Wireless infrastructure – ESG and environmental challenges

August 2022  |  TALKINGPOINT | SECTOR ANALYSIS

Financier Worldwide Magazine

August 2022 Issue

FW discusses ESG and environmental challenges for wireless infrastructure with Rolf Meakin, Florian Gröne, Ralf Grammel and Barry Murphy at PwC.

FW: Could you explain why the environmental, social and governance (ESG) agenda is especially important for companies in the technology, media and telecom (TMT) sector today?

Meakin: Technology, media and telecom (TMT) companies have a material impact on the environment and on diversity, equity and inclusion across society and the productive economy. For example, the telecommunications infrastructure that allows individuals, companies and governments to communicate typically consumes around 1 percent of a country’s total electricity consumption. The ongoing rollout of the next generation of ultra-high-speed communications networks will enable greater economic inclusion and have the potential to improve energy efficiency. In the tech sector, the coronavirus (COVID-19) pandemic has accelerated the trend of moving computing to the cloud and enabled new ways of working, but has also created a burgeoning demand for power-hungry hyperscale data centres. Shifts in media consumption from broadcast models to streaming increase the demand for energy efficient networks and data centres. And so, the integral nature of the TMT sector to the way people live and work today means that demonstrating leadership toward environmental, social and governance (ESG) goals, such as the reduction of greenhouse gas emissions, responsible water consumption and the promotion of biodiversity, will be important for the relationship between companies in this sector and their key stakeholder groups, particularly employees, customers and government policymakers.

Gröne: With regard to ESG, the TMT sector is somewhat unique. While TMT companies need to meet ESG compliance obligations like every other sector and work toward positive environmental or societal impact, their products and services will be essential to enable other sectors to meet their respective ESG goals. For example, generating clean energy and orchestrating net zero manufacturing operations will require cleantech innovation, infrastructure and systems, network connectivity, internet of things (IoT) sensors, data analytics and software – all of which are at the core of what the TMT sector provides.

FW: In your opinion, what are the most important elements of ESG that TMT companies need to focus on?

Gröne: Accelerating the TMT sector’s path to net-zero emissions, while enabling the global economy and society to achieve the same, is directly tied to the climate crisis as an important challenge of our time. But there is no shortage of additional missions that require focus, such as advancing the circular economy, retooling responsible supply chains and addressing the sector’s electronic waste challenge, building and operating digital infrastructure and services with inclusive, equitable and secure access to users, safeguarding information integrity and privacy, and ensuring the ethical use of artificial intelligence (AI) and crypto technology. For those TMT companies that lead their respective markets, whether it is hyperscale digital and cloud players, chip makers or telecom carriers operating in de-facto local oligopolies, shaping responsible governance practices around principles such as transparency, balance in oversight and a credible commitment to generating value to society will be a matter of ongoing concern.

Meakin: Two of the most important elements to focus on are reducing energy consumption and making clear commitments and setting targets which are then achieved in an objectively measurable way. One thing to avoid is the appearance of ‘greenwashing’ operations simply to create the appearance of having an ESG agenda without deeply committing to necessary operational changes. One of the necessary changes is to make continual improvements to energy efficiency part of the company’s DNA. This is a necessity as digital demand will inevitably grow as new applications are invented, and this will drive the need for higher capacity, faster networks, more computing power and more megawatts of data centre capacity. To achieve this continual improvement, companies need to make greater use of automation and AI in their core operations, but also change their behaviour and ways of working. Having clarity on a company’s ESG goals is important, to then commit to and deliver a set of stretching but achievable targets. Employees are increasingly focused on the authenticity of companies’ ESG commitments and want to see action and progress, not just rhetoric.

FW: To what extent do these themes and actions require a fundamental rethink of strategies and a reorientation of the way TMT companies are run?

Gröne: Given the multitude and magnitude of the challenge, and opportunity, ESG is quickly evolving from a discrete compliance obligation to a transformational agenda that touches every aspect of how companies are run. Forward looking boards and chief executives are making ESG integral to corporate strategy, reshaping what we call a company’s ‘authentic identity’, and in ever more cases tying executive compensation to ESG goals. This provides the context for revamped planning, steering and control systems that embed ESG performance into research and development, product marketing and sales, operations, supply chain, human resources and finance. This, in turn, requires a fresh look at organisational structure, decision rights and governance, as well as revamped data management and information systems to run an ‘ESG ledger’ equivalent to an enterprise resource planning (ERP) capability. Finally, ESG goals need to be tied to mindset, desired leadership and front-line behaviours, so organisational culture can evolve.

Meakin: The change required is fundamental and wide ranging. But the challenge is how to achieve multilateral changes while still delivering on commercial, customer and financial goals? This will require breaking down overarching goals, such as scope 1, 2 and 3 greenhouse gas emissions and single use plastic reduction, to specific functionally aligned targets and guide rails. Examples of this could include making emissions or circularity key criteria for business case acceptance for new products and capital expenditure, as well as key considerations in vendor and partner selection. Making these new and additional business disciplines stick will require executive level sponsorship, monitoring and reporting. While many companies are making this an extension of existing sustainability, supply chain or people management roles, leaders in this area are seeking to elevate the role to the C-suite by defining roles such as chief diversity and productivity officer. Multiple approaches are possible, and responsibilities can be federated in the C-suite, but making sufficiently rapid progress will require this level of oversight with a strong link to executive incentives and rewards.

FW: What steps can TMT companies take to gain a competitive advantage from implementing an ESG-centric strategy? What advice would you offer?

Gröne: Speed and focus on innovation and commercialisation can unlock significant rewards for TMT companies. The enterprise software sector’s race to bring ‘sustainable’ software as a solution (SaaS) to market that digitally enables carbon accounting across scopes 1, 2 and 3, or provides transparency across responsible supply chains, is just one example. For sustainable innovation at scale, TMT companies might start by taking stock of the ESG impact across their existing products and services and capitalising on initial opportunities from marketing the positive ESG traits of their offerings, such as commercial innovation. Next, truly understanding customers’ ESG wants and needs can point to opportunities to assemble, evolve or expand existing capabilities so they can provide effective new solutions, such as product and service innovation. Finally, TMT companies can look to join forces with players in other industries to solve ESG problems and effectively make new markets, be it by connecting industrial sectors across scopes 1, 2 and 3 of decarbonisation, embedding circular economic principles into end-to-end supply chains from raw materials to manufacturing to retail distribution, or by providing ‘good’ sustainable behaviour with currency, a ledger and rewards, from commerce to mobility to financial services, such as ecosystem innovation. Sustained competitive advantage will most likely come from a carefully constructed portfolio of initiatives across multiple innovation horizons.

Meakin: TMT companies can gain a competitive advantage in at least three ways. First, through expanding into adjacent sustainable business areas where their capabilities are relevant. Second, by connecting with customers on an emotional level by understanding their ESG wants and needs and creating products and customer support interactions which demonstrate that understanding. Lastly, by attracting investors who are seeking to invest in ESG-aligned businesses. An example of an adjacent sustainable business area for which TMT companies have relevant capabilities could be telecom companies providing storage batteries as a service to home broadband customers with AI-optimised home control, and battery charging and utilisation algorithms linked to the plethora of home connected devices. This would leverage their technical engineering field force for installation and maintenance, their home connectivity anchor point as provider of the broadband hub and their trusted billing relationship which could be used to show financial savings from energy efficiency to consumers who are experiencing an increasing cost of living due to escalating and volatile energy prices.

Grammel: Tax reflects a TMT business’s contribution to society, and we have recently seen public challenges on tax in the TMT sector that emphasises this point. Today, given the changing reporting landscape, having a clear and compelling story on an organisation’s approach to tax strategy is also a value driver in delivering TMT businesses’ ESG goals. What makes this reporting and transparency challenge even more acute is that the tax landscape is rapidly evolving as governments focus on policy levers such as incentives for low-carbon technologies and upskilling employees, and taxes to discourage waste and pollution.

Murphy: There is also a clear need for governments to repair their post COVID-19 balance sheets, so the demand for additional tax revenue is not expected to slow down. TMT tax strategies should be reviewed to see how they can be adapted to support the transformation happening in operations, and business models. Tax strategies through an ESG lens means considering tax implications for every part of a TMT business and being able to clearly explain to stakeholders how it makes its decisions on the choices inherent in dealing with complex tax systems.

FW: What benefits await those TMT companies that commit to embracing the ESG agenda?

Gröne: Given the fundamental transformation inherent in the ESG agenda, it seems impossible to single out any one opportunity and challenge. Companies that succeed in reshaping an ESG-centric strategy and then bring a new ‘authentic identity’ to life by leading with speed and conviction, crafting and executing a thoughtful ESG transformation plan, and galvanising the organisation around it, will stand to gain the most.

Meakin: The chief executives of many telecoms companies are currently looking to reposition their stocks as more tech-sector aligned, given the utility-type multiples being applied to the telecoms sector. Simultaneously, many tech and media company leaders are very sensitive to how their ESG impact is perceived by end users, given their pervasive presence in consumer markets. Getting ESG strategy right could help companies to reposition a ‘utility’ stock as an innovative, technology-powered force for good. Getting it wrong could cause the tide to turn quickly on consumer adoption of a company’s tech and media products.

Rolf Meakin is a strategy partner specialising in the technology, media and telecommunications (TMT) sector. He serves clients in the UK and internationally in the areas of strategy, transformation, capital allocation and operating model change. He previously led PwC’s telecommunications industry consulting practice for 13 years, both globally and in the EMEA region. He has over 25 years of experience in the TMT sector and has worked for telecoms clients in over 60 countries around the world. He can be contacted on +44 (0)7801 247 667 or by email: rolf.e.meakin@pwc.com.

Florian Gröne is a partner with PwC’s Strategy&, advising telecoms, media and technology businesses on matters of corporate strategy, growth, digitisation, operating model evolution and cost transformation, primarily across Europe and North America. He leads PwC’s global consulting practice for the telecommunications industry. With 20-plus years of strategy and transformation consulting experience, he currently serves his clients from Berlin, Germany, after almost a decade based out of New York City. He can be contacted on +49 (170) 223 8844 or by email: florian.groene@pwc.com.

Barry Murphy is a partner at PwC based in London. He has led the delivery of global service to technology, media and telecommunications (TMT) clients for over 20 years on all aspects of start-up, growth, and M&A across domestic and international tax issues. He is also the global leader for environmental, social and governance (ESG) across PwC’s tax, legal and people services. He can be contacted on +44 (0)771 554 6419 or by email: barry.murphy@pwc.com.

Ralf Grammel is a partner within the tax department at PwC Germany, based in Cologne. He is PwC EMEA telecommunication, media and technology tax leader. His areas of expertise include international tax advice for and tax audits of multinational clients as global tax lead partner, sell-side and buy-side deals projects, such as tax due diligence and post-merger integration, deal structuring, SPA assistance and financing, and strong telecoms and technology experience. He is a German tax adviser and a co-author of a number of commentaries on German and international tax and a speaker at various tax symposia. He can be contacted on +49 221 2084 222 or by email: ralf.grammel@pwc.com.

© Financier Worldwide

THE PANELLISTS

Rolf Meakin

PwC

Florian Gröne

PwC Strategy& US

Barry Murphy

PwC United Kingdom

Ralf Grammel

PwC Germany