Why ESG is important for India’s IT sector

While the Indian IT industry’s carbon emissions reduced by 85 percent during the Covid-19 lockdown – from 2 million tons annually to 300,000 tons – the happiness is short-lived. Data centres are growing around the world, doubling their energy consumption every four years, collectively causing 3-4 percent of global greenhouse gas (GHG) emissions.

One estimate says that India’s data centres will increase capacity five-fold in five years, implying a 3,900-4,100 MW scale-up and investments worth Rs 1.2 trillion. To address the serious concerns around data centre sustainability, India’s lawmakers and data centre industry are making efforts to improve energy efficiency and scale back emissions. For example, in 2010, the Bureau of Energy Efficiency, along with the Confederation of Indian Industry (CII), published a manual entitled ‘Energy Efficiency Guidelines and Best Practices in Indian Data Centres’. Also, the Ministry of Electronics and Information Technology’s draft data centre policy recommends the use of renewable energy resources.

The greening of Indian IT is doubly good news because sustainability is not only imperative for the planet but is also beneficial for business. Multiple studies have found that organizations with strong ESG propositions report better financial metrics, such as return on equity, risk exposure and credit rating. One of the most comprehensive studies on ESG and financial performance, covering 2,200 primary studies, found that 63 per cent reported positive findings. An Infosys-commissioned research report from October 2021 says that when investment firms use both internal and external agency ESG ratings, they outperform the returns of the S&P 500 by 6.90 per cent.

These ESG-linked gains in financial performance are driven by all-round improvement – in operations, talent management, employee engagement, product development, business resilience etc.

Saving operating costs

Good ESG practices can lower operating expenses by saving the cost of raw materials, natural resources, and waste. Infosys, which is widely recognized for achieving carbon neutrality in 2020, 30 years before the time set by the Paris Agreement, fulfils 53 percent of the energy requirement of its data centres from renewable sources partly sourced from the 60 MW solar capacity installed in its campuses. The Power Usage Effectiveness at its Indian data centres has a weighted average of 1.67, which is better than the global average data centre PUE of 1.8.

Bridging the talent gap

A well-known U.S.-based consulting firm estimates that the global technology talent shortage will cross 85 million by 2030. An important way to address this gap is by prioritizing reskilling in the ESG agenda, for example, in technology, digital, and life skills. IT firms should not only reskill their own workforce and other prime candidates, and but also train people from underrepresented segments to spread inclusivity in the community. This has the added advantage of expanding the talent pool for the industry.

Optimizing IT assets

Apart from reducing energy consumption, data centre operators should deal with their hardware assets in accordance with circular principles to further shrink their carbon footprint. According to one report, globally, 28 percent of organizations reuse or repurpose their IT assets, but at the same time, a comparable number – 26 per cent – don’t recycle adequately.

Since failure rates are very low even among equipment more than a decade old, there is a real case for keeping them in commission longer. In 2020, Microsoft launched its Circular Centres initiative to extend the useful life of its data centre servers and hardware assets. The company expects that these Circular Centres could create annual savings of $100 million dollars sometime in the future.

Improving business resilience and risk management

Businesses with a sound ESG stance have easier passage into new markets, since they enjoy the trust of regulators and local communities. This helps them begin operations without delay. Pro-ESG companies minimize the risk of disruption from environmental activism, and also avoid regulatory intervention and penalties for non-compliance.

In tune with your clients

Yet, another reason for Indian IT companies to adopt ESG is that it is becoming an important consideration for clients when awarding technology contracts. Organizations in every industry are looking towards technology providers to complement or enable their own sustainability initiatives. So, a technology company’s sustainability stance is a valuable competitive advantage. Building credibility in ESG and having a good record of driving ESG initiatives would help, increasingly so in the future.

Moreover, apart from delivering long-term value, a robust ESG strategy will enable technology companies to adapt quickly to tightening regulation. In conclusion, various factors point to the direction that being pro ESG clearly makes a strong business sense for the IT industry.

Views are personal. The author is Executive Vice President and Group Head, Human Resource Development, Infosys