Addressing the Impact of Tech Companies on the Climate
Tools for investors and startups to understand and take actions to reduce their climate impact.
Much of the recent discourse on climate change in the tech and investing world has been on two solutions — developing new tech-enabled solutions to mitigate climate impact or investing in them. What isn’t being discussed enough are the ways companies can already make a difference today by addressing the enormous footprint of cloud computing and cleaning up their software supply chains. In addition, due to sharp decreases in the price of renewable energy and storage, a cleaner software supply chain can also become a cheaper one that is ultimately better for the bottom line.
Where are we in the climate fight and why do we need to take action now?
To avoid the worst effects of climate change, scientific consensus from the United Nations Intergovernmental Panel on Climate Change (IPCC) states that CO₂ emissions must decline 40-60 percent by 2030 (and reach net-zero by 2050) to keep our planet from warming more than 1.5°C. We are not on track to meet these goals today, and hitting them will require significant and immediate change from all industries.
What is the impact of computing and software companies on the climate?
Software is powering our modern economy. Seven of the top ten most valuable companies in the world are internet/software companies, and they pack a big punch. Within software companies, data centers are the single largest sources of emissions and energy use (ranging from 70 to 88 percent), far exceeding other business operations such as offices and travel.
While there has been recent attention placed on cleaning up physical supply chains, we also need to turn our focus towards reducing the carbon footprints of software supply chains—by cleaning up the energy used to produce and transfer digital products, while moving to real-time use of renewable energy sources.
How does the climate impact of energy consumption relate to its cost?
There are several factors to consider when evaluating the climate impact of different energy sources: supply (the amount of energy that can be produced); demand (how much energy is needed by consumers); and the carbon intensity or emissions factor (emissions produced per unit of energy produced). Renewable energy sources such as wind and solar have low emissions factors, but widely fluctuating supply depending on the time of day and location. For example, solar energy is abundant during sunny days but nonexistent at night. Natural gas and coal have much higher emission factors (ranging 10-80x more than solar and wind), but are not dependent on external factors and can increase production rates in real time to meet demand.
If looking at emissions alone, shifting energy consumption towards periods of the day where renewable energy sources are abundant will result in far fewer emissions. Renewables also compete well on cost—not only have some renewable technologies reached cost competitiveness with conventional sources like gas and coal, their costs continue to fall sharply. Therefore by shifting your energy sources to renewable energy (and ideally timing consumption to when renewable sources are most plentiful), you will save on both emissions and money.
What can software companies do to reduce their computing carbon footprint?
There are many actions software companies of all sizes can take to understand and reduce their climate impact. Find a more comprehensive list here.
- Large players that design, build, and manage their own data centers can take direct action by increasing their efficiency and shifting to purchases and production of renewable energy.
- Companies that rely on cloud providers or vendors to power their business and products can join coalitions to influence the computing industry.
- Startups and small companies that choose off-the-shelf cloud providers and software solutions can still have an impact by making changes now that will compound as they grow, and contributing as a larger group through collective action.
- Software companies that rely heavily on computing to run their businesses can have an immediate impact by building a better understanding of the real-time energy produced where they are, and trying to adjust their consumption accordingly.
Although often dismissed for being too small, or too focused on growth and survival to prioritize addressing their climate impact, startups can have a huge climate impact. Startups are more agile than large established software companies, and have the ability to change cloud providers and software vendors with limited disruption to their business. Moreover, any changes made early can quickly compound over time as startup products and companies scale.
Unfortunately, even startup founders who have a personal desire to take action lack the time, resources, and information to do so easily. By giving them tools to make it simpler to understand and address their climate impact, meaningful individual and collective action is possible even without slowing down company growth.
Investor choices shape the tech industry. By choosing which companies to invest in, and what questions to ask of their companies, investors influence the broader behaviors of the ecosystem. They can create positive incentives for founders to take the time to understand their climate impact, and support them in doing so by distributing information and tools to them at scale. By encouraging and accelerating the shift to lower-cost renewable energy, they are also improving the bottom line for the industry. Such activity can benefit investors as well; the move to renewable energy will decrease energy costs and improve the industry bottom line over time.
So, what do we do?
Investors need to ask portfolio companies to assess their own climate impact and carbon footprint. Armed with the right tools and investor support, startup founders can do this assessment with minimal cost and still make meaningful changes.
Actions for Startups
- Read the Startup Climate Guide to learn about the climate impact of your software supply chain (including cloud providers and software services), and identify concrete ways to measure and improve it.
- Use heuristics for employee travel, operating costs, and cloud operations to pull together a basic carbon footprint assessment.
- Learn from what other companies have done to identify actions to take to reduce that carbon footprint.
- Share your work and encourage other startups to do the same.
For investors, the work doesn’t stop even after individual startups take action. There are continued opportunities for investors to influence new companies while providing additional resources and keeping their portfolio companies accountable.
Actions for Investors
- Review the results from the entire portfolio to identify trends and actions you can take as a firm. For instance:
- Share the Startup Climate Guide and provide more advanced climate measurement services to startup founders.
- Learn from individual company results and invest in shared guides and toolkits for portfolio companies to use.
- Make climate an ongoing part of the conversation in quarterly board meetings and deal reviews. For instance:
- Review climate impact reports and potential actions to take at regular board meetings.
- Discuss climate impact with new companies and incorporate their action plans into investment evaluation criteria.
Tying it all together
Companies who understand and are transparent about their climate impact can make immediate reductions, push the tech industry forward as climate stewards, and accelerate the movement towards renewable energy. Investors who support those companies can establish a baseline understanding of their own climate impact and identify systemic ways to help entire portfolios go green. This creates transparency for funders, while attracting (and retaining) environmentally-conscious investors and employees. It can also lead to second-order effects that go beyond computing, as collective action accelerates the move to cheaper and cleaner renewable energy production globally. Even small actions matter in the climate fight, and investors and startups have the unique opportunity to amplify their impact.