Natalya Makarochkina – Senior Vice President, Secure Power Division, International Operations, Schneider Electric
New business concepts transcend existing approaches to open up a new way of thinking. Sustainability now requires such a trajectory. Total Cost of Sustainability is a new business concept for thinking about and implementing sustainability that continuously assesses all aspects of a sustainability strategy, extending beyond ESGs and sustainability targets.
Total cost of ownership is cited as a comprehensive assessment tool or “an analysis that looks at the hidden costs beyond price”. Business concepts develop to give new perspectives and insights.
In technology, total cost of ownership had particular resonance for CIOs, where the capital expenditure for a new data centre was highly impacted by the design configuration,operating costs improved with energy efficiency, and reliability costs were carefully balanced with mitigating the risks of any outages – also costly in terms of business reputation. Utilising these headings, the various impacts both positive and negative, could be more fully understood.
Today, the potential negative impact or ‘cost’ with regards to sustainability, and protecting our planet, is more critical. Most organisations agree it is essential to conduct business operations sustainably, in a way that allows not only our environment, but economies and societies to thrive. In light of the challenge, it’s time to expand our approach.
The vision for the future of sustainability happens primarily in the C-suite. Driven by the CEO, the CIO is pivotal in partnering with senior executives as digital transformation and sustainability reach an inflection point driven by the rapid technological advances in AI.
A Holistic C-Suite Concept for Businesses at the Forefront
This year, Schneider Electric was named as the world’s most sustainable company by TIME Magazine. Our definition of sustainability is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. It’s a holistic approach that considers the economic, social, and environmental aspects.
Attitudes towards sustainability have evolved significantly in recent times, even within the last year or so. One study found that almost a third (30%) of executives report having made significant progress in executing sustainability strategies, which is up from 10% on the year previously. While many admit to still struggling to find investment, there is little doubt that boardroom attitudes are changing to incorporate sustainability as part of everything, from product lifecycles, and services, to operations, procurement, and HR.
Companies at the leading edge of sustainability are looking for better initiatives and solutions ahead of any imposedlegislation. It’s about innovating from an organisational perspective to not only constantly transform but to also guide customers and partners along their own sustainability transformation.
Total Cost of Sustainability is a way of thinking about and implementing sustainability that continuously assesses all aspects of a sustainability strategy, including costs, business benefits, reputational standing, market perception, social, and environmental impact.
This concept is a holistic approach and gap analysis tool, that can be a catalyst to reshape boardroom thinking, as organisations seek to gain in-depth visibility across the business.
Increasing Environmental Visibility and Reach
Environmental, Social, and Governance (ESG) commitments are being matched with economic considerations, and integrated more closely with operations, and business leaders are already seeing benefits.
Digital technologies can be both tools and catalysts in these efforts. A good example is the evolution of Data Centre Infrastructure Management (DCIM) to encompass a more diversedigital infrastructure portfolio. The data and intelligence from next-generation DCIM allowsorganisations to meaningfully report Scope 1, 2 and 3 emissions, while also interconnectingcustomers, partners, and suppliers within an entire ecosystem.
In the future, it is anticipated that this kind of reporting will go beyond to address areas such as resource use in land and water, as well as possible pollution. Circular efforts to reuse, re-engineer and recycle equipment also mean a reduced need for resource extraction, further lessening impact.
There are already many such instruments covering products. An independent system for Environmental Product Declarations (EPD) includes not just the embodied carbon of manufacture, but also extends across the five pillars of Life Cycle Assessments (LCAs), and through total cost of ownership. Embracing this facility, more than 80% of Schneider Electric’s product range is now covered by EPDs, in the form of Product Environmental Profiles (PEP). While EPDs can vary according to manufacturer and product category, a PEP is a version of an EPD for use with electrical and electronic equipment (EEE) and HVAC products following specific category rules.
A recent open letter from the iMasons Climate Accord group, including Schneider Electric, emphasised the value of EPDs as a critical tool in measuring the embodied GHG footprint of digital infrastructure, urging their industry-wide adoption.
There is also a significant movement to include sustainability as part of software development with Sustainable Software Engineering and the Sustainable Software Development Life Cycle (S-SDLC).
More transparent and detailed reporting will be part of new regulations, such as the European Energy Directive that required data centre operators to report key performance indicators to the European database by late 2024, then in May 2025 and subsequent years. Such regulation is likely to see similar measures in other jurisdictions, which will likely inform overall sustainability strategies.
All such efforts will rely on the availability, quality, and reliability of data, but the digital transformation wave of recent years has meant that every business is becoming a digital business and so is more data driven and accustomed to collecting, analysing, and acting upon derived intelligence.
Beyond Just Cost, Responsible Business
A positive social impact first and foremost speaks to the integrity and values of a business, and should be the prime motivator in, and of, itself. However, people are far more aware of these aspects, and so there is also a reputational cost that plays a key part in aligning the company’s total cost of sustainability.
A business must be able to bear the cost and thrive while being sustainable. As the previous cited survey showed, despite growing numbers of executives achieving success in implementing sustainability strategies, they still struggle to find investment, and yet, studies now support the idea that companies with strong ESG values and activities also correlatewith strong financial performance.
Sustainability must be socially equitable too, ensuring that everyone can participate and contribute as well as benefit. An example is access to energy, where it empowers local communities to thrive socially and economically, but balance the use of renewable energy.
There must also be a more expansive environmental protection element, that goes beyond lessening impact and into areas such as conservation and biodiversity. Sustainability has a stewardship duty, ensuring that a liveable environment is provided for future generations to enjoy.
The Economics of Future Talent
There are also benefits that are incurred, from a top down and a bottom up perspective. The average tenure of a CEO in a Fortune 500 company has been just over 7 years for about a decade, however, the median within that range has fallen by 20% since 2013, at 6 years. A recent survey of CEOs found that more than three quarters (77%) said that delivering on broader societal demand to accelerate their sustainability journey is a priority. With the indications of increasing career mobility among CEOs and such a strong commitment to delivering on ESG values, companies that have already established a strong ESG record will attract the top-level talent at the highest level.
However, this translates to talent acquisition at every level. Younger people are more career mobile and have been shown to seek out companies and positions that align with their own values, offering more than just a pay cheque. A strong sustainability profile is becoming more important in attracting and retaining the best talent as it is now seen as a broader indicator of a company that is well run, aware, and willing to stand on strong values. Societal attitudes too are changing, as consumers use their buying power to express their own values.
This also highlights the importance of social and gender equity with skilling future talent. To ensure that there are opportunities for all, especially to redress the balance in digital infrastructure, to benefit from a diverse workforce of different ways of thinking, which bolster innovation.
Transcending Effect
Total cost of ownership previously provided a new, more valuable way of assessing a key aspect of doing business. Sustainability is moving the same way, with not just the cost, but the derived benefits being equally recognised.
As sustainability becomes a higher-level consideration in every aspect of business, beyond compliance, to a way of life – Total cost of sustainability as a holistic approach and business concept allows leaders to change perceptions to maintain their excellence.
Society is striving towards more responsible stewardship, and companies that continue to perform best at being sustainable, will be the successful ones to do business with, and to aspire to join.
