, September 28, 2021

Sustainable IT: IT services companies re-define their 'reason to be'


  •   3 min reads
Sustainable IT: IT services companies re-define their 'reason to be'

The latest fashion at IT service companies is to declare their purpose, or - the term I prefer - their raison d'être. Atos started in 2019 with its claim to "help design the future of the information space". Since then, Fujitsu ("Make the world more sustainable by building trust in society through innovation"), Accenture ("Deliver on the promise of technology and human ingenuity"), Capgemini ("Unleashing human energy through technology for an inclusive and sustainable future") and others followed suit. The common theme to all of this is sustainable IT.

Sustainable IT and the higher goal

It illustrates that companies – not only in the IT sector – are beginning to assume responsibility beyond the traditional expectation that "the sole purpose of a company is to generate profit", as stated by neoclassical economist Milton Friedman in the 1960s. The higher goal is now to fulfil a social (and implicitly also ecological) mission. Stakeholders (customers, employees, suppliers, shareholders and society as a whole) expect IT and digital technologies to be deployed for socially desirable outcomes – that they are deployed in ways that help to overcome our global problems, notably the pandemic but also climate change, loss of biodiversity and social equality.

Do ESG investments really deliver?

With the raison d'être announcements, many IT service companies are focusing on a sustainable approach, acknowledging and assuming this new, much broader responsibility. But that can only be the start: the purpose statement has to be brought to life! How it is being brought to life will separate the wheat from the chaff. Most importantly, it needs the full support - and attention - from the top management team. Strategic directions have to be adapted. Concrete principles and actions have to be defined. A challenge will be to ensure that the entire organization thinks and acts according to the new directions and principles.

Although BlackRock stated that sustainability risk is investment risk and starts to steer its funds towards more sustainable investments, their primary objective remains to maximize returns

An even bigger challenge will be to balance shareholder interests and sustainability. The example of Danone's CEO who was ousted by shareholders for "not managing to strike the right balance between shareholder value creation and sustainability" illustrates this.

The reliance on capital markets remains a major stumbling block. ESG-driven investors are as yet few and far between. And although BlackRock stated that sustainability risk is investment risk and starts to steer its funds towards more sustainable investments, their primary objective remains to maximize returns.

It’s time to ‘fink about ESG and opportunity in climate transition says BlackRock boss

Or consider the reaction I get when I speak to IT service providers concerning opportunities in developing solutions to help customers and society achieve greater sustainability. Or, for that matter, if we talk about changing their business behaviour towards societal values. The typical response is: "We have to show a business value." They define  'business value' in terms of revenue and profit.

Would an IT service company decline to do business with a non-sustainable customer, say, for example, an oil & gas client or a weapons manufacturer - and thus renounce revenue?

For example: Would an IT service company decline to do business with a non-sustainable customer, say, for example, an oil & gas client or a weapons manufacturer - and thus renounce revenue?

Today probably only a few companies would. An interesting exception is insurer Axa who dropped German energy giant RWE as its insurance customer. While this is presented as a decision driven by Axa's sustainability commitment, it probably has a risk assessment component: It becomes a risk to work with (or for) non-ethical companies. Hence, becoming more selective about business partners in the value chain will be about de-risking the business. And this applies to suppliers as well as customers.

DAX companies' sustainability reports leave a lot to be desired, but there are encouraging signs

So, the thinking is still primarily within the existing business paradigm: Profitability, revenue growth and - related to that - risk assessment.

However, a genuine, ethical approach to sustainability would require an even broader challenge: It will need some fundamental re-thinking and re-defining of underlying business terms and the respective KPIs. These include, for example: What defines 'success' or 'value-add'? What constitutes growth? In what direction do we drive 'innovation'? This will be covered in more detail in a future analysis.

So the conclusion is that declaring a purpose (or raison d'être) is only the very beginning of a long, hard and risky journey for companies. But it is a commendable - and necessary - one!

The Economy for the Common Good - Of means and goals and constitutions

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