Business Case For Green Product Development

K. Cockbill & T.F. Guerin (2010) The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra. Presentation to “Innovate 2010” Sydney, Australia 18-19 February The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra Kristina Cockbill, Project Manger Innovation, Turlough Guerin, Group Manager Environment, Telstra Corporation Limited Executive Summary ICT products, such as video conferencing and remote working, provide additional value to their functional and technical capabilities through reduced impact on the environment. Realising this value for the customer, through the development of products and services, is both a challenge and opportunity facing the ICT sector. Telstra has embraced this challenge and opportunity by measuring the environmental impacts and benefits of selected products and services, and underpinning these efforts by continuing to improve commitment to its own environmental performance. Introduction The Information and Communications Technologies (ICT) Industry is well positioned for a low carbon economy. The functional and technical capability of ICT products, such as video conferencing, remote working and fleet management platforms, is enhanced by additional value they provide through reduced environmental impact1 and improved productivity2 . Telstra has cast a vision for how both these additional, once intangible benefits of environment and productivity, can be harnessed to capture business value. In terms of environmental benefit, a Telstra commissioned report in October 2007 ‘Towards a High Bandwidth Low Carbon Future’3, identified seven high level opportunities for the telecommunications industry to potentially reduce Australia’s emissions by almost 5% of 2005 emissions by 2014. The report also showed that many of the opportunities provided additional benefits of productivity, energy and cost savings of these opportunities. With a projected cumulative increase between 44% and 62% by 2013 in NSW energy tariffs and charges 4, these ICT initiatives will increasingly contribute to bottom line savings for businesses using their services. A second study published in 20092 on productivity, also commissioned by Telstra, has shown how ICT products and services can assist Australian businesses improve their performance through technological innovation. The current paper addresses the first of these: environmental benefits. Background There are factors to take into consideration when promoting the environmental value of ICT solutions such as video conferencing and remote working. Firstly, outside the ICT industry there has been increasing amounts of ‘green’ claims for various types of products and services in the wider market place with a number of such claims proven to be false or misleading, also known as ‘green wash’5. To address this, increased vigilance from the 1 Telstra whitepaper ‘Using ICT to drive your Sustainability Strategy’ http://www.telstraenterprise.com/researchinsights/Pages/TelstraProductivityIndicator.aspx. 2 Telstra whitepaper: ‘ICT as a driver of productivity’ http://www.telstraenterprise.com/researchinsights/Pages/ TelstraProductivityIndicator.aspx. 3 Full report found at http://www.telstra.com.au/abouttelstra/csr/society/climate_change.cfm . 4 Draft Report and Draft Determination - Review of regulated retail tariffs and charges for electricity 2010 to 2013 by the Independent Pricing and Regulatory Tribunal of New South Wales (iPart) - December 2009 (http:// www.ipart.nsw.gov.au/latest_reports.asp). 5 http://www.accc.gov.au/content/index.phtml/itemId/142 - search ‘Green Claims’. Page 1 of 5

K. Cockbill & T.F. Guerin (2010) The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra. Presentation to “Innovate 2010” Sydney, Australia 18-19 February Australian Competition and Consumer Commissions (ACCC) is addressing companies’ false (or unsubstantiated) environmental claims that mislead customers based on not adhering to the requirements of the Trade Practises Act (1974). This situation has resulted in cynicism in the market of many environmental claims and hence actual benefits from reputable products and service are potentially being disregarded. Secondly, an increasing trend in the evaluation, reporting and management of greenhouse gas emissions by businesses is beginning to appear6. This indicates many companies are on a learning curve regarding carbon impacts and opportunities to their businesses. Thirdly, businesses are coming out of an economically challenging period both locally and globally. While a continued focus on cost and revenue is expected, they will also need to incorporate sustainability, including environmental sustainability, into their strategies for long term business continuity. Ignoring this is likely to be detrimental to their businesses as customers will increasingly expect performance in all of these areas. How Telstra is embedding valuable environmental benefits into their product offering It is the ability to quantify customers’ realised greenhouse gas emissions from product use, and the associated cost and productivity benefits that demonstrates additional product value. This measurement, combined with a transparent company environmental commitment, drives credibility for the product offering. This quantification does not come from product changes or re-invention. Rather, it arises from providing evidence of additional productivity and environmental benefits to enhance the business value of these products. To achieve this customer value, Telstra is undertaking four actions to deliver value to business case development:  Strengthening our environmental commitment company-wide  understanding customers’ environmental needs supported by customer value analysis and a market-based management approach  using innovative tools and methods to assess, understand and improve the environmental impact of our selected offerings  enabling the measurement of customers’ realised environmental impacts from product use, which is in the development stages in Telstra The amalgamation of these components, along with the cost and productivity benefits, provides the depth of support required to validate the green product offering. 1. Telstra is strengthening its environmental position through company culture, process re- prioritisation and communication A top-down CEO-led movement for company culture is critical for internal application and prioritisation. In November 2009, David Thodey announced a Telstra emissions intensity reduction target of 10%-15% by 2015, communicating his environmental commitment and focus. By promoting a bottom-up approach, through business partnering and grassroots initiatives, the corporate culture aims to increase employee engagement on environment, and drive environmental performance across the entire company. During the past year diverse, environment-oriented initiatives were undertaken at Telstra targeting employees’ activities, in and out of the work place. 6 According to the Carbon Disclosure Project Australia New Zealand the number of companies reporting their Scope 1 & 2 emissions more than tripled from 2007 to 2009 (https://www.cdproject.net/CDPResults/CDP_2009_Australia_New_Zealand_Report.pdf). Page 2 of 5

K. Cockbill & T.F. Guerin (2010) The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra. Presentation to “Innovate 2010” Sydney, Australia 18-19 February For example, fuel efficient driver training was provided for both employees with work vehicles and all staff with company leased vehicles. Process reviews and internal collaboration, under the new emissions reduction target, is driving re- prioritisation to create both cost and emissions reductions. For example, by including operational energy use as an evaluation criterion for both in service and procured hardware or equipment, a broader return on investment is created that builds on the association between emissions reduction and energy cost savings. Telstra aims to drive increased awareness with its customers through communicating its depth and historical commitment to the environment. For example, our original energy efficiency programs began in the 1970’s with early research into renewable energy technologies leading to Telstra as the largest solar energy user in Australia with over 10,000 solar powered sites 7. Internally, initiatives and business learnings are communicated to encourage further development. Various communication channels are leveraged by Telstra and our disclosure and transparency has led to a 10% increase in 2009 on the Dow Jones Sustainability Index (DJSI)8 and climate leader status on their Australia/New Zealand Climate Leaders Index by the Carbon Disclosure Project9. 2. Telstra is learning from customer research and analysis including targeting specific business segments According to leading industry analysts, green IT initiatives are primarily being driven by the cost reductions. In turn, green IT is taking a central role in corporate sustainability and hence providing motivation for the enterprise and government sectors in particular10. The development of Telstra’s customer research approach has created market-leading insights into the detailed needs of customers. It combined internal customer databases with the most extensive set of customer needs analysis undertaken in Australian history. This has provided market-leading insights into the detailed needs of customers11. Based on Telstra’s Customer Value Analysis (CVA), a positive and continuous improvement in enterprise and government customers from 2005 to 2008 has been attributed to the areas of leadership, trust, value and products11. By listening to our customers we can broaden our understanding of their environmental issues and interest, leading to increasing engagement with enterprise and government customers in particular. Initial indications have shown Telstra’s enterprise and government customers recognise Telstra involvement in their sustainability and that they have a role to play going forward. Since May 2009 at least 10% of Request for Tenders from the Enterprise and Government sector has included environmental components. 3. Telstra is employing methods and tools to measure the impacts of our offerings spanning their life cycle The adoption of innovative tools to underpin the measurement of environmental benefits provides a differentiated product offering. In 2007 Telstra began using Life Cycle Analysis (LCA), a rigorous scientific based methodology to quantify the environmental impacts of specific solutions and 7 Corporate Responsibility Report 2009 http://www.telstra.com.au/abouttelstra/csr/docs/corporate- responsibility-report09.pdf. 8 See http://www.telstra.com.au/abouttelstra/media/announcements_article.cfm?ObjectID=45484. 9 See https://www.cdproject.net/en-US/Pages/HomePage.aspx (search ‘Telstra’) for participating since inception in 2003. 10 ‘Market Overview: The State of Enterprise Green IT Adoption, Q4 2009’ by Christopher Mines, Forrester Research, December 24, 2009. 11 Dow Jones Sustainability Index submission 2009. Page 3 of 5

K. Cockbill & T.F. Guerin (2010) The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra. Presentation to “Innovate 2010” Sydney, Australia 18-19 February comparative scenarios. While LCAs are not uncommon in other industries such as manufacturing and resources, the application in a telecommunications scenario is being championed by Telstra. With International Standards Organisation (ISO) accreditation including independent peer reviews they are a globally recognised tool for measuring environmental impacts. Telstra initially undertook a comparative LCA of teleworking (remote working from home) with conventional office-based working, followed by online billing compared to paper-based billing 12. The environmental benefits in the LCAs were enhanced by inclusion of a sensitivity analysis to identify the LCA inputs with the greatest influence on the results. For example, the teleworking scenario identified up to 1.6 tonnes CO2e savings per teleworking employee per year with the greatest environmental benefits derived from living over 30km from the office and the use of share or hot desks when in the office in particular. For online billing, the findings showed that customers should reduce printing at home and for the company to maximise the number of online bill customers per physical computer server. 4. Telstra is helping enterprise customers realise environmental benefits In 2008-09, Telstra undertook an LCA for a large enterprise customer to measure the environmental footprint of provision of our products and services into their operations 13. This scope included both hardware and network components for their voice, mobile and PSTN services. At the time this was a ground breaking initiative within the telecommunications’ industry. This quantification has identified opportunities for emissions reduction through improved Customer Premise Equipment (CPE) selection, and helped identify opportunities to increase the granularity of energy use measurement. Subsequently, a customer operational energy model is currently being developed. In April 2009, Telstra and WWF jointly launched a whitepaper on ‘Using ICT to drive your Sustainability Strategy’14 that incorporated sophisticated Return on Investment (ROI) tools. The four calculators enabled customers to understand the potential cost, productivity and emissions savings from individual product use. Although only an estimation, the transparency and breakdown of the components presented a credible tool that is valued by customers. The follow up to product implementation is currently under development. This is calculation of the emissions, productivity and cost savings achieved, enables realised value for the customer. This was piloted internally at Telstra in 2009 by measuring the travel savings from video conferencing deployment including avoided greenhouse gas emissions. At the beginning of each video conference, a software tool captured the number of attendees substituting physical travel. The tool then used their geographic locations, the latest emissions conversion factors, and real time data for flight and vehicle costs, to accurately measure the travel savings15. This example demonstrates not just the direct environmental benefits of the product, but also the link to measurable cost savings and productivity benefits. Telstra is now planning the application of this capability across the company. Furthermore, the ability to measure emissions savings from product use in turn creates opportunities, although difficult to measure, and adds to their value proposition (Table 1). Table 1 Intangible value generated from environmental quantification 12 See http://www.telstra.com.au/abouttelstra/csr/environment/initiatives.cfm. 13 ‘Telecommunications and the Environment: But what about the Customer?’ by Turlough Guerin. Presentation to the CommsDay Congress, 13-14 October 2009, Melbourne, Australia. 14 Refer to http://www.telstraenterprise.com/researchinsights/Pages/Sustainability.aspx for a copy. 15 The three month trial used 8 video conference units to calculate over $62,000, 1,420 hours and over 100 tonnes of CO2e avoided from 305 individuals substituting travel. Page 4 of 5

K. Cockbill & T.F. Guerin (2010) The Business Case for Green Product Development in the Information Communications & Technology (ICT) Sector: A Corporate Environment Perspective from Telstra. Presentation to “Innovate 2010” Sydney, Australia 18-19 February Additional customer value from communication of quantified environmental initiatives Product differentiation Attraction of new or previously undecided customers Price premium justification Improved employee value proposition Conclusion Telstra’s Corporate Environment Group is collaborating with the Telstra businesses to capture value from the environmental benefits provided by our products and services. We support the consolidation and strengthening of Telstra’s environmental commitment including driving the achievement of our emissions reduction target. Quantification of environmental benefits across selected business offerings, such as remote working, online billing, and video conferencing, integrates with productivity and costs savings through adoption of innovative methods and tools for environmental quantification. This results in additional business value. In that way, the business case for green product development is based on a credible and sustainable offering that our customers can have confidence in. Page 5 of 5

Business Case For Green Product Development

by Turlough Guerin

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