And how do we create a sustainable digital economy?

And how do we create a sustainable digital economy?
Photo by Mathieu Stern / Unsplash

The digital economy manifests itself in the real world through the infrastructure that powers it and the devices that enable access to digital products and services. The rest of the digital economy is an interconnected system of generating, transporting, processing, and displaying bits – ones and zeros. The underlying infrastructure generates the fuel of the digital economy – digital power – and transports it through networks. Smartphones, laptops, and desktop computers, while also generating their own digital power, are access portals to the much larger networked infrastructure – digital infrastructure – enabling a variety of digital products and services to function.

Digital infrastructure generates digital power while storing and processing data. Digital power enables digital products and services to work, while data is both the raw material and the output. Networks transport data for processing or for display, and they are the vital glue of the digital economy. The digital infrastructure itself is the connection point between the physical world, the environment, and the digital world.

Addressing the environmental impact of the digital economy, therefore, starts with understanding and addressing the impact of digital infrastructure, specifically the generation of digital power. As digital infrastructure has evolved, however, each party involved in the generation of digital power has become an isolated industry – from data centers to server hardware, to virtualization – often even more granular. These isolated industries each measure efficiency and the environmental impact of their individual parts, but not of the entire system. Each part claims “best possible efficiency,” but because of the narrow field of vision that exists, the inefficiencies are jarring when viewed as a system.

To deliver truly efficient digital infrastructure and generate digital power that has limited to no negative impact on the environment or the people and communities that digital technologies should ultimately benefit, the system needs to be improved as a whole. This requires all actors from across the social and digital economic value chain, including industries, companies, governments, and individuals, to come together and collaborate. This should result in greater transparency, taking measurements, and generating information from each layer of infrastructure available to the ones above and below. It should lead to new innovations and solutions, which consider the whole system of digital infrastructure, reduce environmental impacts and resource consumption, as well as increase efficiency.

With digital power available that has a limited or no negative impact on the environment, we then come to the digital products and services themselves, built by businesses that make up the digital economy. Each of these products and services is utilizing one of a few business models that are common in the digital realm. These business models are mostly based on the assumption that digital power is an infinite resource that has near insignificant costs, and are often extractive and exploitative. Thus, these assumptions will have to be reframed and fully account for the environmental and social costs of digital power, their business operations, as well as the digital product and/or service itself. Accounting for these additional costs is unlikely to make digital products and services unprofitable but should lead to a recalibration of profit margin expectations. With adjusted business models and the proper consideration of missing externalities, investor capital will flow into digital products that can generate sustainable profits – one that minimizes the negative impact on society and the environment.

The social costs of digital products and services remain difficult to quantify, especially given the lack of transparency of the majority of commercial actors within the digital economy. Whereas the first wave of digitalization expanded the social divide between people that could afford digital technology and those who could not, the second has had even more severe impacts, namely the deterioration of human relationships, erosion of democratic discourse, issues around addiction, and the negative impact from automation on low-skilled workers. The third wave of digitalization – mainly centered on machine intelligence – poses unprecedented challenges around autonomous machines, machine-aided decision-making, and data ownership and governance. None of these challenges are caused by digital technologies themselves, but rather by the design of business models and the application of the technologies. Addressing these challenges will require a concerted effort to reengineer business models to consider social welfare as well as for governments to finally set boundary conditions via inclusive, data-driven regulation and public policy for digital economies, challenging the status-quo and major players with entrenched positions.

History is a great teacher; let’s learn from it

The challenges described above are nothing new; we have seen this challenge before. Products made with fossil fuels as an input resource did not consider the total costs involved, such as repairing the damage to the environment they caused as well as the negative impact on society. Not accounting for these costs created distorted profit margins and fueled an unprecedented growth of consumption at unsustainable levels, such as every person owning a car or supermarkets giving away free plastic bags to customers. It provided fuel for the economic growth machine, but at what total cost? None of the growth it produced is sustainable, and it is far from equitable. The dramatic action that is now underway to curb climate change, biodiversity loss, and environmental destruction will inadvertently halt and to a large extent revert the economic value, prosperity, and growth that was created from the extraction of fossil fuels.

Preventing the same from happening in the digital industry, which is becoming the new growth engine around the world, requires that we think and act differently, but most importantly collaborate as a sector on creating a sustainable digital economy.

The challenges of creating a sustainable digital economy

Building a sustainable digital economy starts with creating transparency. We do not have full transparency in the environmental impacts and societal costs across the digital infrastructure value chain. The value chain is complex and ranges from silicon chips and data center facilities to fiber-optic networks and software.

Second, addressing the environmental impacts across the physical infrastructure of the digital economy is only possible through a more holistic, systems-based view of the entire value chain and better integration of each part into that system. Successfully realizing this integration requires economic incentives — a business case for each integration and all the actors who need to be involved – along with enabling public policy and regulation. Reducing the environmental impact of each layer in the infrastructure will be realized if there is a positive business case for doing so and political will to support the innovation and market dynamics needed to realize it.

Third, digital technology in the form of software should acknowledge and report its resource consumption, measured as units of digital power, and the associated environmental impacts.

And lastly, business models of digital businesses need to account for the real costs of digital products and services, both the social costs (e.g., from harvesting behavioral data) and the environmental costs.

Building a sustainable digital economy requires systemic collaboration

To summarize, the digital economy consists of digital products and services, which themselves are assembled from many technology components and combined with a variety of business models. All of them are fueled by the same commodity: digital power. The infrastructure necessary to produce digital power, as well as the global ecosystem of open-source technologies that underpin this infrastructure and support its development and innovation, is incredibly complex. Yet, this cannot stop us from attempting to build a sustainable digital economy — creating inclusive prosperity with no negative impact on the environment and society.

This complexity is not new. Again, we can look at the history of fossil fuels to see what a complex and global system with an intertwined supply chain looks like. Taking oil as an example, it went from a simple fuel for powering lamps and later engines, to a complex system of derivatives — plastics, lubricants, chemical additives, and many more. Products and ingredients based on oil touch every part of our lives. And increasingly, so does the digital world.

To change such complex systems, many industries need to be involved and even more, companies need to participate. Governments need to adjust competitive landscapes and redefine boundary conditions for markets to change. Systematic change at this scale is challenging and cannot be solved by a single government, industry, company, or visionary leader.

It requires systematic collaboration within a neutral framework of clearly defined and shared goals with the objective to create a sustainable digital economy, one that has no negative impacts on the environment and society while enabling inclusive prosperity. It is about learning our lessons as humanity from the non-sustainable systems we have created as part of the First and Second Industrial Revolutions.

To drive the collaboration, we cannot rely on commercial, market-driven actors. Nor can we depend on the force of a single government or economic zone. The digital economy is global because of the Internet that acts as its platform. And therefore, collaboration needs to be driven across borders, across the globe, not with a profit motive, but with a mission to build a sustainable digital economy. To drive this mission, we need a new type of platform, one that creates transparency, delivers a shared roadmap, and has goals that enable collaboration across boundaries and siloes.

The Sustainable Digital Infrastructure Alliance is the global platform to create transparency, a shared roadmap, and goals that enable collaboration across boundaries

Based on the diagnosis of the challenges, our role and strategy at the Alliance are simple: to foster collaboration across industry boundaries, aimed at systematically changing the existing digital ecosystem toward a sustainable operating model.