Technology: Hardware

The expansion of communication networks and the proliferation of technology products have resulted in an increased focus on the environmental and social impacts of the technology hardware sector, as well as recognition that technology can present enormous opportunities for addressing global sustainability challenges. This places the technology sector at the intersection of business growth and sustainability.

For the technology hardware sector to effectively address key environmental and social impacts it must examine and address all stages of the product life cycle—from sourcing and manufacturing operations to product use and end-of-life management. Complex supply chains and the considerable impacts of manufacturing technology products, have led many companies in this sector to enhance supplier standards for environmental and social performance.  A rigorous European regulatory environment has also catalyzed the industry to address core sustainability issues, such as chemical use, and make changes to the way they are doing business globally.

Despite the sustainability challenges faced by the Technology Hardware sector, there are also significant business opportunities to help drive innovation and develop sustainability solutions. By bringing to market new products and solutions, these companies can help both business customers and consumers to reduce energy and decrease greenhouse gas (GHG) emissions.  Yet as the sector grows, so too does its own environmental and social impact—requiring an ongoing commitment to sustainability focused on the protection of labor and human rights, renewable energy sourcing, natural resource conservation and continued product and service innovation.

The technology hardware sector comprises 27 companies and includes manufacturers and distributors of communications equipment, computer hardware and peripherals, electronic equipment, instruments and components, and office electronics. Technology hardware companies lead other sectors in the development of advanced systems to manage the environmental and social impacts of their business; and among their peers, Dell, EMC Corporation and Hewlett-Packard (HP), have demonstrated great strides towards meeting the expectations set forth in The Ceres Roadmap for Sustainability.

Listen to Kathrin Winkler of EMC talk in the video below about how her company uses The Ceres Roadmap for Sustainability to improve its own sustainability performance.

The analysis that follows includes a summary of the sector’s progress within each of the four chapters of The Ceres Roadmap: Governance, Stakeholder Engagement, Disclosure and Performance.  Within the Performance section—which covers operations, supply chain, transportation and logistics, products and services, and employees—those issues that are of greatest relevance to the sector have been highlighted.

GOVERNANCE FOR SUSTAINABILITY

Strong governance and management systems are key elements to the implementation of an effective sustainability program. Companies’ board of directors and executives should provide oversight and accountability for corporate sustainability strategy and performance. Of the 27 companies assessed, just over one-quarter (seven companies) explicitly assign oversight of ESG issues to a board committee, while another seven companies formally assign executive management oversight for sustainability; and five companies (19 percent) have both in place. In addition to designated oversight, leading companies are also beginning to link executive compensation to ESG performance—providing much needed incentive for achieving sustainability targets and goals.  Among the technology hardware companies, however, no companies have made such a link.

Social and environmental policies and management systems are key tools for managing sustainability issues. Nearly 60 percent of companies in the sector have in place environmental policies, coupled with and externally certified environmental management systems (EMS). The majority of companies assessed have policies in place that address corruption and non-discrimination (70 percent and 89 percent respectively), but policies that address freedom of association and working conditions are less common (48 percent and 37 percent respectively). Xerox’s environmental policy outlines the company’s commitment to managing the environmental impact of its operations, its suppliers, and product lines, specifically addressing climate and energy, product reuse and recycling, and hazardous substances. The company also articulates its labor and human rights commitments in accordance with the United Nations Universal Declaration of Human Rights and International Labor Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work.

STAKEHOLDER ENGAGEMENT

Leading companies in the technology hardware sector are engaging a diverse set of stakeholders on an ongoing basis; however, more than 60 percent of the companies assessed for this sector are not disclosing how stakeholder input is incorporated into business decision-making.

Dell stands out for its commitment to ongoing stakeholder engagement, reaching out to a group that includes NGOs, government, the Socially Responsible Investment (SRI) community and trade associations to inform its business practices. The company indicates that engagement with stakeholders is a key part of its process to identify material sustainability issues and outlines its responses to stakeholder input from in its company reporting. Only one technology hardware company (EMC) ranked higher than its peers for the expectation on investor engagement, demonstrating that there is potential for significant improvement from this sector. Several technology hardware companies are actively engaging with the SRI community through investor road shows and dedicated calls with SRI analysts. This approach should be expanded so companies are proactively communicating their sustainability goals and performance to investors more broadly at annual shareholder meetings and quarterly earnings calls.

DISCLOSURE

Disclosure is essential to a robust accountability system. More than half of the companies tracked (15 of 27) publish a dedicated sustainability report, 12 of those companies report at some level of accordance with the Global Reporting Initiative (GRI) guidelines.  Five companies (20 percent) assessed are included in Tiers 1 and 2 for their disclosure of sustainability issues that goes beyond regulatory risks in financial filings.

Many companies, including Dell, HP, and QUALCOMM are increasingly using social media and blogs as a vehicle for sharing information about their sustainability efforts with employees, consumers and a broader public audience.  Demonstrating the value of these real-time communication mechanisms, Cisco has used its blog to respond directly to community concerns following allegations of complicity in human rights violations in China through its sale of products and services.

PERFORMANCE

OPERATIONS
While many of the sustainability challenges faced by technology hardware companies relate to product use and supply chain management (discussed below), there are challenges and opportunities associated with direct operations as well. Two-thirds of companies (18) in the sector have reported some actions to address operational GHG emissions, half of which (9 companies) have clear reduction programs with targets and deadlines. Motorola Mobility’s target is to reduce its absolute GHG emissions by 10 percent between 2011 and 2016. This target follows a notable 45 percent absolute reduction achieved between 2000 and 2010.  Cisco set a 25 percent reduction goal between 2007 and 2012, which includes Scope 1 and 2 emissions as well as business travel under Scope 3. EMC has set a long-term goal of reducing GHG emissions by 80 percent by 2050 from 2000 baseline, roughly in-line with the recommendation from the Intergovernmental Panel on Climate Change (IPCC) for an 80 percent reduction of GHG emissions by 2050 from a 1990 baseline.

More than 60 percent of companies are reporting on some Scope 3 GHG emissions sources, but primarily this disclosure is limited to emissions from business travel and not the more significant emissions embedded within the supply chain or products. Motorola Mobility stands out as the only company reporting on Scope 3 emissions in product use and disposal. Capturing and disclosing Scope 3 product data is increasingly expected of this sector as the energy footprint for technology products is highest in the use phase of their lifecycle.

Companies in this sector are also demonstrating leadership when it comes to sustainable facilities, with 70 percent of the companies (19 of 27) evaluated making investments in sustainable facilities and buildings. The industry's data centers are of particular importance due to their significant energy and cooling requirements. Many technology hardware companies are members of The Green Grid, a multi-stakeholder consortium providing leadership on addressing energy efficiency of data centers. The Green Grid developed power usage effectiveness (PUE) as a metric for monitoring the ratio of a data center’s total energy usage (including cooling and lighting) compared to the amount of energy used strictly for computing.

This new metric and comparable information should support additional improvements in reducing the energy impacts of data centers.  EMC’s data centers for example, automatically track and report energy data, comparing power used for computing to power used for other purposes, such as cooling and lighting. This enables management of the company’s specific energy consumption needs. EMC’s new data center in Durham, N.C. incorporated efficient designs to achieve industry benchmarks for data center performance and the company expects the facility to achieve LEED Silver certification.  In addition to designing efficient data centers, companies need to site data centers in locations where there is access to renewable energy.

SUPPLY CHAIN
Technology hardware companies rely on complex, multi-tier supply chains that span the globe to bring products to market. In addition to traditional supply chain management challenges such as quality and continuity of supply, technology hardware companies face significant human rights and environmental challenges.

The 2010 and 2011 worker suicides at Foxconn facilities in China brought to the forefront serious concerns regarding labor rights and working conditions in the supply chain that all technology hardware companies must address. Though Foxconn is a major supplier to a number of major companies in this sector, Apple was the highest profile company to face allegations that the company’s heavy production demands have resulted in high stress levels, including suicides among their suppliers’ employees. In response, Apple released a list of its suppliers, as well as a progress report on the company’s auditing process and results. It also hired third-party auditor, the Fair Labor Association (FLA), to undertake a comprehensive assessment of working conditions at key supplier factories in China. FLA’s findings were made public in March 2012, leading to commitments by Foxconn to limit worker hours and increase wages for its more than 1.2 million employees.

HP has demonstrated leading practice in managing supply chain risks. It has established supplier standards and monitoring systems, audits it suppliers and provides detailed reporting on its audit findings. HP also addresses the issue of working conditions at Foxconn and its response to related concerns in its sustainability report. HP monitors the environmental performance of its suppliers and has requirements for management systems to ensure compliance with materials and manufacturing specifications in accordance with regulations as well as its own targets. To bring greater transparency and understanding of suppliers’ sustainability performance, HP, Dell and Apple are requesting sustainability reports from their top suppliers.

Given that social and environmental supply chain risks are largely shared across the technology hardware sector, there is a relatively high degree of collaboration among companies and key stakeholders to enhance supply chain management. The Electronics Industry Citizenship Coalition (EICC) is an example of an industry association where many of the sector’s major players, such as HP, Dell, EMC, Apple, and Cisco, have developed a standardized code of conduct for the electronics supply chain that addresses environmental and social monitoring standards.

The EICC has also played an active role in developing a standardized approach to compliance with anticipated regulations surrounding conflict minerals. Tin, tantalum, tungsten and gold are prominent in electronics products and their production and trade has been identified as a source of funding for rebel groups implicated in extreme human rights abuses in the Democratic Republic of the Congo. Apple, Dell, HP, Motorola Mobility and Motorola Solutions are among the leaders working toward solutions to address the need for a more transparent supply chain and to manage risk of exposure to conflict minerals. The EICC and the Global e-Sustainability Initiative (GeSI) are collaborating on a conflict-free smelter certification program. In its supplier reporting, Apple states that as an early step, it has mapped its suppliers to understand which ones use these minerals and which smelters provide the minerals. Part of its initiative is outreach training with suppliers on conflict minerals and the EICC-GeSI program.

TRANSPORTATION
Given their extensive global supply chains, management of distribution logistics represents a strategic opportunity to reduce both costs and environmental impact. Twenty-two percent of companies analyzed indicate they are implementing programs and targets to reduce GHG emissions from outsourced logistics services. However, close to 80 percent of the sector does not disclose formal commitments to reducing GHG emissions from their distribution logistics, which constitutes a missed opportunity for both cost-savings and sustainability leadership.

Dell and Lexmark are both participants in the U.S. EPA’s SmartWay program. Dell uses less carbon-intensive shipping options like marine and rail transport in place of air cargo when possible. Its strategy also includes designing packaging with lighter materials, such as air cushioning and bamboo packaging, and packing products more densely in shipping containers to reduce transportation energy use.

PRODUCTS AND SERVICES
Information and communications technologies reportedly contribute to approximately 2 percent of global GHG emissions each year and up to 1.5 percent of global electricity is consumed by data centers, an amount that more than doubled between 2005 and 2010. Design for sustainability, therefore, is critical to this sector as it develops innovative products and solutions to increase efficiencies and reduce environmental impacts.

Technology hardware companies must take into account the entire life cycle of the product, including materials sourcing, manufacturing, distribution, use and disposal. Rapid innovation cycles for technology hardware are contributing to the increase of electronic waste or “e-waste”, and leading companies are addressing this challenge through design innovations that allow for repair, disassembly, material recovery, re-use and closed-loop manufacturing. More than 40 percent of the companies assessed systematically integrate environmental considerations at the R&D stage.

Regulations such as the Restriction of Hazardous Substances (RoHS), Waste Electrical and Electrical Equipment (WEEE), and Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) directives from Europe are also driving improvements in material use and electronic waste. Lexmark, for example, is using life cycle assessment approaches in line with ISO 14040 and ISO 14044 to inform design strategies. Other companies, such as Dell, HP, and Apple have used the Greener Electronics Council’s Electronic Product Environmental Assessment Tool (EPEAT) to certify products that comply with strict environmental criteria throughout the life cycle.

In addition to improving the environmental profile of their products, technology hardware firms are also delivering solutions that can shift consumer behavior and reduce overall energy consumption. For instance, HP’s Halo and Cisco’s TelePresence video communication tools reduce the need for transportation in parallel with the ability to increase communication and collaboration throughout an enterprise. Technology companies are also facilitating integration and use of data in infrastructure optimization. For example, Cisco’s network innovations are being applied in smart grids to improve monitoring and management of electricity distribution. Information technology tools can help electricity systems adapt to shifting demand and to incorporate new power generation sources, such as renewable energy.

EMPLOYEES
The technology hardware sector relies on a highly skilled and innovative workforce as manufacturing is increasingly outsourced and design for sustainability becomes more strategically linked to product and service offerings. However, just 26 percent of the companies in this assessment have introduced employee engagement initiatives that address sustainability issues. The sector does not appear to be establishing comprehensive employee engagement strategies that solicit employee input in identifying sustainability issues and strategies that are material to the company’s business model.