” weather forecasting for crop management; and supply chain monitoring and transparency (see “AI Applications for Climate Change”).
Indeed, the low-hanging fruit here may focus on transparent supply chains and the sustainable sourcing of raw materials. Consumer products companies and retailers can seek better ways of validating supply chain claims, using digital tools and sustainability. This could be called business value.
Many companies see an opportunity to drive their sustainability goals through digitization in the supply chain. “We are seeing more companies applying high-tech, data-centric applications to their source patterns,” says Michael Rohwer, associate director, information and communications technology at Business for Social Responsibility, a global nonprofit organization that works with 250 companies to help them move toward greater sustainability.
Knowing Your Assets
In the past, it was not uncommon for companies to know little about their assets or products after they were made and sold. So a great deal of waste has unwittingly been built into the manufacturing and consumption cycle. But by using digital technology such as electronic tagging, companies can start to harvest data about demand, usage, and the life cycle of products for “circular economy” benefits. A circular economy is one in which products are manufactured and services provided with a focus on the reuse of materials and a reliance on renewable resources, for the benefit of the environment.
Bringing digital prowess and sustainable practices together should be at the forefront of strategic thinking for any business.
For example, consumer electronics manufacturer Philips is using digital technology to capture more information on the product life cycle in order to reduce waste. The company’s analysis of the secondary market for components revealed that its customers had opportunities to reuse certain parts and thus extend the life of some existing equipment, such as X-ray machines. This meant that not only could the customer lengthen the life of the equipment it had bought, but Philips could develop an ongoing relationship with its customers that it hadn’t had before.
What’s often known as Industry 4.0 encompasses a range of digital improvements that can be applied to manufacturing companies. Better data capture of assets should enable manufacturers and users of products to better understand the life cycle of their products. Such an understanding has many business benefits, but could also be used to increase efficiency in use and to encourage the reuse or remanufacturing of assets at the end of their normal working life.
Electric vehicle charging will become more affordable via demand-response software programs enabled by big data (such as those published by AutoGrid Systems). Clean, smart, connected, and increasingly autonomous and shared short-haul transport will combine AI with other Industry 4.0 technologies, notably the Internet of Things, drones, and advanced materials (in battery breakthroughs, for instance).
In another example, mining companies are already reasonably advanced in their thinking concerning how to use digitization to source and track the raw materials that are used in consumer products — such as tracing and verifying the sources of metals used in mobile phones. And in power and transport, Norwegian hydropower group Agder Energi is using AI and the cloud to predict and prepare for changing energy needs in Norway, particularly given the rapidly increasing penetration of electric vehicles.
Better for Consumers
A number of programs are using digital technology to deliver social benefits. The M-Pesa mobile phone banking and money transfer application, developed in Kenya, has empowered people across Africa to make financial transactions without a bank. Plastic Bank, based in Haiti, is an organization using blockchain technology to support payment to plastic waste collectors, creating a livelihood for some of the world’s poorest people — on top of providing an incentive to collect the plastics that pollute the marine environment.
Such action also addresses matters of customer value, tackling rising concern about corporate sustainability among millennials, who are among the biggest customers of technology-enabled devices. New business models will need to prioritize producing better outcomes for consumers.
Getting the Balance Right
Yet as compelling as this interplay between digital technology and sustainability may seem, it is no panacea. Although digital technology and sustainability are mutually reinforcing, they do not always sit easily together. They are championed by different functions, for one thing.
For all the enormous potential digital technology offers for building a sustainable planet for future generations, it also poses short- and long-term risks. These can be divided, broadly speaking, into six categories with varying impacts on individuals, organizations, society, and the Earth (see “AI Risks”).
According to the authors of the PwC report, “The challenge for innovators, investors, and governments is to identify and scale these pioneering innovations, and also to make sustainability considerations central to wider AI development and use.”
It’s important, therefore, for businesses to approach these developments carefully, balancing the twin imperatives of driving efficiencies and ensuring social survival and resilience.
Recent developments in Iceland highlight how getting the balance right between the digitization of industry, finance, and other sectors and ensuring sustainable development is tricky.
Bitcoin mining — the process by which bitcoins are produced — is a highly energy intensive process. In fact, Icelandic energy company HS Orka recently warned that an “exponential” rise in bitcoin mining meant the use of electricity by bitcoin mining data centers could soon exceed the electricity needed to supply all of Iceland’s residential homes. This development raises serious questions about the growth of data processing and how it affects the ability of countries to reduce their carbon footprint.
Company-specific challenges with respect to data and carbon footprints are emerging, exposing companies to risks they might not initially have anticipated. Banks that are pushing into digital services, for example, are finding that the energy usage associated with processing ever-larger amounts of data is increasing their carbon footprint — in some cases pretty quickly.
Indeed, digitization is juicing up the links that private companies use to interconnect their networks to such an extent that Equinix, the world’s largest operator of data centers, predicted in 2017 that such bandwidth capacity at banks and insurers alone would grow by 61 percent annually until 2020. The growth rate of the bandwidth that enables private data exchange will by 2021 be double that of the rate at which the bandwidth of the Internet will be growing at that point. The implications for energy usage are dire.
In industry, digital processes such as 3D printing have clear attractions and are being pursued aggressively by some players. Yet even as the applications of 3D printing are obviously useful, the process can also result in significant waste as users experiment at the design phase, resulting in a lot of “misprints.” When sustainability goals are taken into consideration, 3D printing does not necessarily seem to be the manufacturing boon it may first appear. “With such a vast range of potential uses and applications for the technology, it is not easy to say whether 3D printing helps to protect resources or, conversely, it is just another source of waste; the environmental performance will vary depending on the product,” point out Stefan Schaltegger and Holger Petersen, both professors of sustainability management at Leuphana University of Lüneburg and Nordakademie of Elmshorn in Germany.
They suggest that sustainability managers should develop in-depth knowledge of 3D printing and assess its ecological impacts at an early stage, getting involved at the start of operational process planning.
This should lead to the creation of a symbiotic relationship between sustainability managers and IT managers. The former should engage immediately in the design stage of new digital processes, “so as to ensure no opportunity to map energy and resource use…is missed,” the professors say. For their part, IT managers “must recognize the relevance of their decisions to sustainability.”
Finally, societal impacts must be considered. Large-scale automation threatens to reduce employment in transportation, manufacturing, agriculture, and the service sector, among other industries. Probably most visibly, we already see the consequences of consumers’ enthusiastic embrace of ride-hailing services in certain cities: Traditional cab drivers have found themselves disintermediated by the economics of taxi apps. Some municipal authorities are starting to question the terms on which ride-hailing services are exploiting their drivers. The so-called gig economy looks less utopian in practice than it sounded in theory.
And societal impacts have an ethical dimension. The ethical and responsible use of AI involves three main elements: the use of big data; the growing reliance on algorithms to perform tasks, shape choices, and make decisions; and the gradual reduction of human involvement in many processes. Together, these elements raise issues related to fairness, responsibility, and respect for human rights.
What Should Be Done?
We think the application of digital technology requires a far more balanced sustainability strategy, one that understands and addresses its economic and social impacts. Indeed, the consensus view on digital technology’s contributions to the circular economy may be missing an understanding of its impact on society. This cannot be ignored as companies play their part in moving toward the United Nations’ 17 sustainable development goals (SDG 17) defined in 2015.
And although AI presents transformative opportunities to address the Earth’s environmental challenges, left unguided, it also has the capability to accelerate the environment’s degradation. If people are to develop “safe” digital technology, they must ensure that it aligns with humanity’s values, promising applications of the technology that do not harm humans or other species.
That’s why we think there is a third element to consider: social impact value, which focuses on minimizing environmental damage and maximizing value from extracted resources, building biodiversity, neuro-diversity, and community inclusion.
How should companies approach social impact value? As a first step, we recommend that companies establish board-level digital and sustainability advisory units to ensure that boards understand AI and other digital technologies, including considerations of safety, ethics, values, and governance. Companies should also ensure that their technology strategies optimize the effect digital will have on sustainability outcomes, both to capture new business opportunities and to manage risks.
We have developed six principles for a sustainability strategy in the digital age:
• Understand how the activities of your company create or reduce societal value by analyzing the types of activity; outcomes; and social, environmental, and economic impacts of the business.
• Rethink your products and services (e.g., their usage and design) and understand conflicting objectives.
• Engage strategically with an expanded list of your value chain stakeholders.
• Share economic wealth and develop markets in which circular economy principles apply.
• Create the management information needed to drive these issues in the operational activities of your business.
• Build capabilities and train employees to develop what could be called implicit sustainability managers.
All six principles require a strategy designed to pursue a sustainable balance of value creation with customers, suppliers, and society. We want to emphasize that this strategy is not intended to turn businesses into selfless organizations that disregard revenue, profitability, and performance improvements. Businesses with a sustainability strategy regard balanced value creation as the key imperative for the long-term viability of their business model and social license.
One of the leading approaches to deliver on this is PwC’s Total Impact Measurement and Management (TIMM) framework. We have worked with our clients, academics, and other experts to refine the framework, which is now recognized as a leading approach to identifying, measuring, and valuing impact.
Whatever method you deploy in your business, the solution needs to give you the breadth and depth of analysis to effectively integrate these considerations into strategy development and decision making in your business.
- Nils Naujok is an advisor to executives in the chemicals and steel industries for Strategy&, PwC’s strategy consulting business, and specializes in operating model development, supply chain management, and sourcing strategies. He is a partner with PwC Strategy& Germany, based in Berlin.
- Henry Le Fleming is a leading practitioner with the PwC sustainability and climate change team. He analyzes sustainability impacts for his clients, using digital technologies to improve environmental and social initiatives. Based in London, he is an assistant director with PwC UK.
- Naveen Srivatsav is an emerging technologies researcher with the PwC Experience Center. Building on his background as a policy analyst, he is also focused on public–private governance issues in sustainability and climate change. Based in Amsterdam, he is a senior consultant with PwC Netherlands.