17 March 2023

Consumers and investors are increasingly focused on how seriously companies take their responsibilities to society and sustainability. Amit Nagpal, Partner at Aetha Consulting, says that environmental, social and governance (ESG) reporting will provide the metrics by which investors, companies and their customers judge performance and how sustainability will be the number one priority when designing the next generation of network technologies.

Environmental, social and governance brings a new cipher, ESG, to the already acronym rich world of telecommunications. Not just the telecoms sector either, because ESG represents an evolving set of reporting criteria on the non-financial risks – and, hence, opportunities – contained in the core activities of a business or organisation.

Of course, not all business and institutions will be impacted equally by every aspect of ESG. Companies will be expected to report on ESG issues that are material to them, and this ‘materiality’ is dictated by ESG elements seen as financially significant to their particular sector.

For the telecoms industry, the topline issues under each of the three pillars of ESG are readily apparent. For ‘environment’, energy use, emissions and recycling are front and centre. Under the ‘social’ heading, such considerations as bridging the digital divide, improving connectivity, workforce diversity and inclusivity, health and safety, and a responsible supply chain are paramount. When it comes to ‘governance’, specifically corporate governance, a company must strive to have appropriately qualified, skilled, experienced and diverse management at all levels.

Evidencing the rapidly growing importance of ESG, the UK government is set to launch a consultation on the regulation of ESG during the first quarter of this year (2023). The government plans a new green finance strategy and is consulting on regulation of ESG ratings providers. The Financial Conduct Authority (FCA) sees itself as best placed to regulate providers. In the words of the FCA, the ambition is to develop “a globally coherent approach in keeping with International Organization of Securities Commissions (IOSCO)”.

As wide-ranging as ESG is, for the purposes of this blog we will concern ourselves with the first pillar, ‘environmental’.

The telecoms industry is undoubtedly energy hungry and intensive. For example, by its own reckoning, BT Group consumes nearly 1% of the UK’s electricity, add in other telecoms providers, and by even a conservative calculation the sector could be responsible for 3% of UK electric consumption.

From the most basic commercial imperative, efficiencies are essential to rein in costs. Doubly so against a backdrop of the intensive demand and pressures on capacity prompted by the rise in home-working sparked by pandemic lockdowns, which continues largely unabated because Covid seems to have forever changed the old patterns of office-based employment. That’s even before the runaway rise in energy prices of recent times.

The growing burden of energy costs has even seen operators starting to turn off individual frequency bands used for 5G overnight when their full capacity is not required. Sustainability will be properly built into 6G from the outset, using such technologies as real-time monitoring and AI to support automated on/off switching in line with actual and forecast traffic patterns.

Indicative of this, significant efficiency gains can be seen in new generations of technology. Again referencing BT in the UK, its 5G network is up to 90% more energy efficient than its 3G network. At present BT only transmits less than 2% of data over its 3G network, which eats up 35% of the energy required for its Radio Access Networks (RAN). BT will commence the closure of its 3G network early next year (2024) but for now, as with all suppliers, legacy issues remain.

Offsetting the environmental impact of intensive energy demand, BT Group has already moved to 100% renewable electricity worldwide for its networks and buildings. Vodafone Group’s most recent ESG report states that 96% of the electricity it purchases across Europe comes from renewable sources. These are the sort of numbers the ESG ratings providers will want to see and, more importantly, so will the investors relying on their reporting.

The transition to 6G is likely to involve a huge step-change in sustainability with power efficiency being one of the major – if not the major – design criteria taking priority over the more traditional design metrics such as performance as it pertains to network speeds, latency, and so on.

The telecoms industry can already point to the wider benefits it delivers for a more sustainable world. Quicker and better communications mean less travel with all the environmental benefits that can bring. Effective, efficient and more widely available telecommunications can also deliver greater social equality, from basic phone calls to internet access, mobile payments, eHealth and more.

ESG will be the marker of the benefits that telecoms already delivers and is yet to bring. Ultimately, the combination of technology enhancements and ESG reporting will make good business better.