Introduction
Green Computing is part of society’s general trend to move to a greener world which is being triggered to combat the very real risk and worry of climate change.
Climate change is caused by society’s increased use of burning fossil fuels (such as oil, gas, and coal) which releases greenhouse gases into the atmosphere and acts as a blanket around the globe, stopping the sun’s heat from leaving, and therefore increasing global temperatures. These temperature increases will upset the delicate interconnected environmental global eco-system which will then cause changes to long-term shifts in global temperatures and weather patterns which will then, in turn, cause major issues globally with rising sea levels, colder winters, and warmer summers.
There is clear evidence that the world’s temperature has increased 1.1°C since the 1800s and it is accepted by nearly all parties that if this trajectory is not reversed then it will cause material issues for current and especially future generations.
Therefore, it could be argued that Green Computing is the most important Technology Trend within this book.
To try and combat this issue then many firms across the economy (i.e., not just financial services firms) are looking to implement “greener” strategies and policies to address these issues. From a Green Computing point-of-view, it covers activities such as using energy-efficient devices, recycling materials, using clean energy, building green buildings plus many others. Green Computing can simply be defined as reducing the adverse environmental impact of technology. This can cover ensuring the physical technology, the processes that support technology, and the people who use the technology are all as green as possible.
It is also worth mentioning ESG (or Environmental, Social, Governance) because more and more firms and investors are using it to determine whether or not to invest in firms. At a simple level, ESG means using a set of factors to measure an organization’s holistic capability against a range of variables to observe how well ethically they are running their business (as opposed to just focusing on financial measurements). Please see below:
• Environmental factors cover firms implementing strategies and policies to try and control climate change or “go greener.” This is discussed in more detail in the rest of this chapter albeit from a technology point of view.
• Social factors relate to factors to ensuring organizations are socially responsible both internally within their organization and externally with their suppliers, customers, and other stakeholders. It covers areas such as ensuring there is diversity across workforces, any impact to communities is managed, anti-slavery policies are implemented, human rights are managed, consumer protection is in place, and animal rights are considered.
• Governance factors relate to an organization’s management. It covers factors such as having an appropriate management structure, risk/control policies and processes implemented, and are fit-for-purpose as well as all staff being remunerated appropriately and fairly.
In effect, ESG could be viewed as some sort of “ethical credit score.”
While this sounds good in theory, there are several pragmatic issues regarding this because firms are struggling to obtain consistent, accurate and timely data on firms to allow them to calculate their ESG scores. Therefore, to try and combat this, the European Union (EU) is implementing a new piece of regulation called Sustainable Finance Disclosure Regulation (SFDR) which will try and standardise metrics and reporting. SFDR is discussed in more detail below.
How Financial Services Firms Can Force All Organizations and Governments to Adopt Green Policies
This is not pure technology but it is very relevant to combatting climate change. Financial Services firms have major influence over a wide range of organizations and foreign/local governments which means they should be able to use their collective gravitas to force change for the better.
Ensuring that Organizations Implement Greener Policies
Firms have real influence over many organizations globally through the following activities:
1. Firms (or asset managers specifically) managing holdings on behalf of investors: These investors can range from small individuals to large institutional investors such as mutual funds, insurance funds, or pension funds. As part of this management, Asset Managers will have the ability to vote on these holdings which will give them significant power over the holdings’ business direction (especially around improving their approach to climate change). While it is challenging to obtain accurate statistics, it is safe to say around 70 percent of the global stock markets are held by Institutional investors.
2. Firms’ normal day-to-day business activity (such as lending money, providing insurance, raising capital, and so on): Bloomberg produced a 2021 report which claimed that emissions associated with financial institutions’ normal business activity (of investing, lending, and underwriting activities for their clients) are more than 700 times higher than their direct emissions of running their businesses (such as heat from data centers, heat from buildings, flying staff around the world and so on). The reported figure was ~1.04 gigatons of CO2 or circa 3 percent of global emissions in 2020. Although the true figure is almost definitely higher because (a) not all financial services firms were included in the data and (b) many firms have probably under-estimated the climate impact of the day-to-day business.
Therefore, financial service firms should be able to actively work together to use this influence to jointly pressure their clients and other organizations to develop and implement green strategies. These strategies do not just cover green computing but they need to cover all aspects of an organizations’ business. For example, buildings, factories, transport, supply chains, distribution channels, their suppliers, and so on.
However, as mentioned in the Introduction above, firms and investors are struggling to obtain consistent, accurate, and timely data to measure how “green” (or not) an organization is. Therefore to try and address this the EU is implemented new regulation called Sustainable Finance Disclosure Regulation (SFDR) to force firms, who operate in the EU, to publish both (a) a range of sustainability risks and metrics associated with their products and investments and (b) details of any policies and procedures at the entity level in place to manage the risks. It is hoped that this regulation will ensure that EU investors have the required sustainability metrics and details required to make any investment decisions.
1. Entity level (such as the investment manager or bank): Disclosures will need to be made for the entity covering their policies on decision making around sustainability risks.
2. Product level (such as the individual mutual funds or other investment products): There will be reporting demands are regarding the firms’ financial products and their sustainability risks. This means that firms will need to obtain accurate data on the (sometimes hundreds or thousands) investments in their products. Once this data has been collected and consumed then the firm will need to process it and classify their product into one of the three “buckets.”
1. Dark Green (or Article 9) products: These are products with a sustainable investment strategy.
2. Light Green (or Article 8) products: These are products that promote environmental or social characteristics to an extent but are not sustainable.
3. Gray (or Article 6) products: These are products that do not integrate any kind of sustainability into their investment process. These can still be sold within the EU but they need to be clearly labeled as non-sustainable. It is expected that these products will be challenged to sell because investors will be looking for more “greener” or sustainable funds.
Classifying products accurately into one of these three buckets will not be easy. This is because timely, complete, and accurate data across the many holdings and investments within these products will be required. This means data will be required from multiple vendors and sources (who will all use different assumptions, coding, and rules). Therefore, a process of data cleansing, normalization, and consolidation will be required to calculate an overall rating.
SFDR will also require a large amount of non-financial and subjective data that will be hard to standardize accurately. Furthermore, this non-financial subjective data may not be widely available for the smaller investments held so any data that is made available could be out-of-date which will impact its accuracy and completeness.
Finally, SFDR requires a firm to provide details on their data collection process which means any issues (like the above) will need to be made public which cause embarrassment or result in external parties (such as customers and the trade press) asking awkward questions.
SFDR came into force on March 10, 2021; all EU firms are now obliged by law to comply with the reporting above. At the time of writing, non-EU companies are not covered by SFDR, it is expected that other jurisdictions (such as the United States and the UK) will implement similar rules and regulations.
As a side note, SFDR has triggered some interesting discussions regarding what firms should do regarding investments that have low SFDR scores. One side of the argument is that firms should sell these holdings because investors will not buy the firms’ products. But by disinvesting, does not mean that these firms will change their behaviors and they will continue to adversely impact climate change. The other side of the argument is that firms should keep these holdings and proactive work with offending investment to force them to take active steps to change their behaviors to ensure they become “greener” or more sustainable.
Ensuring that Local/Foreign Governments and Policymakers Implement Greener Policies
In a similar vein, financial service firms should also be able to actively work together to use their joint influence to pressure both local and foreign governments and policymakers to define and implement green policies and tough legislation which will have severe penalties if organizations fail to comply.
Challenges for Financial Services Firms Adopting Green Computing
There are a variety of challenges regarding implementing green computing.
Firms Need to Measure and Benchmark Their Current Green Computing Impact Immediately
Unfortunately, the phrase “going green” or Green Computing is very vague and as a result subjective. Therefore, some quantitative method needs to be used to measure the environmental impact of a firm’s technology infrastructure. This infrastructure should not just cover the firm’s internal arrangements but also their suppliers and customers (although some firms may feel nervous about approaching customers regarding this).
Measuring the impact can be challenging because there are so many different variables but typically the following areas need to be assessed:
• Power consumption across hardware: for example, PCs, laptops, data centers, and other devices.
• The energy efficiency of buildings and property: for example building power, lighting, lifts, and so on.
• The number of materials that can be recycled: for example paper, hardware, water, buildings, and so on.
Firms could perform this assessment themselves but they could be accused of underestimating any poor ratings. Therefore, it is best to use external auditors to perform this assessment. In an ideal world, it would be advantageous to use more than one external with more than one measurement methodology to ensure there is a wider calculation of the impact.
Once the assessment (or assessments) are complete then the figures can be used as a benchmark or baseline.
Firms Need to Use the Benchmark to Implement a Green Computing Strategy to Reduce Their Impact to a More Acceptable Level
Once the benchmark is calculated (see “Firms Need to Measure and Benchmark Their Current Green Computing Impact Immediately” on page 190) then firms need to design a Green Computing Strategy that will reduce the current assessment to something more acceptable. This strategy will need to include the following:
• A list of actions that need to be implemented: for example use virtual technology or recycle. (See “Implementing Green Computing Involves a Large Number of Small Changes” on page 192 below.)
• A timeline to complete the work thus assuring the impact is reduced.
• A set of interim milestones and measures to ensure progress can be tracked regularly (such as reducing the impact of 10 percent by Year 1, 25 percent by Year 2, etc.)
• A set of policies that define the Green Computing policies and procedures for both internally, the firm’s suppliers, and customers.
(This Green Computing Strategy should be part of wider firmwide “green-ness strategy” that will cover all aspects of the firm’s operation such as its technology, its operating model, its range of products as well as its suppliers and customers (although, as noted above, trying to change customers can sometimes be challenging).)
Implementing Green Computing Involves a Large Number of Small Changes
There are a variety of activities that a firm could perform to reduce the environmental impact (across their other operations as well as suppliers and customers).
Laptops, Printers, PCs, and so on
All new desktop hardware purchased should be energy efficient and (if possible) they should be configured to hibernate or even power down when not in use. Also, for computer monitors, they should configured to reduce brightness when not in use.
Use Virtual Technology
This involves running several “virtual” servers on a single piece of hardware server as opposed to running a service on its hardware service. This ensures that less hardware is used (with a resultant drop in power usage). However, there is a cost and effort required to move applications onto a virtual infrastructure in terms of new skills required, application changes, testing, and new policies/procedures to support it.
If Virtual Technology Is Not Possible Then Look to Use Spare Capacity on Existing Services
For some (normally older) applications it is not possible to run them on virtual servers which mean firms should look to run multiple applications on servers to ensure full processing capacity is used. This means that less hardware is used (with a resultant drop in power usage) and/or unneeded capacity can be removed.
Look to Minimize Data Storage
Firms should look to reduce data storage usage because it will reduce power usage. This means firms need to look at compression, using WORM (Write Once Read Many) devices, and looking to achieve data if not needed. However, this may require changes to applications (with associated costs and effort).
Reducing Printing Volumes
Firms should look to print less and use features such as print preview and printing on both sides of the paper. Also, firms should look to use recycled paper. This means less power is used by printers and paper is re-used.
Data Centers
As mentioned above, servers are a large user of power which is exaggerated if servers’ full capacity is not used. However, firms should also look at their data centers by looking to implement cooling systems, reusing the heat from the data center (e.g., to heat buildings), and moving to Cloud computing because they are typically more energy efficient.
Applications Should Be Enhanced to Make Them More Efficient
Process-heavy applications (such as the end of data jobs or in-depth analysis) should be reviewed to see if they can be made more efficient. This will reduce process demands which will, in turn, reduce power needs.
Aggressively Implement Recycling Across the Business
Firms should look to implement aggressive recycling policies across the business. This should cover hardware, paper, and so on.
Staff Should Be Educated
Staff should be educated about the importance of Green Computing, the firm’s strategy as well as the targets and activities that need to be performed. This is to ensure they have awareness of what needs to be done.
Purchase Only From “Green Computing” Companies
Firms should look to only work with suppliers who have Green Computing in place (or have a clear and demonstrable plan to implement it). For existing suppliers then this may require the firm to put pressure on them to change behaviors with the threat of moving if action is performed.
Only Onboard “Green” Customers
This is a notoriously tricky area because Firms generally do not like to pressure or upset clients. But some firms are looking to assess the “greenness” of their clients (especially the large institutional-type clients) and if they are not as green as they should be then they will either not on-board them or, if they are an existing client, look to change the customer’s behavior or even offload them.
Green Computing Will Not Be Cheap and Will Take Time
Implementing Green Computing (or trying to go green generally) is not an easy activity. It will involve firms making changes internally (such as virtualization, buying new PCs, and enhancing applications) as well as working and putting pressure on suppliers and possibly clients. This means that it costs money and will require people and effort across the organization to implement. This means that senior management needs to be aware that this could divert money and resources from other activities.
It Is Possible to Use Going Green as a Selling Point or Competitive Advantage
Some firms are using “going green” as a competitive advantage. They will boast about their energy-efficient buildings and technology or they have launched green products which only invest in green companies where the administration is green (such as all statements printed on recycled paper). This is a good message to send to the market place and it is also helpful in keeping existing and attracting new customers.
However, there is a risk that if the firm presents itself as “green” and issues are found then this will create bad PR which could take a while to recover from and create a general lack of trust in the firm as well as the wider Financial Services industry.
Emerging Technologies Require a Large Amount of Processing Power
The majority of the emerging technologies discussed in this textbook require both large amounts of processing (such as Machine Learning, Big Data, and Digital Currency) and specific hardware (such as Remote Working, Self-Servicing, and the Internet of Things). Therefore, firms need to be aware of this because by implementing new technology they could be inadvertently increasing the environmental impact.
Future Challenges
Table 14.1 Future challenges of Green Computing
Area | Details |
Increased regulations | This area will be adversely impacted as firms will need to cope with increasingly more “green-related regulation.” As the importance of “going green” increases then regulators are implementing regulations (such as the EU’s SFDR) which firms will need to comply with, with severe penalties for non-compliance. |
Changing nature of clients | Firms will need to monitor clients’ reactions to going green. Global warming is now a massive issue with a large amount of genuine and warranted worry. Customers (especially the younger demographics) may not want to deal with firms (or any suppliers) who are not genuinely implementing changes to reduce their environmental impact. Therefore, if firms do not implement Green Computing as well as wider green changes then, apart from contributing to global warming, firms will lose customers. |
Firms will need to ensure that all their products are green because otherwise, investors will long term ignore them. This means having products that only invest in green companies where the administration is green (such as all statements printed on recycled paper). | |
Lack of trust | If the financial services industry thinks carefully about “going green” then it could increase trust in the industry. Financial Services firms (as investors, voting power, and service providers) have a large amount of influence across the global economy. Therefore, they should be able to use this power to “force” organizations to implement changes to ensure they are green. There is a real opportunity for financial services to be a leading light in these areas. |
Accurate data | This area will be adversely impacted in two main areas. Firstly, to ensure that firms fully understand their environmental impact then they will need to measure their performance. This will require using new data feeds which will be costly and complex to consume and process. Secondly, allow firms to accurately classify their products (such as into the Dark Green, Light Green, and Gray buckets under SFDR) then firms will need timely, accurate, and complete data on holdings within their products. This data will be challenging to obtain (especially for some often smaller holdings) and even more challenging to process to ensure there are consistent assessments. |
Poor operating and technology models | There will be an adverse impact on operating models. Existing complex and stretched operating models will need to be (a) enhanced to ensure they are green and also (b) monitored regularly. This means operating models become more complex, costly, and risky to maintain. |
Profitability/Cost drivers | Profitability will be impacted (at least in the short term). Implementing Green Technology will cost money in the short to medium term which will impact profitability. Senior management at firms will need to be aware of this and accept it. Also if a firm is not as green as its competitors then it could lose business to them. Thus, impacting revenue lines and overall profitability. |
Changing nature of the workforce | There will be opportunities for staff in these areas. New skills will be required to support Green Computing such as virtualization and cloud computing. |
This area is a threat to existing firms. As mentioned earlier, “going green” can be viewed as a selling point and can be used to keep existing customers and attract new customers. Larger firms with ageing operating models will take longer to implement Green Computing than smaller or more nimble competitors. This means they could lose market share. | |
Risk profile | This area will be adversely impacted. There is real pressure for firms to implement green strategies (not just Green Computing) to reduce their environmental impact. If this is not actioned then firms will lose business and be at risk for any future green regulations. |
Case Study
The majority of the activity that firms are performing to implement Green Computing is very similar (such as implementing virtualization or looking to aggressively recycle); however, there are a couple of innovative implementations some firms are investigating, viz:
• One firm is looking to use the heat generated from their in-house data center to warm the water supply within their offices.
• Another firm is looking to implement an onsite paper recycling capability where they recycle all their paper on-premise.
Summary
It can easily be argued that Green Computing is possibly the most important emerging technology in this book. If global warming is not reversed or halted then it will cause irreparable damage to the entire planet.
While firms are generally looking to implement Green Computing across themselves, their suppliers, and possibly customers, the biggest advantage that Financial Services have is that they have a large amount of influence across the global economy (as investors, voting power, and service providers). Therefore, financial service firms should be able to actively work together (a) to pressure these organizations and their boards to develop and implement green strategies and (b) to pressure both local and foreign governments and policymakers to define and implement green policies and tough legislation which will have severe penalties if organizations fail to comply.