Connecting to a Sustainable Future: ESG in the Telecommunications Industry

As the modern world becomes increasingly interconnected, the telecommunications industry serves as the backbone of the digital revolution. This is reflected in MSCI’s 2021 study, which revealed that over $1.1 trillion of investment in communications is in ESG mutual and exchange-traded funds. 

With an influential position, ‘Telco’ companies hold a substantial role in shaping a more sustainable and socially responsible future. In this blog post, we will explore key topics shaping the future of ESG and ESG reporting in the Telco sector, including:

• ESG Considerations & Climate Impact 
• Frameworks & Associations 
• Key ESG Reporting Metrics 
• ESG Developments - Internet of Things (IoT)
• The Future of ESG Reporting

If you want to gain an insight into how we work with large Telco companies to enhance their ESG reporting, see our case study with Vodafone.

ESG Considerations & Climate Impact

In the Telco industry, ESG considerations are vital due to the industry's significant environmental impact, social influence, and governance responsibilities. Key aspects include energy consumption and e-waste management (Environmental), digital inclusion and data privacy (Social), and transparency and ethics in corporate governance (Governance).

These ESG considerations are not only central to ethical and sustainable operations but are also intimately tied to the industry’s broader role in combating climate change. This becomes especially apparent when examining the greenhouse gas (GHG) emissions associated with Telco activities. 

While Scope 1 emissions (direct emissions from owned or controlled sources) and Scope 2 emissions (indirect emissions from purchased electricity, heat, or steam) are important to address, Scope 3 emissions are responsible for 80% of overall emissions within the Telco Industry, offering an opportunity to influence a larger portion of the industry's environmental impact.

Scope 3 emissions refer to indirect GHG emissions that occur in a company's value chain but are not directly under its operational control. For Telcos, this often includes sources like:

• Manufacturing of network equipment and devices
• Supply chain activities, including production and transportation of components
• Customer use of products and services (e.g., energy consumption of smartphones and data usage)
• End-of-life disposal of electronic equipment

Frameworks & Associations

The role of ESG considerations in Telco, especially climate change, brings the industry under the lens of global reporting standards. The framework and association below, GRI & GSMA, help guide how Telco companies measure, manage, and report their ESG impacts.

GRI

The Global Reporting Initiative (GRI) is a renowned independent international organisation with a mission to empower organisations worldwide to adopt sustainable business practices and communicate their ESG performance transparently. 

The GRI offers a comprehensive set of standards for organisations to disclose their impacts on the economy, the environment, and people. GRI is known for its impact materiality approach to corporate disclosure and has been working closely with the European Financial Reporting Advisory Group (EFRAG) regarding the recently finalised European Sustainability Reporting Standards.

GRI's comprehensive guidelines provide a structured approach for Telco companies to disclose and communicate their ESG performance transparently and effectively. Given the diverse range of environmental, social, and governance challenges faced by the industry, GRI offers a standardised framework to address issues such as energy efficiency, data privacy, digital inclusion, and supply chain management. 

By aligning with GRI standards, Telco companies can not only showcase their commitment to responsible practices but also engage stakeholders with consistent, comparable, and credible ESG information, fostering trust and accountability in an ever-evolving technological landscape.

While GRI serves as a comprehensive framework, the industry has also given rise to more specialised associations, such as the Global System for Mobile Communications Association (GSMA), which caters to the unique characteristics of the mobile Telco sector.

GSMA

The GSMA primarily focuses on the mobile Telco industry and offers guidelines, initiatives, and frameworks related to various aspects of the industry, including sustainability and environmental responsibility. While it may not provide a comprehensive ESG framework like GRI, the GSMA does contribute to shaping sustainability practices within the Telco sector.

One notable example is the GSMA's initiative to harmonise methods for reporting Scope 3 emissions and enhance transparency within the industry, reflecting the GSMA's role in promoting sustainability practices..In collaboration with other organisations such as the Global e-Sustainability Initiative (GeSI) and the International Telecommunication Union (ITU), the GSMA has developed guidance for Telco operators to assess and report their Scope 3 GHG emissions.  

While the GSMA's contributions are more industry-specific than comprehensive ESG frameworks, its initiatives and guidelines play a significant role in guiding Telco companies toward more sustainable practices and responsible reporting.

In addition to GRI and GSMA, Telco companies report to a number of different frameworks such as the TCFD, which we explore further in our ESG Industry Spotlight on Real Estate.

Key ESG Reporting Metrics 

With a grasp of the global frameworks in place, it is important to delve deeper into the specific ESG metrics that are especially pertinent to the Telco industry.

Carbon emissions & energy efficiency.

Globally, data transmission networks consumed 1-1.5% of global electricity use in 2022. Given the energy use from running data centres and transmission networks, energy efficiency is crucial in reducing the industry's overall carbon footprint and ensuring the sustainable growth of digital infrastructure.

Data privacy and security

Telco companies, which serve as central hubs for extensive personal user data, are increasingly expected to prioritise customer protection. Amidst regulations like the GDPR, Telco companies must navigate the balance of market competition and responsible data handling.

Community Impact and Digital Inclusion:

Despite 86% of the global population owning a mobile phone, those from disadvantaged and underserved groups, including the elderly and individuals with disabilities, may lack accessible and adapted technology. Telecommunication companies bear a responsibility to not only make their services available to these populations but also tailor them to meet specific needs, highlighting the industry's role in fostering digital inclusion and social equity.

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ESG Developments - Internet of Things (IoT)

As technology evolves, so do the responsibilities of Telco companies. One of the most transformative changes in recent years is the rise of the Internet of Things (IoT). 

IoT refers to the network of physical objects or "things" embedded with sensors, software, and other technologies, interconnected through various forms of communication networks, including the internet. These objects can range from everyday household items like refrigerators and thermostats to complex industrial machinery.

Environmentally, IoT has the potential to drive substantial energy efficiency gains and reduce waste across various industries through smart grids, intelligent transportation and predictive machinery maintenance. However, the mass deployment of IoT devices amplifies the industry’s responsibility to manage e-waste effectively and design devices for longer lifespans.

Socially, IoT presents opportunities for enhanced quality of life through smart city solutions, health monitoring, and disaster response systems. Yet, these innovations introduce complex questions around one of the key metrics, data privacy and security. Protecting user information and ensuring ethical use of data are paramount as IoT deepens the interconnection of personal devices.

From a Governance standpoint, the vast scale and influence of IoT further necessitate clear and robust data management policies. This underscores the importance of cybersecurity measures and transparent data governance as key metrics for responsible corporate behaviour.  

As IoT transforms the telecom landscape, adherence to ESG frameworks will be essential for companies aiming to sustainability and responsibly harness its immense potential.

The Future of ESG Reporting 

Beyond IoT, other major trends in the industry, such as 5G and cybersecurity, will inevitably have a significant impact on the industry. From the ESG reporting aspect however, we expect that the European Commission’s new European Sustainability Reporting Standards (ESRS) will have a key impact. 

In short, the ESRS serves as a standardised framework to enhance reporting across the European Union, promoting transparency and accountability in ESG practices.

To learn more about the ESRS and its implications, check out our latest article on ESG in the Textiles industry where we explore the impact of the ESRS. Reach out for more specific information on ESRS implications for Telco.

Conclusion

In a rapidly evolving digital world, the role of Telco as a critical infrastructure is undeniable.

As the industry continues to grow, so does its responsibility to society and the environment. ESG reporting, with frameworks like GRI,CDP and associations like GSMA, provides a structured approach for Telco companies to account for their actions and impacts. 

The industry’s approach to ESG reporting will serve as a significant marker of its commitment to sustainable and ethical operations. It is more than a matter of compliance; it is about leading a connected world responsibly and conscientiously.

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Sources:

Scope for collaborative change: Driving sustainability in telecoms

About GRI

About GSMA

Scope 3 Guidance for Telecommunication Operators

IEA - Data Centres and Data Transmission Networks

ISS ESG - InFocus: Media and Telecommunications

ESG Industry Materiality Map

HOW MANY SMARTPHONES ARE IN THE WORLD? 

How IoT Can Improve ESG—For Companies And Communities

Which ESG strategies are telecom operators pursuing?

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