Information Systems for Environmental Sustainability

IT, Resource Productivity, Environmental Preservation, and the Fourth Industrial Revolution


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COP21 Global Climate Deal – What’s in it & what’s the IT angle?

Here’s a summary from the BBC:

What are the key elements?

  • To keep global temperatures “well below” 2.0C (3.6F) and “endeavour to limit” them even more, to 1.5C

  • To limit the amount of greenhouse gases emitted by human activity to the same levels that trees, soil and oceans can absorb naturally, beginning at some point between 2050 and 2100

  • To review each country’s contribution to cutting emissions every five years so they scale up to the challenge

  • For rich countries to help poorer nations by providing “climate finance” to adapt to climate change and switch to renewable energy.

 

And here’s a recently refined initiative develop by and applying to technology industry organizations (from WBCSD):

LCTPi is a unique initiative in terms of size, scale and potential impact. The global program is an unprecedented demonstration of the determination of business to collaborate across sectors and bring solutions to help governments in addressing climate change.

  • 9 LCTPi groups are in operation: renewable energy; carbon capture and storage; low carbon transport fuels; low carbon freight; cement; chemicals; energy efficiency in buildings; forests and climate smart agriculture.

  • 85 companies have made 93 endorsements of LCTPi (see annex 1) and are ready to move to implementation.

  • Over 1000 high level business representatives and policy makers have participated in international dialogues conducted across five continents and in all key emerging markets.


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HSBC: Accelerated Drive to Low Carbon Economy is Better for Global Economies

Nick Robins, head of the Climate Change Centre of Excellence at HSBC, discusses benefits, costs and risks of a transition to a low-carbon economy last September at the Stockholm meeting of the Global Challenges Foundation.

Nick calls this “disruptive change” and describes a “digital networks” wave of disruption giving way to a “climate business” wave of disruption. I would agree, though I think the interesting opportunities lie in the transition from digital networks to climate business.


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Climate Risk Regulations Vs Enforced Regulations: The IT Elephant in the Room

In 2010 the SEC published “interpretive guidelines” for corporate disclosure of risks related to climate change, summarized in this table by Ceres (p. 8):

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The Interpretive Guidelines were hailed as an important step forward in providing material information to investors regarding climate change risks.

Did the Guidelines impact corporate disclosures in financial statements (10-Ks)?

Ceres analyzed all S&P 500 10-k filings from 2009 to 2013, finding that:

Most S&P 500 climate disclosures in 10-Ks are very brief, provide little discussion of material issues, and do not quantify impacts or risks. Based on this report’s 0-100 scoring scale, electric power companies received an average score of 16.7 for the quality of their SEC reporting—by far the highest industry average. Even within this group there was high variability in the quality of reporting. (Ceres, p. 5 [my emphasis in bold]).

What to make of these results?

Ceres recommends that the SEC: “devote increased attention to climate risk disclosure by issuing additional comment letters in response to inadequate disclosures, and educate registrants about how to comply with the Guidance.” (p. 28).

Regarding firms, Ceres essentially says: do a better job identifying climate risks and opportunities and disclosing these to the SEC. Ceres refers to the need for “systems, processes and controls to gather reliable information” but misses an important opportunity to address an underlying necessary condition to fulfilling SEC guidance:  implementing and managing specialized information systems for capturing, processing, and analyzing information related to energy, carbon emissions and other important environmental sustainability information.

It would be impossible for firms to comply with financial regulations without such systems, and it’s no different with environmental regulations. Imagine global corporations trying to comply with complex accounting and finance regulations using homegrown spreadsheet models developed and managed by one person: it wouldn’t work. The same applies to environmental regulations.

Here’s the bottom line.

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Guidance, regulations, board-level oversight, internal controls, emission reduction targets, management incentives, and reporting requirements are all well and good. But without addressing the IT elephant in the room – grossly inadequate information systems focused on environmental management information – I don’t foresee any significant changes in actions and impacts.


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Many Large US Companies Internally Price Carbon

Do U.S. companies view energy and carbon emissions management as being strategic, and are they taking actions to back this up?

On the one hand, business lobbying groups such as the U.S. Chamber of Commerce don’t think government should be involved in pricing carbon emissions:

In a letter to Congress, the Chamber, which represents more than 3 million businesses, says the Clean Air Act is “not the appropriate vehicle to regulate greenhouse gas emissions” and warns the EPA’s GHG emissions limits for power plants will raise power prices with “negative implications extending to nearly every segment of the economy.”

On the other hand, CDP disclosures indicate that some major US companies appear to be self-regulating:

Twenty-nine major publicly traded companies based in or operating in the U.S. disclosed an internal price on carbon pollution to CDP (formerly known as the Carbon Disclosure Project) in 2013, detailing both the risk and potential business opportunity for early action by their companies.

What does this mean in practice? It’s possible that these 29 firms (and possibly others which price carbon but chose not to disclosure it) are using these prices in investment decisions. This means that these companies are taking actions to back up beliefs about carbon emissions pricing and the impact on the cost of doing business going forward. It also means that information systems for capturing, storing, analyzing, and reporting such data (which I call Carbon Management Systems) are becoming increasingly strategic.


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GHG Data Reported by U.S. Universities and Presented by EPA

I scraped the EPA website for University GHG emissions (not available for download), made a bar chart excluding those with < 50K MTCo2e in 2011, and added colors to group by climate (my own eyeballing of cold, mild, warm):

screen-capture-20Some things to note:

  1. This is not normalized on a per capita or area basis, so comparisons are tentative.
  2. Top 5 emitters (MSU, Purdue, Iowa State, Michigan, Illinois) are all in the midwest.
  3. UCLA is the largest emitter in a warm climate.
  4. Given the nature of the data, it is unclear whether reported emissions derive from generated electricity, heating, or cooling (or other stationary sources?)
  5. Not inculded in the chart are a few universities that reported with fewer than 25K (rule minimum). Not sure why this is.
  6. Certain cold weather climate unis have far lower emissions (BU at 53,900) versus others in cold climates (Purdue at 408,928), probably due to how they heat buildings (but I don’t have data to back this claim up).

Thanks to the EPA for making these data visually available. Also, thanks for their ruling that these data are not confidential (allows them to release to the public). It would be great to have better analytics – top of my list would be some kind of normalization to allow for apples to apples comparisons (by sq. ft. or by heat production technology or something).


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Mandatory GHG Reporting for Firms Listed on London Stock Exchange

The UK’s Department for Environment, Food and Rural Affairs (DEFRA) has ruled that firms listed on the LSE must report emitted greenhouse gasses from the start of the next financial year (typically April 2013).

According to DEFRA’s Final Impact Assessment:

What is the problem under consideration? Why is government intervention necessary?
Businesses can save money by reducing their emissions, e.g. by minimising energy and resource use. Even when measures to reduce emissions are cost effective, there may be barriers preventing action such as lack of information, transaction costs and organisational inertia (see section 4.1 to 4.7).

Regulating to require GHG reporting will ensure that quoted companies have the information and tools to reduce emissions, and, by creating consistency of disclosure, will provide investors and shareholders with information on climate change risks to inform their investment decisions.

Regulation is required because voluntary approaches have not led to a sufficiently high level of reporting nor consistency of reporting.

According to consultancy Carbon Trust:

The Carbon Trust’s ten-year experience footprinting the carbon emissions of companies shows that reporting, far from being a burden, can help deliver significant cost saving and enhance corporate reputation and new revenue opportunities.

There are indeed examples of global corporations that have reaped cost savings due to reduced energy use obtained via better carbon emission / energy management. At the same time, it’s unclear how firms achieve these cost savings: what  complementary capabilities are required, what is the role/impact of advanced IT systems for managing carbon emission and energy data, is there more low hanging fruit in certain industries than others, etc. It is also unclear how and to what extent firms achieve intangible value such as reputation and enhanced innovation.

More research is needed to connect anecdotal claims (which are valid by themselves) with underlying conceptual reasons that explain how and under what conditions actions lead to outcomes in the carbon emission and energy management domain.

It is also unclear how this rule may impact rule setting in other countries directly (imitation) or indirectly (cross-listed global corporations enhance practices to meet LSE rule and apply those practices to all their operations globally).


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EU: IT Carbon Footprinting Standard Needed

The EU has launched an initiative to develop a standard methodology for measuring the energy and carbon footprint of information technologies:

ICT-organisations from across the world have joined forces to measure their energy consumption and carbon emissions according to several methodologies for footprinting goods, services, networks and organisations. The aim of this initiative is to test the workability and compatibility of the methodologies for footprinting in the ICT-sector. This business initiative is initiated by the European Commission DG Information Society and Media.

The overarching goal is to come to consensus within the global ICT-sector and converge towards a common methodological framework for the measurement of the energy consumption and carbon emissions arising from the production, transport and selling processes of ICT goods, networks and services. Establishing this framework is an important priority of the Digital Agenda for Europe.

As Tom Raftery at GreenMonk reports:

It is tremendous to see this kind of global leadership from the EU. While this only applies to the EU, it does require the development of measurement and reporting systems for whole IT ecosystems and that can only be a good thing. In time, the hope would be that these systems are used well beyond the EU and by all IT providers.

I agree that better information (reliable, accurate, systematic) from cloud providers about their energy use and carbon emissions is a step in the right direction. Also, market forces may play an important role here, such as pressure from customers to report energy and carbon emissions. Frameworks such as those developed by GeSI below help to think about the impacts of digital business on the environment.



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Regulation begets Innovation (sometimes at least)

The UK CRC Energy Efficiency Scheme requires detailed and systematic energy and GHG emission reporting.

Reporting requires innovative new GHG emission services and systems.

So, at least in the UK, CRC would appear to be stimulating markets for carbon management systems and related services.

This in no way implies that CMS is a silver bullet.

Here’s some evidence from a recent survey that lack of knowledge about requirements and regulations may hinder successful innovation within organizations:

  • 22% of senior IT professionals admit that they haven’t heard of the CRC Energy Efficiency Scheme.
  • 28% of respondents state that they are aware of the scheme and have investigated whether their organisation qualifies or not
  • 42% state that they are aware of the CRC Scheme but are unsure whether their organisation qualifies.

Julian Buck, Managing Director of Version One, which developed the survey, emphasizes:

With qualifying organisations requiring suitable software systems to enable them to monitor, measure, report on and reduce their carbon emissions, it’s vital for IT Directors to be fully aware of the CRC, its requirements and its IT implications.


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Strategic Sustainability Information Management (SIM)

AMR Research surveyed 189 U.S.-based manufacturing firms about their 2010 sustainability and GHG information management practices. My reading of the report supports a set of trends and patterns that are consistent with what I observe in my own research: 1) SIM is strategic; 2) the sustainability information silo is crumbling rapidly; 3) SIM capabilities  do not meet SIM requirements. Detail follows.

1. Sustainability information management (SIM) is strategic

Listing the top drivers for enterprise sustainability initiatives, competitive advantage dropped in the 2008-2010 time period from 33-12% and business value dropped from 29-28% but compliance increased from 11-27% (leaving aside the issue of unreported standard error, which would indicate whether these differences are statistically significant).

AMR interprets these trends as “a great leap backwards”. I interpret as one-shot rapid response to 2010 EPA Mandatory Reporting Rule (as in now), i.e., perturbation on a long-term trend rather than a structural shirt. Supporting this is their own conclusion that

Companies are going to require smart information-enabled application support. This is a focus of real change in the manufacturing and wider economy— and its where sustainability directly connects to cash.

We are seeing the emergence of many lenses through which to define the sustainable software landscape. An important area of differentiation is the development of solutions designed to support either strategic, aggregated top-down approaches or granulated and typically operational bottom-up approaches. Currently the market is seeking and being supported by one or other approach. We anticipate that in the future we will see the increased merging of these patterns to develop fully integrated and smart solutions.

2. Information requirements are shifting from standalone to business ecosystem sharing

Organizational requirements for greater transparency of sustainability data combined with external regulatory reporting demands is shifting the scope of SIM. As an offshoot, more probing eyes will examine the data, meaning that its accuracy and reliability will be under greater scrutiny. As the report discusses:

Companies required to report on Scope 3 emissions will not only need to build consistency into processes and develop standards for the collecting and reporting on embodied carbon and other environmental factors inside products, but they will also need to be able to share this information throughout the supply chain.

3. Information capabilities lag rapidly changing information requirements

Excel and other in-house systems with “multiple versions of the truth” still dominate:

Delaying this realization [of standardization/complete integration], not to mention the emergence of more complete architectures, are the mass of in-house constructed, legacy systems approaches and continued reliance on Excel spreadsheets. Over half of the respondents indicate reliance on these systems approaches to support their GHG management efforts, and 31% said these are the most valuable to solutions.

And employee resistance is also present:

The data shows that operational employees are still in need of education on the merits of newer deployment models. Part of any resistance they show could be attributed to the comfort level with in-house and legacy systems.

This is an understatement and may suggest/promote “managerial IT unconsciousness” (Avison et al. 2006). Prior IS research indicates that agency, usability, and other issues will play a significant role in the effectiveness of new systems that require employees to do things differently on a daily basis. Unanticipated outcomes? Low adoption rates under the radar due to “workarounds,” high turnover, questions of job skills and job definition, etc., all adding up to implementation delays, increased project cost, delayed benefit realization, and risk of failure (Some evidence of IT project challenges).

Here’s the data, splitting it by internal solutions versus outsourced solutions (though it’s not fully clear how the question was asked) [full report]:


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GHG Regulation & Data Management: 2 U.S. Reporting Rules

At least two regulatory mechanisms are in place as of January 2010 in the U.S.

EPA Final Mandatory Greenhouse Gases Reporting Rule 

* Applies to all facilities emitting more than 25K tons CO2e (similar to Australia).


 

And EPA has an “electronic system” for reporting:


One implication of the EPA rule, according to Pace, is that

Spreadsheet-based reporting will no longer be adequate: Many organizations currently track carbon and sustainability data within Excel-based spreadsheets managed by internal resources. EPA will not accept these files for annual GHG inventory reports. Rather, reporters will need to transmit GHG inventory reports, supporting data, and unit and facility information electronically via an XML format. Alternatively, reporters can manually enter completed inventory records into the EPA system, but this approach will result in duplicative efforts and is prone to error. 

SEC Climate Risk Disclosure for Public Companies

The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.