Investment in Sustainability

iResearch Services research shows that tech companies are increasing their investment in sustainability

Talk is cheap, whereas action requires a degree of commitment. The good news is that tech companies are increasingly putting their money where their mouths are when it comes to sustainability.

How do we know? iResearch Services conducted a study of 550 executives in the technology industry in the lead-up to COP26 in late 2021, surveying leaders across 11 countries.

Out of this came their ‘How Sustainable is Tech?’ report, which finds talk of sustainability isn’t just hot air. There is clear evidence of a trend for tech companies, many of which can be quite outspoken on sustainability issues, to back up their words with an enhanced financial allocation for sustainability initiatives and the corporate structures necessary to support them.

On average, tech companies in different countries say they will invest more in Environmental, Social, and Governance (ESG) development. Germany currently leads the way but is likely soon to be surpassed by the UK, where a substantial increase in the average investment is projected.

While 29% of companies said they planned to invest between $500,000 and $1 million in sustainability in the current year, 22% were committing to $2-5 million and 23% to $6-10 million. There is some substantial spending going on. But how is the money being apportioned?

Data shows that across all levels of responsibility, when examining a three-year average, most investment is allocated to IT departments (37%), as well as Infrastructure and Sustainability Technology (29.6%). It’s interesting to observe that the investment is not always prioritised around removing key barriers to sustainability across all the levels of business responsibility we surveyed: cost (57%), regulatory requirements (54%), time constraints (44%), and speed to market (35%).

Inevitably in the business world, cost will always be a factor. But the fact that regulatory requirements feature high on the list underlines the huge amount of activity in this area as policymakers across various jurisdictions bring in new measures to counter climate change. In future research we will explore government and regulatory initiatives worldwide and what they mean for tech organisations.

Investment in training

Given the rapid pace of change, it’s unsurprising that a substantial amount of sustainability investment is being channelled into training. Our data on an average investment breakdown basis, shows staff training is given a 27% slice of the sustainability pie.

iResearch Services ‘How Sustainable is Tech?’ report also points to a higher perception of investment in sustainability initiatives across respondents in roles such as heads of sustainability, development, core programme and operations. This aligns with the sustainability investment priorities of their companies, and the biggest increase in investment can be found in the business areas of development, sustainability and core programme leads.

While it’s unquestionably great to see an upward trend in sustainability investment in the tech sector, it would be wrong to assert that this means everything is rosy. Some businesses are undoubtedly guilty of overstating their credentials and achievements, greenwashing, in other words. However, the march towards tighter regulation and greater ESG scrutiny will likely make it harder for companies to get away with this in future.

Funding for sustainable tech start-ups

On a positive note, some of the tech sector’s biggest beasts are executing some exciting investment programmes that are helping accelerate new, climate-friendly technologies. Alphabet, Google’s parent company, has issued $5.75 billion in sustainability bonds, the largest ever corporate sustainability or green bond issue.

Meanwhile, Microsoft has a $1 billion Climate Innovation Fund; and Amazon has $2 billion earmarked for its Climate Pledge Fund, launched to help it reach its net zero carbon emissions goal by 2040. As we advance we are likely to see a lot more of this model, where big tech companies with deep pockets incubate start-ups – developing interesting sustainable technologies.

Sustainability-linked Loans

There are several different ways to invest in sustainability and a variety of perspectives from which to examine this trend. Take the rapid rise of Sustainability Linked Loans (SLLs), which are structured to incentivise borrowers to hit or exceed their ESG targets.

Take-up of SLLs has skyrocketed since their introduction in 2017. Bloomberg reports that issuance grew 244% last year, and the market size has hit $747 billion. Among the tech companies to make use of SLLs is semiconductor industry supplier Lam Research Corporation, which in 2021 took out a $1.5 billion credit facility which includes a pricing adjustment mechanism activated if the company is above or below performance targets around annual energy savings and maintaining its high standard of employee safety.

“The new sustainability-linked credit facility is part of our overall management focus on financial performance while integrating ESG principles into day-to-day operations,” said Doug Bettinger, executive vice president and chief financial officer of Lam Research. “We believe this will also add long-term value for Lam’s shareholders.”

According to the Global Sustainable Investment Alliance, at the start of 2020, global sustainable investment reached $35.3 trillion in five major markets, a 15% increase in the past two years (2018-2020). Moreover, sustainable investment assets under management make up 35.9% of total assets under management, up from 33.4% in 2018.

These are enormous figures. Yet, some argue the impact of ESG reporting has been oversold. After all, the behaviour of some companies remains far from virtuous.

Investment in sustainability is a complex and occasionally controversial area. But it would be churlish to ignore the evidence that many businesses in the tech sector are trying harder than ever to get it right.