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Let’s talk about climate change and the IT channel supply chain

Let’s talk about climate change and the IT channel supply chain

Can partners put a price on carbon consciousness?

Credit: Unsplash

According to Neil McMurchy, research vice president at analyst firm Gartner, much of the drive behind such initiatives for big cloud services and software vendors is probably coming from the investment community.

“It [customer demand] is probably non-existent,” McMurchy told ARN. “But it’s going to change. Any publicly traded vendor is well advanced in terms of their ESG. From a capital market perspective, investors...are putting a value on compliance.  

“The large vendors and smaller vendors too...whether it’s altruistic or if it’s the case that they don’t want to be a standout, those suppliers are going to do it.

“Eventually it will work through the procurement processes of end customers. Even now, there will be some procurement departments increasing their compliance focus on ESG.”

Indeed, many of the big capital investment firms have, over the past several years, developed a fierce appetite for companies that align with the evolving environmental responsibility concerns and requirements of investors.

US-based multinational investment management firm BlackRock, for example, has been busy positioning itself as a global ESG leader – and this has affected many of the decisions the company, considered by many to be the largest asset manager in the world, has made in recent years.  

In 2020, BlackRock’s chairman and CEO Larry Fink famously wrote an open letter addressed to CEOs of major companies everywhere revealing that climate change was almost invariably the top issue raised by its clients – investors – around the world.

“From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios,” Fink said in the letter. “They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs and demand across the entire economy.

“These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself.  

“In the near future – and sooner than most anticipate – there will be a significant reallocation of capital,” he added.

In his letter, Fink took his firm’s position a step further, stressing that BlackRock would begin to be “increasingly disposed” to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.

This, no doubt, would have been a wake-up call to the companies BlackRock and other firms like it, invest in.

It is significant that BlackRock is known to be among the top investors in Microsoft which, even among cloud and software vendors, seems to be ahead of the curve.

Clearly, if there’s little or no direct demand for climate-conscious operations from customers, directives from institutional investors appear to be having no small effect on the actions of their investments.  

As McMurchy suggests, these top-down initiatives are likely to be trickling down through the IT supply chain, all the way to procurement.  

And this is at least one reason why channel players should have climate change and carbon emissions on their radar – especially from a supply chain perspective.  

Another reason, according to McMurchy, is that making moves to address environmental considerations in the IT supply chain is probably good for business.

“It’s going to play out through procurement,” he said. “Does the channel need to worry about it at the moment? No. But they have to think about it because it will become part of what they need to do [to be on the playing field].

“Ultimately, larger organisations are going to insist on a level of compliance right through the IT supply chain. Is it urgent? No. Is it demand driven? No. But why would you not do it? It’s ultimately good business,” McMurchy added.

It turns out that McMurchy’s observations are already playing out in at least some areas of the channel, if not others. 

Although conversations about carbon emissions footprints and ESG more generally don’t appear to be particularly widespread in the cloud and software services space, they are definitely becoming more prominent on the hardware side.  

Anecdotally, it seems that there is legitimate demand among at least a handful of larger partners in the hardware space for environmentally sustainable practices and ESG initiatives more broadly across the IT supply chain, including vendors and their upstream partners.  

This is being driven by many of the customers that larger partners often find themselves pitching work for, such as large enterprises and government organisations.

It should be noted that, on this front, such demand fluctuates throughout the entire Asia Pacific region. In Australia, for example, it seems that the demand for an environmentally-sound supply chain remains very much in its infancy, although it is definitely present.  

In Singapore, however, where the government has been particularly progressive on such matters, it would make sense that the demand for partners to meet stringent ESG requirements is very much alive and well.  

Singapore, considered the top hub in ASEAN for data centre sites, has even placed a moratorium on new data centre developments due to environmental impact concerns, effectively pausing all new data centre facility development applications.

As such, some partners are now finding themselves employing environmental aspects provided by their vendor partners as a 'pass to play' in a particular market or as a point of differentiation – this is especially true in the hardware space, where there are considerations of logistics and manufacturing emissions in addition to the general carbon footprint any organisation would need to think about. 

From McMurchy’s perspective, carbon emissions and ESG considerations in general throughout the IT supply chain should not be thought of merely a point of competitive differentiation, but more as a factor that can help partners and vendors “get on the playing field” for various market sectors.  

And while the private sector – with the exception of large enterprises at the big end of town – continues to see little overt demand for such considerations, the government sector seems to be coming to the party, with partners that service the public sector increasingly finding themselves needing to comply with certain conditions if they want to vie for government work.

Naturally, this need fluctuates from market to market, but it does appear that the government sector, being particularly beholden to top-down regulatory initiatives, is driving some demand for organisations with a sound ESG footing in their own businesses and across their supply chains.  

McMurchy suggests that this expectation will continue to spread out across industry.

“If you're in the IT supply chain, you have to assume it will become a baseline requirement to play,” he said. “Will it happen to tomorrow? No. But why would you not do it now?  

“For the majority of players in the value chain...why not do it? You have to assume that, probably, in about four or five years, maybe faster than that, if you want to sell to big enterprises, you’ll need to get your act together. There may not be a commercial advantage, but it's a licence to play.”

The message? Even if partners aren’t already getting asked point-blank about the emissions footprint of their supply chains or about their internal ESG policies, they should get ready for such questions to come their way in the near future.

Some partners are already taking the plunge. Japanese IT services group NTT, for example, revealed on 4 November a series of commitments to reduce its carbon footprint, including a pledge to work towards achieving net zero emissions across its operations by 2030 and its value chain by 2040.

For others, perhaps it's time to follow suit.

“Demand will be relatively hidden at the moment, but you’ll have to assume it will roll on very quickly,“ McMurchy said, noting that the procurement process is increasingly coming with check-box lists for things like diversity and inclusion (D&I) policies and ESG policies.

“I think every participant in the supply chain has to assume it will be a get on the playing field requirement. Is it going to provide competitive differentiation? No. But it will make a difference. It’s a good thing to do. And don’t assume it’s a cost. Ultimately there is an economic benefit,” he said.  


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Tags MicrosoftGartnerSupply Chainclimate changeNeil McMurchy

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