Tech companies look to gain an ESG advantage

Navigating climate risk moves back to the forefront despite the pandemic and geopolitical uncertainty.

Mark Gibson

Mark Gibson

Partner, Advisory, NSL & Teams, KPMG U.S.

+1 206-913-6558

Successfully executing a strategy to gain an ESG advantage over the next several years will require constant focus on securing the necessary workforce skills, technology, and funding. Operationalizing climate strategies has become more challenging with crises like the COVID-19 pandemic and the Russia-Ukraine war taking priority. However, stakeholder demands and proposals for new regulation have shifted ESG timelines forward, pushing decarbonization goals into the forefront again for many tech companies.

During the onset of the COVID-19 pandemic, the tech sector largely focused on rapid response to provide products and services that allowed the wheels of global industry to keep turning. Immediately delivering on the needs of people and industry, the tech sector had to use existing infrastructure and systems not necessarily optimized yet for carbon efficiency.

Long-term, however, investors, customers, and employees are demanding more transparency and action around companies’ ESG climate strategies and related risks. In March 2022, the SEC proposed climate-disclosure rules that would require public companies to report the climate-related impact of their businesses.

This presents tech CEOs and leaders an opportunity to respond to these demands, unlock value, and build trust. They can do this by telling their own ESG story, reporting on their progress using data and insights that can help them measure and reduce their carbon footprints effectively.

When it comes to climate reporting and decarbonization, however, companies are often left wondering where to start. Not even the highest performing tech firms are immune to this. Coming from multiple entities and sources, carbon footprint data is incredibly disparate. KPMG research finds that 53% of global technology companies have not yet developed a decarbonization strategy or targets.

In addition to addressing ongoing business issues brought about by the pandemic, the Russia-Ukraine war has the potential to take focus away from decarbonization initiatives. The situation is causing uncertainty regarding the current energy supply as well as precipitating rising energy costs. While countries and businesses seek to secure existing energy solutions in the near-term, the transition away from fossil fuels may be delayed. In the long-term, however, the war may actually accelerate interest in, and incentives for, renewables and alternative energy sources.

The focus from corporate leaders and investors on these issues, in addition to a lack of necessary skills and technology, present significant hurdles to tech companies’ ESG climate goals.

Has your company developed a strategy and/or targets to decarbonize the business?

Source: KPMG technology industry survey 2021, n=825

What do you see as the most challenging barrier to decarbonizing your business?

Source: KPMG technology industry survey 2021, n=825
Percentages do not sum to 100% due to rounding.

Corroborating these findings, the KPMG Net Zero Readiness Index identified the lack of delivery capability as a weak point in global net zero ambitions. Delivery capability is one of the key measures in the Index and reflects how low-carbon market activity such as green technology patents, clean technology companies, and innovation rank. The analysis reveals that net zero delivery capability is largely lacking. Net zero cannot be achieved if the delivery capability does not exist.

Increasing decarbonization efforts, and fortifying ESG practices overall, are not limited to the technology industry. These are global concerns that all industries need to address. Here are a few considerations for tech companies seeking that edge.

  • For climate reporting, build iteration into your strategy. Even the best firms will have data and technology gaps that will need to be filled.
  • Research which technology solutions will help you best meet your goals; not necessarily the quickest or least expensive today to satisfy stakeholders in the short term. Solutions to explore could include circular economy, energy efficiency, and renewable energy procurement.
  • Form partnerships with companies in industries that are leading on the decarbonization front, such as the energy sector. Drive innovation in areas of mutual interest like battery storage, renewable energy generation, and direct air capture to decarbonize buildings and infrastructure.