COP26 article for The Tech Capital

COP26 came with a lot of expectations. One could believe that this was the event that will solve climate change with one meeting. The Conference of Parties is not about making large, global decisions, its about agreeing on the practical implementation of the Paris Agreement between 198 countries. And despite the many disappointments, the COP has delivered one key aspect: a global commitment to reporting & transparency on a regular basis. Never before have the majority of UN members agreed to report their environmental impact on a 2 year schedule (beginning in 2024).

I believe this is a significant step in the right direction. What gets measured, gets fixed. And by agreeing on a global reporting framework, we should be able to see carbon outsourcing (e.g. through offsets) and pinpoint greenwashing as well as other means of avoiding real reductions.

This will especially be painful for the digital infrastructure sector as the majority of efforts to reduce the carbon footprint of data centers, fiber and telecommunications infrastructure, and IT hardware is limited to certificate schemes, power purchase agreements and offsets, and not addressing real embedded and operational carbon. And despite attempts of the sector to counter regulatory action and avoid being more transparent (e.g. through a self-regulation scheme, the Climate Neutral Data Center Pact), the fact is that digital infrastructure is now becoming a public good. And public goods need to be well regulated, transparently report their impact & performance and be sustainable - for society and the environment.

Digital infrastructure will be a critical enabler of addressing climate change - but so is the energy system, public transport, railways, electric charging infrastructure and many other public infrastructures. All of them are already engaged in heavily reducing their environmental impact and address the need of society to fight the climate crisis. Digital infrastructure remains the exception, still looking at sustainability as mere energy-efficiency efforts or the latest marketing scheme.

One thing that was clear at COP26 is the influence of capital on these decisions. Investors are hungry to turn sustainability and the fight against the climate crisis into an investment opportunity - which is both encouraging and dangerous at the same time. We do not have enough data and insight in many aspects of our infrastructure to make sustainable investment decisions, yet. However the attention of investors with so much dry powder will likely lead to more data and demand for transparency in order to find opportunities.

The nations that created the most carbon emissions will need to pay for the economic growth of the developing world

The second aspect that we see at COP26 is the majority of developing countries raising the need for their economic growth and industrialization (which usually comes with investments in fossil-fuel based power generation or industrial processes). The nations that already had an industrial society - and thus were the biggest polluters (most of the western world) - have already risen to be wealthy nations now transitioning to a knowledge economy.

Thus aside from supporting these countries financially to fight of the impact of climate change (which was promised already and not delivered), massive investments in digital infrastructure will have to be financed by the West in order to enable these countries to participate in the digital economy. With that participation, it becomes feasible for the developing world to skip industrialization. Ireland, albeit not a developing country, is a great example of this, turning from an agricultural economy to a technology and knowledge economy over a period of less than 20 years by attracting foreign investment in digital infrastructure.

These investments in digital infrastructure, which will likely come through blended financing mechanisms, are an opportunity. However, capital will need to be directed into open infrastructure developments and not proprietary assets which do not deliver on digital inclusion & equality.

It is not about bringing existing Cloud, Telco or Data Center providers to those countries with closed ecosystems from which the local economy does not benefit, but rather about building open infrastructure that can spur a local digital economy. It’s about empowerment through digital infrastructure, not capturing markets. This is an opportunity for infrastructure investors with a strong social and environmental responsibility profile who can co-deploy capital with local governments to create open access fiber networks, mobile networks as well regional cloud platforms.

Software will be needed to fight climate change, but only if it’s own footprint is addressed

Part of the narrative of COP26 and beyond is that digital technologies will help solve many aspects of climate change. I believe this is true, as software is especially better suited when it comes to optimizing large & complex interconnected systems, e.g. to reduce carbon across the entire automotive manufacturing value chain. However, this requires data on both the processes to optimize, but also on the environmental costs of running the optimization itself.

Considering the amount of servers (which include large amounts of embedded emissions from manufacturing as well as rare metals and minerals), the amount of energy and the amount of embedded emissions in the building infrastructure of data storage and computation will be critical to assess the true value and positive impact of digital technologies. Neither computation or storage are “weightless” as the word “Cloud” suggests - they have an environmental footprint, and without knowing it, we are tempted to throw software at every problem, even if the environmental impact of the software outweighs the positive effect it creates).

Therefore transparency and open data of digital infrastructure is the next step; it’s a requirement for moving towards creating sustainable digital infrastructure and economies. And this is a priority highlighted across COP26 - to share environmental data, to create transparency and to create the foundation of information of what emissions really need to be addressed.