Achieving net zero1 is an ever-more pressing priority for businesses, and many in the TMT industry have set more ambitious deadlines than others have. According to Deloitte’s 2022 CxO sustainability study, which surveyed more than 2,000 C-suite executives worldwide, nearly three-quarters (72%) of TMT CxOs plan to achieve net zero by 2030, versus 64% of non-TMT CxOs.2
TMT companies are holding themselves to high standards, as well. As of February 2023, 623 of the 4,614 companies that have committed to developing net-zero targets with the Science-Based Targets Initiative (SBTi)—a coalition for voluntary emission-reduction target setting—were from TMT, making it the largest industry segment represented.3
TMT leaders appear more concerned about climate change than their counterparts in other industries: 70% reported their company is “very worried” (vs. 61% of leaders in other industries).4 But they also signal more optimism: 54% of surveyed TMT leaders strongly agreed that, by taking immediate action, their companies can help limit the worst impacts of climate change and move toward an improved future (vs. 46% of leaders in other industries).5
Regulatory pressure is likely increasing the impetus to act. In the United States, regulators have proposed a new Environmental, Social, and Governance (ESG) rule that would mandate more rigorous disclosures on greenhouse gas (GHG) emissions, environmental risks, and mitigation actions.6
Anticipating these new ESG disclosure requirements, US companies are advancing from net-zero commitments to action. According to Deloitte’s 2022 sustainability action report, many US TMT leaders surveyed are prioritizing ESG governance and disclosure:7
These increased requirements necessitate understanding a company’s GHG emissions, namely Scope 1 (emissions a company makes directly), Scope 2 (emissions it makes indirectly, such as when buying electricity for heating and cooling buildings), and Scope 3 (emissions it’s responsible for indirectly across the value chain, for example, from buying supplies or from customers’ use of its products).8 Most TMT executives surveyed said their companies are prepared to disclose Scope 1 (69%) and Scope 2 (83%) emissions—outpacing industries overall (see chart). Indeed, on Scope 2 disclosures, TMT outpaces all other industries surveyed.
Scopes 1 and 2 aren’t enough to quantify a company’s environmental impact, though. Scope 3 emissions are estimated to account for more than 70% of some companies’ carbon footprints—and perhaps up to 88% in the technology sector.9 Only a third (34%) of surveyed TMT leaders said their company is prepared to disclose Scope 3 details—on par with other industries. There’s growing international pressure to measure Scope 3, however, existing and future UK and EU regulations that require companies of a certain size to disclose Scope 3 targets could impact large US companies with overseas subsidiaries.10
What makes Scope 3 disclosures so complex? Many companies struggle with data availability and quality. For TMT—and all industries surveyed—a chief hurdle is lack of confidence in the data received from upstream and downstream vendors. Fifty-three percent of TMT executives cited this challenge. The second-biggest challenge (47%) is a lack of consistent industry standards, methodologies, and estimation approaches. TMT leaders appear to be more acutely aware of this issue, as only 38% of executives overall rated it as a top challenge. The third-biggest challenge (41% of TMT leaders) is lack of data availability.
Given that one company’s Scope 3 emissions are other companies’ Scope 1 and 2 emissions, TMT may have a vested interest–and an economic opportunity–in helping companies across industries achieve more accurate and thorough reporting. Some technology companies are creating solutions that track emissions and enable companies to advance decarbonization efforts.11 The market for these types of climate risk digital solutions was estimated to be worth US$880 million in 2021 and projected to surpass US$4 billion by 2027.12
TMT companies are starting to anticipate strategic business value from enhanced ESG governance, controls, and disclosure, as well. Top benefits that TMT leaders surveyed cited are improved ROI (56%), increased employee retention (52%), risk reduction (51%), increased stakeholder trust (48%), and elevated brand reputation (45%).13
• Understand the Scope 3 landscape. While mandatory Scope 3 reporting may not have reached the US yet, the industry has an opportunity to focus on solving some of the systemic hurdles. Consider European standards and requirements as a model.
• Prioritize suppliers and evaluate their data governance maturity. Have you defined sustainability KPIs and benchmarks for your company’s data and that of your suppliers?14 Do you know which suppliers are responsible for most of your Scope 3 emissions?
• Assess your company’s readiness for Scope 3 reporting. How will you ensure accurate, thorough reporting from your external vendors?15 Have you considered sustainability tracking tools?
• Collaborate on system-level changes. Consider helping suppliers develop their own net-zero road maps and reporting strategies,16 and looking for opportunities to join standards workgroups. Ultimately, it may be productive to take a comprehensive systems approach, recognizing that today’s industries will likely transform into complex, interconnected net-zero systems.17
The authors would like to thank Jeff Loucks, Jaime Austin, Gautham Dutt Avaru, Shubham Oza, Prodyut Ranjan Borah, Andy Bayiates, Blythe Hurley, Grace Huang, and Melissa Fincke-Bosmafor their help in producing this article. And a special thanks goes to Michael Steinhart for providing invaluable input and guidance throughout the project.
Cover image by: Jaime Austin.
