How sustainable are software companies?

Technology will help us live in a better world. Are software companies ready to take their responsibility for a sustainable transformation of the global economy?

One of my favourite films of all time is “Imitation Game”.¹ It revolves around the life of the mathematical genius Alan Turing², who deciphered the famous “Enigma” codes of the Nazis during World War II and thus saved many lives. Turing later developed some of the earliest computer programs before computers even existed. He remained a hero, motivated to solve some of the world’s biggest problems, and understood how to involve science, and especially technology, in the solution. He was also one of the first researchers in the field of artificial intelligence.

I can only imagine how rewarding it must be for inventors and programmers to develop powerful software, solve serious problems or prevent cyber attacks. I still found a way to participate in the exciting world of software – and I continue to do so as a sustainability consultant for technology companies.

On the one hand, sustainability means minimising negative impacts on the environment and society. On the other, it means maximising the good impacts of our actions. We always try to find a balance between these two aspects, and that also applies to companies.

When we talk about sustainable business, we consider two parts:

1. The way a company runs its own business (the “footprint”).
2. How its products and services help other organisations to be more sustainable (the “handprint”).

How can software companies measure and report the sustainability of their own operations?

How sustainable a company is depends on its specific business model, industry, size and geographical reach. The sustainability criteria used to measure and improve different aspects contribute to what we call a company’s “footprint”.

The sustainability reporting standards issued by the International Financial Reporting Standards (IFRS)³ and the recently established International Sustainability Standards Board (ISSB)⁴ contain industry-specific metrics. They enable comparability within an industry and form the basis for assessing materiality. The SASB standards, which are now part of IFRS, list the following disclosure topics for software and IT services:

• Environmental footprint of hardware infrastructure
• Data protection and freedom of expression
• Data security
• Recruitment and management of a global, diverse and skilled workforce
• Intellectual property protection & competitive behaviour
• Managing systemic risks from technological disruption.

If you are familiar with the ESG5 acronym, you will notice that these issues span all the letters – from Environment to Social and Governance issues.

Analysing the sustainability criteria specific to software and IT is a pragmatic way to start your reporting. It creates transparency for investors who are used to this type of reporting and for regulators. It also gives all stakeholders a clear overview of a company’s sustainability performance. Clear metrics and KPIs complement the guidelines with real performance data that is comparable over time and within the industry.

One of the key disclosure areas required by both European and global standards is the description of the company’s strategy, including an analysis of sustainability-related impacts, risks and opportunities. This analysis goes beyond the boundaries of the company and extends to the supply chain, the partner ecosystem, customers and the environment.

Maximise positive impact

“Handprint” is a term used to complement the commonly known “footprint” and focuses on the positive impacts of organisations. It was developed by the Centre for Environment Education⁶ in India and is “a measure of what we can do individually and collectively to restore the balance between consumption and the planet’s carrying capacity.”

According to the portal klimafakten.de, the handprint is a concept that can create more optimism by making the positive effects of climate protection visible and tangible. It brings inspiration instead of frustration, action instead of paralysis. In addition, communication about efforts and results to promote positive impacts plays a key role.

Most software companies strive to maximise their positive impact by providing tools for their customers, companies or end users, to become more sustainable. Many people who work for these companies see their purpose as being part of a larger mission – to change the world. I know I am doing that.

Sustainable transformation: people, processes and technology

For a company to be successful, it must consider the triangle of people, processes and technology. Sustainable transformation touches on the same aspects:

• People: ESG is not the responsibility of one person (the Director of Sustainability), but a team effort that spans all departments and is led by senior management.
• Processes: Sustainability should be integrated into all processes. If it is limited to a single department, it often stays in the CSR (Corporate Social Responsibility) department.
• Technology: As with people and processes, sustainable operations software should be integrated into all other management tools of the company.

One example is sustainability reporting: it is based on data from different departments stored in different systems – from ERP to CRM, from HR to production.

Another example is circular economy. If the current planning software only supports the classic models of manufacturing and sales, but the company plans to move to a subscription model, i.e. renting instead of owning and repairing instead of replacing, the transition will be difficult. No one wants to tear down and replace an entire ERP system.

Recycling products is another area that requires a fundamental digital transformation. The way companies take back used products, dismantle them and reuse the components must be reflected in accounting, materials management and all other relevant systems.

Software and IT service providers have a crucial role to play here, as they can initiate or prevent this transformation.

Software companies: helping users become sustainable

So what does this mean for software companies? They need to integrate sustainability into their software landscape. If they offer niche solutions such as ESG reporting or emissions measurement and management, they need to ensure that the solution can be integrated into existing systems. Niche solutions can replace manual, Excel-based reports – but they should not stand alone or be separate from the company’s core systems.

For sustainability to work at the core of the company, it must be integrated into all processes. Existing software solutions must therefore be flexible enough to support profound changes in the organisation.

The good news for software companies and their leaders is that their offering is a multiplier for the positive, as it will help many of their customers become more sustainable. Software must be the foundation of sustainable operations. This is the new digital transformation. Your legacy as a leader in the software industry is your positive impact on users. Your handprint will contribute more to your legacy than your footprint.

Alan Turing probably didn’t foresee the hype that ChatGPT and other AI tools have generated this year. But his early research and his famous “Turing Test” to see if a computer is capable of thinking like a human have inspired generations.

Companies in the so-called “green tech” industry are developing tools for various areas of sustainability, such as emissions measurement, supply chain transparency and reporting. There are new and innovative applications of AI in sustainability. Software and tech companies have numerous opportunities to make a sustainable impact on companies and society. The immense ways in which software can change the world is a commitment today.

Notes:

Do you want to increase your positive impact on the environment, social issues or governance. Then it is certainly worth visiting the beautiful website of Dunn & Falkenstein Consulting.

[1] The Imitation Game
[2] Alan Mathison Turing was a British mathematician, computer scientist and cryptanalyst. He described a significant part of the theoretical foundations of information and computer technology and is considered one of the most influential theorists of early computer development. The A. M. Turing Award is the highest award in the field of computer science and is comparable to the Nobel Prize or the Fields Medal.
[3] IFRS – International Financial Reporting Standards
[4] ISSB – International Sustainability Standards Board
[5] ESG – Environmental, Social and Governance
[6] Centre for Environment Education

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