Top five telcos for sustainability in path to net-zero

STL Partners’ 2022 telecom’s sustainability scorecard benchmarked performance of 45 companies (telecoms operators’ and a selection of adjacent market companies) against seven sustainability related criteria. Companies included Telefonica, Verizon, Microsoft, Amazon, KPN, Apple, BT, Meta – see the full 45 companies here.

Sustainability Criteria

STL Partners’ sustainability scorecard benchmarks the performance of a selection of companies against seven sustainability-related criteria which extensibly relate to company commitments to net-zero, biodiversity, and social and governance targets, as well as their activities to enable customers to achieve net-zero ambitions. They are designed to highlight the areas in which the listed companies are more and less mature in their sustainability strategies.

  • Based on this seven criteria, the scorecard shows that companies with a global footprint are generally more mature with their sustainability strategies and energy market dynamics play a big role in companies’ carbon intensity.

Top five sustainability telcos

KPN ranked 4th

stl-partners-sustainability-score-card-top-five-telcos-2022

Source: STL Partners

The sustainability scorecard recognises the top five telecom telecom operators in terms of their sustainability efforts and journey towards achieving net-zero. They include:

  1. Telefonica has been reporting on its scope 1 and 2 emissions for more than 10 years, and achieved its 2020 sustainability targets two years ahead of schedule. Its goal to reach net zero in scope 1 and 2 emissions by 2025, and including scope 3 emissions by 2040 is among the most ambitious in the industry. In 2021 it was on the CDP’s “Climate A List” of 200 best practice companies for the 8th year in a row.
  2. Verizon – Since 2014, ESG factors (split equally between diversity, supplier diversity and carbon intensity reduction) have accounted for 5% of short term incentive rewards for employees. In 2020 this increased to 10% of the STI award for corporate employees — including for their CEO, Hans Vestberg. In 2019 Verizon appointed a Chief ESG Officer, reporting directly into the board, supported by an Executive Climate Oversight Committee. In 2020, Verizon aligned their reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). By 2021, Verizon had issue three individual green bonds of $1bn each.
  3. Proximus – Like Telefónica, Proximus scores highly on its transparent and detailed reporting on sustainability KPIs. In 2021, alongside its annual report Proximus published an excel ESG Factbook for the first time, covering energy, emissions, abatement, circularity and supply chain (as well as social and governance KPIs) back to 2017.
  4. KPN uses both short-term and long-term incentives to promote sustainability in the Board of Management. If sustainability targets are met, KPN grants its Board of Management share-based awards. For example, sustainability targets made up 12.5% of share-awards until 2018. In 2018, environmental targets rose from 12.5% of total LTI to 15%.
  5. SK Telecom has evaluated its CEO’s performance on financial and non-financial KPIs for over 5 years, but in 2019 increased social value to 50% of the CEO’s KPI – although it does not specify the contribution of environmental targets to the social value KPI. Nevertheless, the strong focus on social value has likely contributed to SK Telecom’s efforts to begin applying its experience in digital service innovation to carbon reduction. Examples of this can be seen from SKT’s happy habit project and mobility as a service initiatives (see our Telecoms net-zero enablement use case directory for more detail).

How did 40 other telecoms and adjacent market companies score?

This research tool is part of STL Partners’ Sustainability Insights Service, which aims to identify how the telecoms industry can drive growth through sustainability

• It is accompanied by an excel scorecard
• It builds on recent reports, as well as our Telecoms net-zero enablement use case directory

Green Finance: Why telcos should not count on an easy ride

Green Finance: Why telcos should not count on an easy ride

Telecoms operators have benefitted from their relative appeal for ESG (Environmental, Social and Governance) funds. Operators should not underestimate these benefits in the future or take them for granted.

Green finance investors following ESG (Environmental, Social and Governance) principles have tended to spurn certain sectors (fossil fuels, tobacco, defence, aviation, steel) and favour others.  Telecoms has done well from this. Analysis by MSCI[1] of the 20 largest ESG funds shows that telco stocks make up 5-13% of non-sector specific ESG funds.

What is green finance and why is it important for telcos?

Green finance is investment activity designed to deliver improved environmental activities. Telecom operators have benefited from the sector’s benign credentials and from the general perception that access to communications and the internet is a force for good. Some operators have also embraced ESG objectives as an intrinsic part of their mission, for example through net-zero emission commitments. This has further bolstered their ESG credentials.

Although it is hard to estimate how much telecoms operators have benefitted from their relative appeal for ESG funds, this still represents a (modest) reduction in cost of capital, particularly when compared with the sectors that have been spurned. An indicator of ‘greenium’ that sustainable investments command is provided by analysis of German Bund market.

 

Source: Financial Times

Why green financing should not be taken for granted

However, three sets of developments mean that operators should not underestimate these benefits in the future or take them for granted.

  • Firstly, ESG investments are no longer niche. Global ESG funds have risen to over $1 trillion. In 2021 sustainability-linked bonds issuance also reached the $1 trillion mark. Meanwhile, wider finance is undergoing green-ification. What were previously considered not particularly ESG investments are becoming… well… more ESG-ish.
    • For example the Glasgow Financial Alliance for Net Zero (GFANZ) is a global coalition of leading financial institutions committed to accelerating the decarbonisation of the economy. Its members currently include more than 250 financial firms responsible for assets in excess of $88 trillion.
  • Secondly, investors are getting smarter, more discerning and increasingly active. The message is clear: greenwash will not wash.
    •  For example, we are seeing the emergence of Active ESG (AESG) investors, who engage with portfolio companies to induce change, often by securing a seat on the board. Some target companies that are ESG laggards rather than leaders.
    • Investors are increasingly focusing on Real-Zero as opposed to Net-Zero commitments. Real-Zero (originally a Greenpeace campaign) is Net-Zero without offsetting.  The well-established UN-backed SBTi (science-based targets initiative) does not allow inclusion of offsetting to meet emissions commitments.
  • Thirdly, ESG funds are becoming more regulated.  The days when a fund could define its own interpretation of ESG are over. European and US reporting is tightening and setting the pace for investments globally.

Implications for Telecoms CFOs

  1. Ensure the entire C-suite is sustainability literate and incentivised
  2. Push for your own LTIP to be linked to your stock’s inclusion in ESG funds
  3. If you haven’t yet, sort out disclosure on all emissions, i.e. Scope 1, 2 and 3
  4. Get committed, ideally through globally recognised initiatives such as CDP/SBTi
  5. Drive sustainable objectives and align incentives throughout the organisation
  6. Issue green bonds, which takes work but provides a route to cheaper capital

[1] The Top 20 Largest ESG Funds – Under the Hood: Rumi Mahmood, MSCI ESG Research April 2021

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