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Technology: Software & Services

Companies in the Technology Software & Services sector are playing an important role in addressing key sustainability challenges through the development of innovative software solutions and services. Search engines and online marketplaces, where millions of e-commerce transactions take place daily, allow users to make purchases without driving to stores and connects buyers to products previously owned, extending product lifespan and promoting reuse.
Software & Services
Accenture
Activision Blizzard, Inc. Adobe
Akamai Technologies, Inc. Alliance Data Systems Corporation
Ansys, Inc.
Autodesk, Inc.
Automatic Data Processing CA Technologies
Citrix Systems, Inc.
Cognizant Technology Solutions Corporation Computer Sciences Corporation
Ebay Inc.
Electronic Arts Inc.
Equinix, Inc.
Facebook, Inc.
Fidelity National Information Services, Inc.
Fiserve Inc.
Google, Inc.
International Business Machines Corp (IBM)
Intuit, Inc.
Leidos Holdings, Inc.
LinkedIn Corporation Mastercard Incorporated Microsoft Corporation
Nuance Communications, Inc.
Oracle Corporation Paychex Inc.
Rackspace Hosting, Inc.
Red Hat, Inc.
Salesforce.com
Symantec Corporation Synopsys Inc.
Teradata Corporation
Total System Services, Inc VeriSign, Inc. Visa, Inc. VMware, Inc.
Western Union Co.
YAHOO! Inc.

Key Findings

  • Very few Software & Services companies have accountability for environmental and social issues at the board and executive levels.
  • The majority of the Software & Services companies do not exceed Tier 4 expectations for stakeholder engagement in general, although there has been modest improvement in the degree to which sector companies engage with investors.
  • While more companies are disclosing sustainability risks and opportunities in their financial filings, the Software & Services companies demonstrate weak transparency overall.
  • With sixty percent of the sector falling in Tier 4 for the Ceres Roadmap’s expectations on GHG emission reductions, there is much room for improvement, particularly to mitigate the impacts of energy-intensive data center operations.
  • The sector’s poor performance on the Ceres Roadmap’s products and services expectations may be misleading; disclosure with respect to sustainable product and service offerings may lag behind development and availability of such offerings.
  • While there has been notable improvement, 67 percent of Software & Services companies are still missing a significant opportunity for recruiting and retaining employee talent by inspiring them through a sustainability mission.

 

Introduction

The Internet is changing the way individuals interact, conduct business, and even consume.  Similarly, “cloud computing” (i.e., the remote hosting of software and infrastructure accessed through the Internet) is transforming how consumers and companies access and store information. Because users share the infrastructure, cloud computing is often seen as a “green” option—more energy efficient and less resource demanding than traditional computing.  As such, hardware, software and computing services companies, broadly referred to as the Information Technology and Communications (ICT) sector, can play a critical role in helping customers address sustainability risks and opportunities. According to a 2011 report, cloud computing can save large U. S. companies $12.3 billion on energy costs and reduce GHG emissions by over 85 million tons annually by 2020. The challenge is whether the proliferation of data and booming storage requirements will far outpace the efficiency gains cloud computing has facilitated.

For those companies in the Software & Services sector that provide the technological foundation that underpins our economy, energy management and efficiency are priority material sustainability issues.  These companies also have enormous opportunity to provide the innovative solutions required to shift to a more sustainable economy. Some companies provide products and services that enable customers to reduce impacts by improving energy and water efficiency and waste management. Others are disrupting traditional business models, for example, by creating platforms to enable the “collaborative” or “sharing” economy, which reduces consumption by replacing ownership with temporary access to goods and services.

This sector is also faced with a unique and growing set of human rights implications. As recent events have highlighted, data security, privacy, access and freedom of expression are growing concerns. The NSA privacy controversy and recent lawsuits brought by large internet companies, such as Google, Microsoft, and Yahoo!, against the U.S. government for their right to be more transparent about private data requests highlight the complexity of issues for this sector. As more and more personal information lives on the cloud, Software & Services companies must address data security and privacy risks for their own operations and for their customers.

This analysis examined the performance of a diverse group of 40 companies against the Ceres Roadmap expectations: 16 software companies (application, systems and home entertainment software), ten data processors, nine Internet services companies, and five IT consulting firms. While a small group of Software & Services companies have demonstrated limited improvement against some of the key performance indicators of the Ceres Roadmap, this sector has a long way to go to reach the full vision for 2020.

Companies in this sector lag behind those in the Technology Hardware sector and generally perform poorly on the Roadmap’s governance, stakeholder engagement and disclosure expectations. Constant changes in executive leadership, management and corporate culture due to growth and frequent acquisition may be hindering efforts to establish strong accountability systems for sustainability. And poor performance in these areas likely explains why companies in this sector have not made more progress in key performance areas such as renewable energy, sustainable products and services and engaging employees.

Governance Section Icon

 

GOVERNANCE FOR SUSTAINABILITY

     

  • Very few Software & Services companies have accountability for environmental and social issues at the top; board and executive management oversight is lacking.

 

Accountability measures are critical in ensuring that sustainability is a priority and integrated throughout the business. Unfortunately, companies in this sector have made little progress since 2012—particularly in establishing high-level oversight for environmental and social issues.

With regard to board oversight, 78 percent (31 companies) have failed to establish formal oversight, placing them in Tier 4 with respect to this expectation. Only 18 percent (seven companies) perform at a Tier 1 level, having made sustainability a responsibility of the board—these results are virtually unchanged from 2012.

Even fewer companies in this sector have C-level oversight of sustainability issues; in fact, performance measured against this Ceres Roadmap expectation has actually declined since 2012. Only two companies—Cognizant Technology Solutions and Autodesk, met Tier 1 expectations, compared to seven in 2012.

In response to growing concern among investor stakeholders, some Software & Services companies, particularly those providing Internet Services, have established C-level accountability for privacy matters. Facebook and IBM, for example, have established Chief Privacy Officer positions that report directly to the CEO, and Yahoo! created a Chief Information Security Officer role. Whether this is the leading edge of a trend toward creating C-level accountability for other sustainability issues, such as diversity, remains to be seen.

Board oversight, executive-level oversight and additional accountability mechanisms are especially important given the frequency of mergers and acquisitions within this sector.  With strong governance for sustainability, newer programs and commitments may be less at risk during CEO turnover or during business restructuring.

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Stakeholder Engagement

     

  • The majority of the Software & Services companies do not exceed Tier 4 expectations for stakeholder engagement in general, although there has been modest improvement in the degree to which sector companies engage with investors.

 

Weak efforts to engage with a diverse set of stakeholders on a regular basis place more than three quarters of Software & Services companies (31 companies) in Tier 4 with respect to the Ceres Roadmap’s stakeholder engagement expectations.  While there has been some progress by companies in this sector relative to 2012, most of this improvement has been in the context of increased engagement with investors. Forty-eight percent (19 companies) are engaging with investors, up from just 8 percent in 2012. However, only IBM, Oracle and Accenture disclose investor engagement practices that are consistent with the Ceres Roadmap’s Tier 1 or 2 expectations, which include referring to material sustainability risks and opportunities within two or more investor modes of communication, such as annual meetings and investor roadshows.

IBM engages investors through a number of vehicles, including an annual call and Webcast with a diverse group of IBM executives sharing a performance update on the company’s sustainability performance. IBM uses its 10-K filings to provide investors with updates on material issues, such as cybersecurity, privacy, employee retention and environmental risks.

By engaging stakeholders in their materiality assessment processes, three companies¾, Symantec, CA Technologies and Accenture¾rank in Tier 1 for focused engagement activity; in 2012, only one company met this level of performance.

Symantec defines the company’s universe of stakeholders and describes how they engage external stakeholders to determine the company’s material sustainability issues. Symantec subsequently shares with its stakeholders the company’s determination of the highest priority issues, as informed by stakeholder input.

Disclosure Section Icon

 

Disclosure

     

  • While more companies are disclosing sustainability risks and opportunities in their financial filings, the Software & Services companies demonstrate weak transparency overall.

 

There has been limited improvement in this sector’s transparency and disclosure of sustainability performance results. Fewer than a third of this group publish sustainability or corporate social responsibility reports, compared to nearly half of the Technology Hardware sector. Only 23 percent (nine companies) are utilizing the Global Reporting Initiative’s (GRI) guidelines.

However, there has been some progress in this sector with respect to expectations for disclosure of sustainability risks and opportunities in financial filings. By disclosing information beyond compliance-related matters, 43 percent (17 companies) are now categorized as Tier 1 or Tier 2 performers, compared to only 18 percent (seven companies) in 2012.

Accenture performs at a Tier 1 level for financial filing disclosure based on its discussion of how the company helps customers address their own sustainability challenges, including meeting emissions reduction targets and increasing energy efficiency.

There are also some interesting examples of innovation in transparency within the sector. For example, eBay created a dashboard to track and disclose the energy usage of its data centers, cost savings and efficiency results on a quarterly basis. The company also shares the methodology behind its Digital Service Efficiency (DSE) metric to spur measurement and transparency among other companies in the sector.

Performance Section Icon

 

Performance: Operations

     

  • With sixty percent of the sector falling in Tier 4 for the Ceres Roadmap’s expectations on GHG emission reductions, there is much room for improvement, particularly to mitigate the impacts of energy-intensive data center operations.

 

The most significant opportunity for GHG emission reductions for Software & Services companies is in the large data centers that power cloud computing and the Internet. These centers, at times spanning acres, have extraordinary heating and cooling needs because the equipment must be maintained in a carefully controlled environment. While most of the software companies in this sector have one or two data centers, colocation company Equinix has more than 100.

Overall, only nine companies (compared to seven in 2012) perform within the Ceres Roadmap’s Tier 1 or 2 expectations for reducing GHG emissions and sourcing renewable energy. Sixty percent (24 companies) fall into Tier 4.  And while 63 percent (25 companies) have a program and/or goal to reduce GHG emissions, only 35 percent (14 companies) take the additional step of establishing a quantitative, time-bound target.

Adobe moved from Tier 3 to Tier 1 performance based on a strong commitment to reduce GHG reductions as part of its Net Zero plan for 2015. The company aims to achieve net zero emissions at its owned and controlled facilities (equivalent to 50 percent of operations), which would require a 75 percent reduction by 2015 from a 2000 baseline.

Microsoft, to meet a similar net zero emissions commitment, set an internal price on carbon for each business unit to incorporate into their planning cycles. This is a mechanism to drive accountability for carbon reductions within the business and incentivize teams to contribute to a central fund for renewable energy and offsets.  Microsoft has publicly shared its methodology so other companies can implement a similar carbon-pricing model.

While efficiency gains play an important role in reducing emissions, the growth trajectory for data centers makes it critical for companies to turn to renewable energy alternatives. Only six companies in the Software & Services sector —Accenture, Adobe, CA Technologies, Google, IBM, and Microsoft—source more than 10 percent of their primary energy from renewables.  Several companies have made commitments toward using 100 percent renewable power for their data centers, including Apple, Facebook, Salesforce.com, Rackspace and Google.  Additional companies should follow suit and, ideally, set deadlines in order to establish greater accountability for these targets.

Google currently meets 33 percent of its electricity needs using renewable energy sources.  In order to continue to expand access to renewable energy at its present and planned data centers, Google joined together with Facebook and Apple to persuade Duke Energy to offer additional renewable electricity purchasing in North Carolina through a program called the Green Source Rider, which was approved in 2013 as an offering for its largest customers.

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Performance: Supply Chain

     

  • Since 2012, companies in the Software & Services sector have made little progress in addressing sustainability issues within their supply chains.

 

Because most companies in this sector do not rely heavily on a global supply chain, the supply chain risks they face are not as serious as those that confront other sectors.  Nevertheless, companies are still expected to proactively manage the environmental and social impacts of their supply chains.

With respect to the Ceres Roadmap expectation that companies will align procurement procedures with sustainability performance, sector results are poor. Seventy-eight percent (28 companies) have yet to establish a policy or program on green procurement or have done so only on a very limited basis. However, five companies—Autodesk, CA Technologies, Microsoft, Oracle, and Salesforce.com – are Tier 1 performers in aligning procurement practices with environmental sustainability criteria. Only one company performed in Tier 1 in 2012.

Five of the Software & Services companies have established systems or programs to monitor suppliers’ compliance with social standards, but with only one exception these are the same companies that met Tier 1 performance in 2012. There is significant room for improvement from other companies in the sector.

A few companies have started to encourage suppliers to capture and disclose their sustainability performance.  Microsoft laid the groundwork in 2011 by asking a group of suppliers to use the GRI framework to report back on performance in key environmental and social areas.  By collecting this data from suppliers, the company could use the information to inform future training and capacity-building.

Performance Section Icon

 

Performance: Products & Services

 

  • The sector’s poor performance on the Ceres Roadmap’s products and services expectations may be misleading; disclosure with respect to sustainable product and service offerings may lag behind development and availability of such offerings.

 

No sector is better positioned to address today’s sustainability challenges by offering technological solutions than Software & Services.  But due to the sector’s weak disclosure on sustainability performance, companies are failing to score well against the Roadmap’s products and services expectations.  For example, no companies met the Tier 1 or 2 “design for sustainability” expectations. Thirteen companies (33 percent) achieved Tier 3 scores by having some efforts to promote, innovate or invest in sustainable products and services. Autodesk, IBM, Microsoft, and Oracle, for example, sell products that drive more efficient energy and water use, or support green design, but do not disclose any efforts to promote or expand these product lines.

Some Internet services companies in this sector are reducing environmental impacts through their own innovation in product and service offerings. For example, new platforms that leverage social networking and mobile technology enable individuals to access goods and services from each other, rather than purchasing new products—an economic model known as the “collaborative economy.”

eBay teamed up with apparel company, Patagonia, to re-sell previously used Patagonia clothing or gear as part of what is called the Common Threads partnership. By promoting reuse, the companies aim to reduce the environmental impacts of consumption. Such practices also encourage durability in the design of consumer goods and apparel.


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Performance: Employees

     

  • While there has been notable improvement, 67 percent of Software & Services companies are still missing a significant opportunity for recruiting and retaining employee talent by inspiring them through a sustainability mission.

 

The market for talent in the technology field is highly competitive and strong candidates often have multiple opportunities.  Increasingly, highly desirable employees are putting a premium on working for companies they believe are sustainability leaders. Between 2012 and 2014, the number of companies actively engaging their employees on sustainability issues (Tier 1 and 2 companies) tripled—to 12 companies from four.  However, nearly 70 percent (13 companies) are still not training, communicating with or otherwise engaging employees in their sustainability efforts. Engaged employees are often more productive and loyal, and sustainability is an important way to demonstrate how a company’s values align with one’s own.  We expect this positive trend to continue as companies strive to attract and retain the best talent and build a compelling company culture.

Educating and inspiring employees to look for ways to improve products and operations, and providing them with the tools and opportunities to communicate their observations and ideas to management, is a first step all companies should take. Often employees in the Technology sector are innovators and creative thinkers, making them an important resource for companies looking to achieve real change.

eBay, Intuit and Rackspace, have “green” teams that allow employees to drive sustainability initiatives.  Other companies, such as IBM, have leveraged the core competencies of their employees to tackle major social issues such as urban sustainability through “Jam” events—large-scale online collaborations.

Many companies are also encouraging sustainable behavior at home by providing tools for their employees to measure their impacts.

CA Technologies uses a program called “CA Sustain” that provides information and gamifies individual behavior to promote environmentally and socially sustainable lifestyles.  Within the first six months of launch, the company had 1,100 employees who collectively took 35,000 sustainability-related actions in North America alone.

Given the massive impact technology has on society, the more employees can be made aware of and actively engaged on environmental and social issues, the more likely that impact will be a positive one.

 

Explore the interactive data to see how the Technology Software & Services sector performed across all Ceres Roadmap expectations in the 2014 Gaining Ground report.