Many activities have a clear impact on climate, but for some, this is more obvious than for others. What, for example, are the CO2 emissions of reading this article on a mobile? Or of the electricity powering datacentres and networks? Their carbon footprint is larger than you think. Plenty of opportunities for asset managers that can identify companies able to benefit from the related decarbonisation tailwinds, writes Berenice Lasfargues.
On their own, these activities are specks on the global carbon footprint. But consider your browsing alongside the estimated 5.35 billion people with internet access or your phone usage besides the 8.58 billion mobile phone subscriptions in the world – collectively, these use a vast amount of power. And that is without considering the digital infrastructure that processes and stores data and keeps digital devices connected to wireless networks.
The scale is hard to comprehend. Estimates suggest the information and communication technology sector emits the same volume of emissions as aviation – 2-3% of the global total.
What is even more troubling: the digital industry is one of the faster growing emitters today. The energy consumption by one euro invested in the digital industry has been rising by 37% since 2010. Its share of GHG emissions has doubled between 2013 and 2018.
And the prospects are not rosy. Despite consuming less energy than 4G for similar performance, 5G deployment could substantially increase the sector’s overall emissions due to the ‘rebound effect’: performance gains of digital technologies are fully absorbed by growing usage. Data traffic is expecting to grow by 30 to 60% in the coming years.
This is why despite a potentially positive contribution to the energy transition (see below), the European Commission has not classified IT sector activities as making a direct contribution to climate mitigation objectives under the EU taxonomy.
The Commission considers ‘data-driven solutions for GHG emissions reductions’ and ‘data processing, hosting and related activities contributing to climate mitigation’ as enabling and transitional activities, respectively.
IT’s carbon footprint can be expected to only rise: with the apparently unstoppable advance of artificial intelligence and another boom in cryptocurrencies that will require vast amounts of electricity, research predicts the sector will emit 830 mega tonnes of CO2 by 2030 assuming the usage of devices and electricity remains unchanged.
Well placed for decarbonisation
Using renewable energy can play a key role in ensuring the sector’s emissions do not grow at the same pace as the sector itself, but more slowly. IT’s emissions depend heavily on the type of electricity used and the lifecycle and use of IT products and services (its so-called scope 2 and scope 3 emissions, respectively).
As the economy becomes increasingly electrified and renewable energy-focused, the decarbonisation of the IT sector can be expected to accelerate.
How? Electricity powers datacentres, devices and connectivity infrastructure. The related emissions represent the bulk of the sector’s GHG output. Consequently, as the share of renewable energy of the electricity mix grows, IT’s carbon footprint should shrink.
Similarly, as the energy efficiency of vehicles, machinery, and industrial processes improves, IT’s scope 3 emissions should fall. These include emissions from mining the minerals used in digital devices such as copper, cobalt, and manganese. They also include how consumers use and dispose of digital devices.
Devices’ GHG vices
So where do IT’s GHG emissions come from?
Contrary to widespread belief, most come from end-user devices rather than datacentres. Estimated electricity consumption by global datacentre was 240-340 TWh in 2022, or 1-1.5% of global electricity demand.
Since 2010, datacentre electricity consumption has grown only modestly despite the rapid increase in the number of digital devices. The International Telecommunications Union forecasts that the worldwide electricity consumption of devices (excluding TVs) will rise by a third from 335 TWh in 2020 to 450 TWh by 2030.
Although devices emit more than datacentres, it should be noted that the arrival of gen AI has caused datacentres to start building large energy-intensive AI supercomputers. At the same time, there is a growing need to store and move sizeable quantities of data, which can also be energy intensive. The result could be a boost in datacentre emissions.
Mitigating this impact, many datacentres or the regions hosting them are looking to expand cheap electricity generation to reduce operational costs, focusing on solar and wind to contain their carbon footprints. There creates – investment – opportunities in companies that provide alternative energy and energy efficiency solutions for datacentres.
Facilitators of change
As consumer demand for digital devices grows, policy changes will likely be required to promote decarbonisation such as encouraging purchases of second-hand or refurbished devices and stimulating IT manufacturers to reduce emissions during production and in supply chains.
Not only is IT likely to make material progress on decarbonisation because of global shifts in power production, appliance manufacturing and consumer behaviour, it can also facilitate decarbonisation in other sectors by improving operational efficiencies, replacing emission-generating activities or technology with cleaner alternatives, and recycling used materials.
For example, AI can help improve efficiencies in sectors such as transportation and energy production. Transport for London began integrating AI and simulation technology to identify disruptions in the UK capital’s road network in 2021. The technology aims to save travel time, improve the sustainability of London’s roads, and enhance roadwork management.
AI can also play a role in forecasting and balancing renewable electricity supply and demand, which is helpful since solar and wind energy are typically available only intermittently.
Consulting firm Indigo Advisory has identified over 50 potential green applications of AI in the energy sector. It has estimated the market value for AI in this sector at USD 13 billion.
IT firms can promote a circular, modular approach to devices, enabling consumers to repair, re-use or recycle digital devices. For example, Fairphone smartphones are made from recycled and responsibly sourced minerals; components can be replaced without any technical expertise. If this approach is rolled out widely, scope 3 emissions could fall greatly.
Additionally, initiatives are enabling IT and infrastructure firms to recycle power and distribute it to other sectors. For example, tech start-up Deep Green has piloted a scheme using excess heat from computer datacentres to warm swimming pools, potentially reducing energy bills for up to 150 public pools and help address rising energy costs.
What can asset managers do?
Being at the forefront of innovation – particularly amid the AI boom – the IT sector can be a powerful facilitator of decarbonisation elsewhere. At the same time, the sector itself has its own decarbonisation challenges.
By applying their ESG (environmental, social and governance) research, stewardship and proxy voting, asset managers with IT companies in their portfolios can play a significant role in guiding investee companies on decarbonisation.
They can also actively invest in companies that provide alternative energy and energy efficiency solutions for datacentres, thereby accelerating decarbonisation across the entire – increasingly IT-dependent digital – economy.
