Telecoms companies take first steps on emissions cuts
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Keeping phone calls and data packages whirring around the world requires huge amounts of energy. It is no wonder, then, that the telecoms sector — with its vast underground cable networks and its data centres storing troves of information — accounts for between 1 and 2 per cent of all energy consumed globally, according to industry estimates.
However, this year, the top three companies on FT-Statista’s list of Europe’s Climate Leaders were telecoms groups: Sweden’s Tele2 and Telia and Germany’s Deutsche Telekom. They cut greenhouse gas emissions from their in-house operations and from the energy they purchased — so-called Scope 1 and 2 emissions — by 99, 96 and 93 per cent, respectively, between 2016 and 2021. And a total of seven companies within the sector made it into the top 100.
The two main drivers of emission reductions at the top three groups were a push to buy renewable electricity and significant upgrades of energy inefficient infrastructure.
But, while companies have made leaps and bounds in shrinking their Scope 1 and 2 carbon footprint, emissions are still high in their supply chains.
Emissions directly from business activities (Scope 1) now represent just 3.2 per cent of the total carbon footprint of the 15 largest telecoms groups in Europe by market capitalisation, according to S&P Global Market Intelligence. Indirect emissions from the companies’ purchases of energy (Scope 2) account for about a quarter.
But emissions from the telecoms’ groups’ supply chains (Scope 3) — most notably from the supply of products and equipment — make up by far the lion’s share of their total carbon footprint: those same 15 companies emitted 36.6mn tonnes of CO₂-equivalent as part of their Scope 3 emissions in 2020, compared with just 1.6mn tonnes from Scope 1, according to S&P.
Scope 3 emissions accounted for more than 98 per cent of Tele2’s total and 90 per cent of Telia’s. In general, the biggest culprits are manufacturers of networks and networking equipment, as well as the producers of phones and mobile devices.
“There is an urgent need to transition from the current linear economic model into a more circular economy,” says Erik Wottrich, head of sustainability at Tele2, referring to the need to reuse and recycle more products.
This, he explains, requires “systemic change, where we need to engage with multiple actors of the value chain: manufacturers, customers, repairers”.
“There is a lot of room for more collaboration,” agrees Melanie Kubin-Hardewig, vice-president of group corporate responsibility at Deutsche Telekom, where Scope 3 accounts for 98 per cent of group emissions.
Both believe that placing more pressure on partners in the supply chain is important, to create better strategies to cut emissions.
In 2020, Telia started including climate thresholds and targets as criteria in its procurement process.
“That’s the carrot,” says Sara Nordbrand, Telia’s group head of sustainability, noting that some suppliers have shown a willingness to engage in measuring and demonstrating better practices.
Deutsche Telekom also includes sustainability criteria in the selection process for its suppliers, which it currently weights at 20 per cent for tendering processes.
Tele2, by contrast, has not yet included emissions reductions as a demand in its code of conduct for business partners, and plans to do so only after it has spoken to suppliers and required them to put their own targets in place over the next year.
What has enabled the big strides in companies’ own emission reductions is a shift towards using renewables rather than fossil fuels to power networks. Both Tele2 and Telia started purchasing all of their electricity from renewable sources in 2020, allowing them to reduce their Scope 2 emissions by 94 and 85 per cent, respectively. Telia is using carbon credits to make the final leap to 100 per cent Scope 2 emission reduction over the same period.
Deutsche Telekom has also only been using renewable electricity since 2021. But both it and Telia are now looking to secure more power purchase agreements (PPAs) with renewable energy providers, to create long-term arrangements that help shield the providers from market fluctuations.
A recent report from the consultancy Oliver Wyman found that telecoms operators source about 11 per cent more renewable energy than the average of the countries they are located in — and it added that more PPAs would help to accelerate this shift across the industry.
But, in some ways, the transition to renewables is low-hanging fruit. Energy efficiency is bigger challenge. As Steven Moore, head of climate action at GSMA, the mobile industry association, points out, “when energy is a very big cost for you, you do everything to minimise it”. Procuring energy currently accounts for up to 40 per cent of telcos’ operational expenditure. However, while there was a 30 per cent increase in data traffic between 2020 and 2021, energy consumption increased by only 6 per cent, according to GSMA estimates.
One factor that has led to this decoupling of data traffic and energy use has been the upgrading of networking infrastructure, including the rollout of full fibre and 5G technology. The new equipment tends to be much less energy-intensive than its predecessors.
But 5G networks could require even more energy than 4G — up to 140 per cent more in some scenarios — because they generally require more cell towers. And data traffic is set to escalate sharply as more devices connect to the internet, which could offset 5G’s gains on power-efficiency.
Telia has been experimenting with new functionalities, such as network “power saving modes”, which helped reduce energy consumption by between 5 and 8 per cent last year. It has also started pilot projects for using smart lithium-ion batteries to offload pressure on the grid at times of peak demand.
Tele2 has been rolling out base stations with a new power saving feature, so that they switch to standby mode when there is no data to send. It is considering consolidating sites and data centres where possible to reduce consumption.
Meanwhile, Deutsche Telekom has a pilot project assessing how artificial intelligence could help manage energy consumption based on demand at certain times of the day. It is also exploring how to store more renewable energy on site.
But, for Moore, “the most challenging area is around Scope 3”. “There is guidance out there on how to measure and report,” he observes, “but companies need to work more closely with suppliers if they want to achieve targets.”