The Role of ESG in Shaping the Future of Cloud Computing

Environmental, social and governance (ESG) performance has become invaluable in minimizing carbon footprint, boosting waste management and enhancing board diversity in the cloud computing industry. The rising footprint of cloud services across healthcare, automotive, media, gaming, financial services, public services and e-commerce has furthered the need to bolster the sustainability profile. Brands are expected to use AR/VR, edge computing, big data, blockchain and cloud-native technologies to foster brand recognition, complement sound corporate behavior and bolster sustainable investing.

ESG strategies have gained prominence in the wake of surging environmental awareness and consumers’ willingness to pay premium prices for sustainable products. Environmentally and socially conscious practices have become prevalent to attract and retain investors and customers. Cloud computing service providers have exhibited profound traction to expedite their ESG progress. For instance, the Google Cloud Platform offers carbon-free energy scores for Google Cloud regions, enabling companies to choose GCP locations optimized for reduced carbon emissions.

Environmental Perspective

The global push to meet sustainability goals has prompted forward-looking organizations to achieve their ESG objectives. Industry leaders are inclined to use green equipment in data centers to minimize power consumption. Moreover, businesses are expected to receive impetus from recycling and reuse to reduce waste and capital expenditure. In essence, Google suggests that 5 of its data centers operate at almost 90% carbon-free energy (CFE). With data centers continuing to be sought-after in the energy transition, sustainable cloud services will witness investments galore. In August 2021, the American giant announced an infusion of USD 1.2 billion in Germany’s Cloud Computing Program by 2030 to undergird cloud computing infrastructure and renewable energy usage.

Social Perspective

Diversity representation and the emphasis on inclusivity have become a viable portfolio to foster a positive change within the company and across societies. Prominently, women account for over 30% of the Microsoft workforce globally. Moreover, women in technical roles have risen between 1.4 and 1.6% points over the past half a decade. It has also embarked on a mission to represent the population of people with disabilities. As of June 2022, around 7.8% of the Microsoft employees in the core business in the U.S. self-identified as having a disability. With the global push to propel racial equity, the company has injected around USD 150 million to reinforce inclusion and the number of U.S. Black and African American and Hispanic and Latinx people managers, senior leaders and senior individual contributors by 2025. An emphasis on diversity, equity and inclusion will redefine computing solutions and help employees be more innovative and creative.

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Governance Perspective

Cloud-based management can unlock avenues of growth in ESG with increased transparency, data standardization, and process automation. Tax transparency, board diversity, executive pay, and sound governance structure will leverage companies to create long-term value. Brands and institutions have fostered governance frameworks and brought new skills and global perspectives. To put this in perspective, eleven out of 12 director nominees are independent in IBM. Meanwhile, two women directors and three ethnically diverse directors were included in the past three years, according to the IBM 2021 ESG report. The American giant has an Audit committee to help identify financial and audit risks with the assistance of IBM’s enterprise management framework about AI ethics, privacy and cyber. Development of practices and policies that emphasize transparency, trust, ethics and accountability could be pronounced, auguring well for the industry growth.

The competitive landscape indicates an increased focus on organic and inorganic strategies, such as technological advancements, product offerings, mergers & acquisitions, innovations and collaborations. For instance, in October 2022, Alibaba announced opening a new campus with investments in cloud computing. The design of the campus is reportedly eco-friendly, including flowerpots made from recycled plastic, a photovoltaic power generation system and high-efficiency low-energy devices in the on-site coffee shop. The global cloud computing market size was pegged at USD 368.97 billion in 2021 and could observe a 15.7% CAGR between 2022 and 2030.

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