Harnessing Customer Engagement for Net Zero Success in IT

Article co-written with Jessamine Chin, Sr. Director, Global Corporate Responsibility, Palo Alto Networks
 

As businesses aim for Net Zero[1] greenhouse gas (GHG) emissions, the focus has traditionally been on supplier engagement to reduce emissions from product creation and disposal. However, for IT hardware manufacturers and distributors, the primary emissions challenge lies in the electricity consumed by their products. Despite its significance, customer engagement has not been emphasized as much as supplier engagement in leading sustainability frameworks.

Emissions across the IT Value Chain

The industry-standard GHG Protocol separates emissions into 3 different Scopes (Figure 1). The Science Based Targets Initiative (SBTi) is a corporate climate action NGO which has developed the industry-standard for setting Science Based Targets (SBTs) for companies and financial institutions; and a separate entity which validates these SBTs to ensure their alignment with the Paris Agreement to limit global warming to 1.5°C.

Independent verification of environmental sustainability claims is one of the most critical components of any organization's sustainability program. SBTi requires organizations to set specific targets to drive Scope 3 emissions reductions, which can take the form of absolute or intensity reduction goals and/or goals to require certain percentages of suppliers and/or customers to join the SBTi themselves and set their own SBTs. World Wide Technology and Palo Alto Networks followed the GHG Protocol and SBTi frameworks as part of their efforts to set their own Net Zero goals and SBTs (including focusing on suppliers setting their own SBTs).

For many companies in the IT sector, it is common for one of the biggest emissions sources to be the customer's use of energy to operate its sold products. This relative significance also brings complexity of Use of Sold Product (UoSP) for companies with electronics. As the industry evolves, tools like Product Carbon Footprints (PCFs) and Life Cycle Assessments (LCAs) are becoming more prevalent, highlighting the significant impact of customer energy usage on overall emissions. The emissions profile in a typical PCF for computer hardware is heavily dominated by the downstream Scope 3 Category 11 UoSP phase (Figure 2). This common pattern at the micro level drives a similar pattern at the macro level where the manufacture and use of sold IT hardware account for the largest sources of emissions for the entire IT hardware manufacturer's organization (Table 1).

Table 1: The percentage of total emissions from UoSP across a sample of major ICT companies in their most recent reporting years

For IT companies aiming for a 90% reduction in emissions to achieve Net Zero, focusing on the emissions from the UoSP is crucial. Encouraging customers to increase and attest to renewable energy utilization is an important effort complementary to engineering more energy-efficient products.

Rethinking Emissions Reduction Strategies

While current frameworks emphasize supplier engagement, there is a compelling case for enhancing customer engagement. By understanding and leveraging customers' renewable energy initiatives, IT suppliers can benefit from reduced emissions associated with their products.

Recently, recommendations to reduce the GHG emission footprint of the UoSP Category have come from the US Environmental Protection Agency (EPA), SBTi, and the SEMI Sustainability Initiative. The EPA suggests purchasing renewable energy for customers to reduce an organization's Category 11 emissions. Unfortunately, this raises the risk of significant costs to address Category 11 emissions for the IT hardware supplier company looking to achieve its Net Zero targets. SBTi recommends that supply companies engage their customers to create Net Zero goals of their own, following the SBTi guidelines. This introduces challenges if a client does not wish to adhere to all of SBTi's other policies and standards.

World Wide Technology and Palo Alto Networks propose a data-driven approach to customer engagement. By tracking the percentage of renewable energy used by customers, companies can measure true emissions reductions at a lower cost and without requiring customers to adhere to specific protocols. This strategy is supported by recent similar guidance from the SEMI Sustainability Initiative for the semiconductor industry.

Leveraging Customer Data for Better Outcomes

Understanding the final consumer and location of use allows an ICT hardware provider to better estimate emissions from a product's electricity consumption during its use phase. Emissions are calculated by estimating the product's electricity use over its lifespan and multiplying by a regional emission factor, which estimates greenhouse gases per kWh produced. The EPA's eGRID database is a common source for U.S. electricity emission factors. Without knowing the product's final location, IT hardware suppliers often use a global average emission factor or make assumptions about the location.[2]

Location-specific grid data and the end user's renewable energy use are crucial for accurate UoSP estimates. When customers use renewable energy, or operate on a greener electrical grid, they lower their Scope 2 emissions and reduce the Scope 3 UoSP emissions for the product's manufacturers, sellers, and the rest of the upstream supply chain (Table 2).

SBTi and GHG Protocol currently lack detailed guidance on customer engagement for collecting energy use profiles or promoting customer energy efficiency and renewable energy use, which are crucial for reducing Scope 3 emissions. While supplier engagement is frequently recommended, including for reducing UoSP emissions,[3] engaging customers for renewable energy attestations offers significant potential to reduce downstream carbon emissions for upstream technology firms.

Customer Attestation Certificates Will Advance Carbon Reduction Efforts

Suppliers can engage customers on their energy use for operating purchased IT hardware to obtain data and auditable attestation documents, helping address UoSP emissions. This effort would enable supplier companies to count existing customer renewable energy purchases in their Category 11 GHG accounting. While not a physical reduction, it does enable greater accuracy and allow the supplier company to identify which customers to encourage adopting renewable energy. Many major IT hardware customers are proud of their renewable energy initiatives, so they may respond positively to such requests.

While customer attestation certificates might seem burdensome, they are already common through Energy Attribute Certificates (EACs) like Renewable Energy Certificates (RECs) (Figure 3). RECs are tradable, non-tangible certificates verifying that electricity was generated from eligible renewable sources and fed into the overall power grid. Organizations use RECs to demonstrate progress in reducing Scope 2 carbon emissions. Many organizations collaborate with renewable energy suppliers to meet their energy needs and receive certificates through EACs, Power Purchase Agreements (PPAs), Virtual Power Purchase Agreements (VPPAs), Green Tariffs, and other instruments.

A similar process would allow IT suppliers to collect auditable attestations from their customers about the customer's use of renewable energy to power the IT hardware supplied. Suppliers like WWT and Palo Alto Networks would benefit from information on the renewable energy utilized by their customers. Like other sustainability data, this valuable information will need an audit trail to be accepted in assurance and verification processes.

Conclusion: A Collaborative Path to Net Zero

For companies in the technology space, reducing emissions from UoSP is essential for achieving Net Zero. By fostering customer engagement and leveraging verifiable renewable energy attestations, IT businesses can effectively address their downstream emissions. This collaborative approach not only supports sustainability goals but also enhances business resilience and competitiveness in a rapidly evolving market.

[1] Net Zero means removing an equal amount of CO2 from the atmosphere as an organization emits into it every year.

[2] For example, a manufacturer estimating the emissions from an item it sells could use the emission factor for the location of its corporate headquarters. There can be major differences in emission factors between an electrical grid utilizing fossil fuel that generates significantly more emissions and a grid powered by renewable geothermal energy so the choice of location forming the basis of the emission factor used can significantly impact the resulting estimated emissions from the UoSP.

[3] Ex. Page 111 of the GHG Protocol Corporate Value Chain (Scope 3) Standard