Telcos and decarbonization

Decarbonization represents a significant challenge for telcos, given the significant energy requirements to maintain existing network infrastructure and to continue expanding and developing technologies for next-generation networks.

But it also represents a significant opportunity to meet growing consumer expectations around sustainability, enable operational cost reductions, become a good corporate citizen and potentially benefit from green financing mechanisms that open the doors to more access to capital.

Leading global telcos have made big, bold commitments and set targets to decarbonize. Fleet electrification, as well as procuring green energy, will be vital, particularly in a 5G world. But decarbonization also involves a completely different approach to business, including circular economic models and sustainable value chains. When we think about the broader upstream and downstream carbon emissions, the types of decarbonization initiatives required are significantly more complex but are equally as important as they often represent the majority of a telco’s carbon footprint.

Finding the right decarbonization strategy is key to achieving broader climate change commitments, including net zero. But there is no silver bullet — telcos will need to consider their network asset management strategies, electrification initiatives and digitisation opportunities, in addition to external procurement of low-carbon and renewable energy sources.

The rapid pace of technological change in the telecommunications industry will continue as the largest players roll out 5G networks through 2027. 5G is already being rolled out in certain regions of Canada, with download speeds that are 205 per cent faster than 4G.¹

Although many Telcos have designed their 5G networks to be more energy efficient, densification and the increase in data traffic is expected to consume more energy compared to previous generations. Despite this, 5G and hyper-connectivity are set to be the key that unlocks the inherent potential in technologies such as Big Data, the Internet of Things, future mobility and autonomous vehicles, artificial intelligence, and augmented reality. These and other emerging technologies will aid large scale organizations in enterprise architectural enhancements, cost optimization, enhanced security, and machine learning capability. While the societal and digital transformation benefits are clear, there is a need to balance these advancements with sustainability initiatives.

Telcos that operate critical assets and infrastructure face market uncertainties and emerging risks—from climate change to evolving reporting and regulatory standards, shifting consumer demands, aging assets and financial pressures. This is where digital twins can play a key role in any decarbonization strategy.

Network resiliency has become table stakes for telcos as physical climate events increase in frequency and intensity. Telcos can use digital twins to create a digital representation of their assets, network or value chain. They can then overlay potential climate and business scenarios onto their grids—such as projecting the lifecycle of fibre versus copper—which can in turn inform sustainability initiatives.

The IoT can also help telcos monitor their networks to solve for complex ESG considerations, including by allowing network operators to remotely monitor cell towers from a centralized location. In addition to telecommunications equipment, cell towers contain generators, meters and other types of equipment.

IoT devices provide the ability to monitor parameters such as energy consumption, fuel usage, leaks, battery life and temperature, with notifications if there is any violation of these parameters. They also provide the ability to monitor safety parameters—such as the detection of physical damage or unauthorized intrusion—as well as environmental parameters such as fire or strong winds. Leading telcos will take advantage of IoT capabilities to improve network resiliency and support efficient energy use.

Learn more about how to leverage digital twins or IoT in your organization by contacting KPMG’s Ignition Centre, an innovation, analytics and advanced technology hub designed to spark new thinking and fuel transformation.

While there is still some uncertainty around the timing, 3G networks are expected to be decommissioned in Canada by late 2025.³ However, telcos are simultaneously upgrading their grids to 5G, while maintaining 4G LTE footprints. As a result, they’re tasked with reducing waste streams connected to their network infrastructure, particularly as they decommission legacy technology, while reducing e-waste from data centers and devices.

However, decarbonization can’t just happen at the facility or operational level; it needs to happen throughout the value chain, starting with corporate strategy and sustainable procurement decisions. A circular economy approach emphasizes the preservation of products, materials, and resources for as long as possible by maximizing the product lifecycle and minimizing waste to promote a regenerative and restorative economy. This approach directly impacts a telco’s Scope 3 GHG emissions found in the upstream and downstream value chain.

Original Equipment Manufacturers, service providers and governments will also need to collaborate in bringing the circular economy to life. Several European countries are developing standards and methodologies to integrate circular business models into the Information and Communications Technology industry, such as reducing materials being sent to landfill or reinjecting materials into different value chains. One such example is the Circular transition indicator framework, which is a circular metrics framework designed by business for business to help with monitoring and managing the transition to a fully circular business model.⁴ Canadian telcos can leverage these existing tools and knowledge—perhaps even leapfrogging ahead in the development of their own circular models, thereby reducing their overall carbon footprints.

Governance will play a large role in any decarbonization strategy. Traditionally sustainability teams have been tasked with calculating the organization’s carbon footprint and then reporting on it. Due to heightened consumer awareness, investor expectations and rising energy costs, energy efficiency is increasingly a table stakes agenda item for Boards. Now, organizations are finding ways to reduce that carbon footprint by integrating decarbonization initiatives throughout the entire business and going beyond just the operational carbon footprint.

Setting an internal carbon price can be used to incentivize and mobilize a decarbonization strategy. An internal carbon price places a monetary value on carbon, at the company’s discretion, which is then factored into investment and strategic business decisions. By monetizing carbon for internal decision-making purposes, by design it exposes high-carbon projects or investments and may trigger companies to explore low carbon alternatives or adapting projects, so their business case is more favourable.

Once set, corporate level decarbonization targets should be cascaded into individual business units (Network, Field Operations, IT, Finance, etc.) and KPIs actively monitored, with robust financial models also developed to ensure decarbonization targets will be achieved. Financial models should not only consider internal decarbonization initiatives, but planned procurement of renewable energy sources and forecasted energy prices.

Telcos can differentiate themselves by understanding how their products and services can drive the transition to a low-carbon economy. That means evaluating existing business models to incorporate circularity, forging partnerships or alliances that enable sustainability throughout the value chain and setting ambitious goals and timelines that challenge current business operations.

Setting targets and articulating how to achieve those targets should be at the top of the priority list. But telcos will need to tailor their targets based on what resources are available to them both internally and in the Canadian market. These targets should include:

• Energy consumption
• Procurement of renewable energy
• Governance (such as creating climate change committees or energy boards)

KPMG knows the power of ESG and how it can transform your business. KPMG in Canada can help you enhance trust, mitigate risk and unlock new value as you build a sustainable future. From quantifying decarbonization targets to forecasting carbon reduction initiatives, we can help integrate investor friendly ESG reporting into your annual report. Our dedicated Canadian and Global Telecommunication teams can also help you benchmark your sustainability approach against global peers, operationalize decarbonization initiatives, and develop your 5G and IoT strategies. Wherever you’re at on your decarbonization journey, we can help you get to net zero.

Our KPMG Telco and ESG specialists can help you navigate the road ahead.