This vital sector needs to expand to meet the growing demand for data and connectivity. Can it do that without adding to greenhouse gas emissions and widening the digital divide?

Telecoms has been a lifeline during the Covid-19 pandemic, helping us to stay connected to friends, family and colleagues despite restrictions. But the great digital acceleration triggered by the pandemic has given the telecoms sector two big challenges.

First, it has to power increasing data demand while keeping a check on its carbon emissions. Telecoms operators rely on a sprawling network of data centres, relay stations, masts and other infrastructure that require a constant supply of power to function. Much of this is carbon-intensive.

The wider ICT sector, driven by telecoms networks and data centres, could be responsible for 14% of global carbon emissions by 2040, up from 3–4% today1. 5G is expected to lead to a rapid rise in data use as it finds more applications in both industrial and consumer settings2, with research suggesting that the 5G ecosystem will lead to 160% increase in power demands by 20303.

Second, telecoms firms have an important role to ensure that the most isolated parts of society have connectivity. There is a growing gap in prosperity between metropolitan hubs and rural dwellers, and experts warn that the pandemic has exacerbated an existing digital divide, whereby the poorest in society have "less chance of being online4". Investments by telecoms operators in mobile infrastructure and fibre networks will be an important driver to closing that gap.

A sustainable finance plan can help on both fronts

According to the International Telecommunication Union, the ICT industry will have to reduce greenhouse gas emissions by 45% between 2020 and 2030 if it is going to comply with the Paris Agreement5.

And, as of April 2021, operators accounting for 50% of global mobile connections have committed to "science-based targets" for net-zero emissions, with many aiming to reach this critical milestone by 2050 or before, according to a report from industry body GSMA6.

These are ambitious goals, and they call for urgent action. Already, the sector is helping to reduce its environmental footprint, as fast broadband networks make it easier to work from home, reducing pollutive commuting to a workplace, for example.

Meanwhile, some of the industry's innovators have shown that telecoms infrastructure can be powered by renewable energy sources. But operators wanting to adopt these innovative solutions to meet sustainability goals will need a financing plan. And they are increasingly turning to the sustainable finance market.

For example, in December 2020, Dutch operator VodafoneZiggo launched its first green bond to accelerate its transition towards a low-carbon operation, promising accountability on investments with an annual, independently audited report7. Part of the investment plan includes increasing VodafoneZiggo's use of wind energy to 100% to reduce greenhouse gas emissions.

Sustainable finance can also help address the social challenge, and there are ambitious targets here, too. The European Union, for instance, says its goal is "for every European household to have access to high-speed internet coverage by 20258". "Without digitalisation there can be no successful economic and social development," says Jeroen Kleinjan, managing director for the telecoms division at ING.

"Investors are increasingly taking ESG into account in their decisions and they see Telecom operators as ideal partners on this journey."

Europe's operators are responding. Orange, which issued its inaugural, €500 million sustainability bond in September 2020, plans to allocate about 40% of funds to "digital and social inclusion" projects, and the other 60% to projects focused on energy efficiency and the circular economy9.

Meanwhile German firm Deutsche Glasfaser has set itself a target of providing fibre connectivity to 6 million households in the country by 2030 in its bid to bridge the gap between the rural-urban digital divide10. The company, which was acquired in 2020 by EQT Infrastructure and OMERS, has committed to invest over 7 billion euros in its rollout of "fast-speed internet infrastructure" – an investment that will help support the German government's ambitions for gigabit internet networks to be available nationwide by 202511.

Sustainability should be a strategic priority

To realise its full value to society in this newly digitalised era, the telecoms industry must make sustainability a strategic priority.

"...every arm of the industry is making ESG a top priority."

The Boston Consulting Group says that historically sustainability has been relegated by telecoms CEOs to "a cost topic best left to internal sustainability departments12". That is now changing. "ESG has become urgent for executives across digital infrastructure," says Kleinjan. "From data centres buying renewable energy and finding novel uses for excess heat to attempts to recycle old fibre, every arm of the industry is making ESG a top priority."

The telecoms sector's sustainability challenges – becoming carbon neutral and bridging the digital divide – are surmountable. The industry is taking action at a leadership level, which means it is a greater priority for chief executives, and, like VodafoneZiggo and Orange, they will make the most of sustainable finance opportunities.

"Greening the network and improving the quality of life and prosperity in rural areas are attracting the interest of investors who want to put their money in sustainable companies," says Kleinjan. "Investors are increasingly taking ESG into account in their decisions and they see Telecom operators as ideal partners on this journey."