In its bid to become more sustainable, the telecoms sector faces two major challenges: reducing its greenhouse gas emissions and closing society’s digital divide. Can it do that while meeting the growing demand for data and connectivity?
As energy prices soar, telecom companies are looking for ways to become more energy efficient. Operators rely on a sprawling network of data centres, relay stations, masts and other infrastructure that require a constant supply of power to function. And much of this is carbon-intensive. At the same time, increasing demand for data is challenging a sector that must balance growth with keeping its carbon emissions in check.
The wider ICT sector, driven by telecoms networks and data centres, could be responsible for 14% of global carbon emissions by 2040, up from 3–4% today.(1) 5G is expected to lead to a rapid rise in data use as it finds more applications in both industrial and consumer settings, with research suggesting that the 5G ecosystem will lead to 160% increase in power demands by 2030.(2) One the upside, 5G networks are up to 90% more energy efficient per bit than 4G legacy networks.(3)
In addition to environmental challenges, the telecom sector must tackle the social factor on its journey to becoming a more sustainable industry. Today, 2.9 billion people – 37% of the world’s population – are still unconnected, despite more people gaining access to ICT networks each year. Those without access to ICT networks are in poor economic conditions, remote areas, minorities, women, the less educated, or a combination of those.(4) Investments by telecoms operators in mobile infrastructure and fibre networks will be an important driver to closing this digital divide.
Journey to net zero
According to the International Telecommunication Union, the ICT industry will have to reduce greenhouse gas emissions by 45% between 2020 and 2030 if it is going to comply with the Paris Agreement.(5)
To date, 50 operators accounting for 44% of global mobile connections have committed to rapidly cutting their emissions over the next decade, with many aiming to reach net-zero targets by 2050 or earlier, according to a report from industry body GSMA.(6)
These are ambitious goals, and they call for urgent action. Already, the sector is making strides in decoupling data traffic and electricity use and carbon emissions with the help of smart technology such as AI and machine learning. According to GSMA, data traffic was up 31% in 2021, while electricity was up 5% and associated carbon emissions by only 2%.
But operators wanting to adopt innovative solutions to meet sustainability goals will need a financing plan. And they are increasingly turning to the sustainable finance market.
Sustainable finance plans
In March 2022, American telecoms operator Verizon issued its fourth $1 billion green bond to accelerate the transition to greener electrical grids across the United States. The company aims to have half of its total annual electricity consumption backed by renewable energy in the next three years.(7)
Sustainable finance can also help address the social challenge, and there are ambitious targets here, too. The European Commission, for instance, wants all European households to have high-speed internet coverage by 2030. “Without digitalisation, there can be no successful economic and social development,” says Jeroen Kleinjan, managing director for the telecoms division at ING.
“Investors are increasingly taking ESG into account in their decisions and they see Telecom operators as ideal partners on this journey.”
Europe’s operators are responding.
Orange, which issued its inaugural, €500-million sustainability bond in September 2020, plans to allocate about 40% of funds to “digital and social inclusion” projects, and the other 60% to projects focused on energy efficiency and the circular economy.(8)
At the end of 2021, Deutsche Glasfaser raised €5.75 billion to support its plan to bring glass fibre networks to four million homes by end-2025. Similarly, Adamo Telecom Iberia raised €600 million to connect over 3.2 million homes in rural Spain to its fibre network.(9). These investments all build towards the idea of ensuring no one is unfairly disadvantaged by the so-called ‘digital divide’ between those with access to fast internet and those without. In addition, both facilities were structured as sustainability-linked loans, linking the margins to improvements in the areas of greenhouse gas emissions and digital inclusion.
Sustainability should be a strategic priority
To realise its full value to society in this newly digitalised era, the telecoms industry must make sustainability a strategic priority.
The Boston Consulting Group says that, historically, sustainability has been relegated by telecoms CEOs to “a cost topic best left to internal sustainability departments”.(10) That is now changing. “ESG has become urgent for executives across digital infrastructure,” says Kleinjan. “From data centres buying renewable energy and finding novel uses for excess heat to attempts to recycle old fibre, every arm of the industry is making ESG a top priority.”
The telecoms sector’s sustainability challenges – becoming carbon neutral and bridging the digital divide – are surmountable. The industry is taking action at a leadership level, which means it is a greater priority for chief executives. And, like Verizon and Orange, they will make the most of sustainable finance opportunities.
“Greening the network and improving the quality of life and prosperity in rural areas are attracting the interest of investors who want to put their money in sustainable companies,” says Kleinjan. “Investors are increasingly taking ESG into account in their decisions and they see telecom operators as ideal partners on this journey.”