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Lebedev, D.; Belousova, V.; Bondarenko, O.; Chichkanov, N.; Miles, I. Eco-innovation in Digital Business Services. Encyclopedia. Available online: https://encyclopedia.pub/entry/24026 (accessed on 18 June 2024).
Lebedev D, Belousova V, Bondarenko O, Chichkanov N, Miles I. Eco-innovation in Digital Business Services. Encyclopedia. Available at: https://encyclopedia.pub/entry/24026. Accessed June 18, 2024.
Lebedev, Denis, Veronika Belousova, Oxana Bondarenko, Nikolay Chichkanov, Ian Miles. "Eco-innovation in Digital Business Services" Encyclopedia, https://encyclopedia.pub/entry/24026 (accessed June 18, 2024).
Lebedev, D., Belousova, V., Bondarenko, O., Chichkanov, N., & Miles, I. (2022, June 14). Eco-innovation in Digital Business Services. In Encyclopedia. https://encyclopedia.pub/entry/24026
Lebedev, Denis, et al. "Eco-innovation in Digital Business Services." Encyclopedia. Web. 14 June, 2022.
Eco-innovation in Digital Business Services
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Sustainability has played a crucial role in corporate strategic planning and investor relationships, reflecting government policies and consumer demands for more sustainable products, with lower carbon footprints. Companies’ abilities to raise funds, and finance their long-term development, depend on how they set Environmental, Social, and Corporate Governance (ESG) goals and restructure their processes to adhere to these. Digital business services (DBS) companies are among those recognizing the importance of climate change and the need to improve their eco-performance. The environmental dimension of ESG, examining eco-innovation related actions such as: ways to improve environmental performance of DBS in production and operation by managing resource use (energy, water), environmental preservation and greenhouse gas (GHG) emissions. This exploratory analysis of DBS companies’ current activities may be helpful for companies considering how their energy transition may be facilitated, for example, by financing renewable energy products and supply chain improvements aimed at reducing net-zero emissions and building future operational resilience.

sustainable development goals ESG renewable energy waste reduction emissions reduction digital business services

1. Introduction

A general concept for incorporating sustainability concerns into corporate strategies and operations is commonly referred to as “Environmental, Social and Governance)” (ESG). These three factors were first introduced in 2006 by the United Nations Principles for Responsible Investment (for more information, see [1]) and were used by Goldman Sachs in its Environmental Policy report [2]. The Science-Based Targets initiative (SBTi) outlines the best practice in emissions reductions for a variety of industries, including financial institutions and information and communications technology (ICT) companies (For more information, see [3]).

82% of investment firms reported incorporating the ESG agenda into their decision-making, as it became essential for attracting funds from investors in 2019 [4]. Much attention is naturally paid to industries that are major producers and users of energy and materials. Service industries are generally seen as less important in terms of GHG contributions – with the major exception of aviation. But banks and other financial institutions also play important roles, as enablers of extractive and manufacturing industries, who could substantially influence their investment decisions.

Global ESG disclosure standards require companies to count direct emissions as well as value chain emissions. B2B services (for more information, see [5]) may have major emissions concerning their own suppliers. These standards are especially important for financial service companies. This focus is not without its critics: reducing investments in “less green” companies and assets may jeopardize business relations between financial institutions and their clients [6]; investment in green assets may involve such risks as increasing the volatility of asset prices and the risk of “bubbles” based on misconceptions concerning the supply and demand side of more sustainable production [7][8].

The direct impact of operations of financial companies are liable to entail relatively minor disclosures. However, their broader investment decisions—the businesses they invest in or provide with loans—can cover a much larger source of emissions; by some accounts [9], these are almost 700 times higher. Major potential for improvement lies in the creation of new “green” products, for instance, net zero-aligned funds [10], to meet growing demand.

An important issue for investors is whether it pays to be green. Overall, the evidence suggests that environmental practices improve corporate financial performance and firm value. A meta-review of 2000 empirical studies finds that the majority of research studies show a significant positive relationship between corporate performance and ESG [11]. A more recent meta-analysis of 142 studies concludes that, while corporate environmental performance may not result in substantial short-term impacts, it does increase long-term financial performance [12]. Studies for separate countries and industries, such as Italy, Germany, China, report that environmentally related actions have a positive effect on a company’s performance [13][14][15][16], while cross-country research provides national differences in the relationship between environmental practices and corporate performance (for example, [17]). There is a large variation in the firms sampled and variables measured (including metrics of ESG performance), which may partly explain the observed differences in results. Research on service industries, however, is rather scarce and often limited to financial services [18][19].

A transition away from use of fossil fuels is a crucial element of meeting sustainability goals (specially, limiting contributions to climate change), and these goals are unlikely to be achieved without improving the carbon neutrality of the corporate sector [20]. Companies develop different approaches to reach carbon neutrality goals. Innovation is one of the responses to climate change—more than 87.5 bn USD was invested by various industries in so-called “climate tech” in 2020–2021. Projects may seek to mitigate or remove emissions, help companies and consumers adapt to climate change, or to enhance understanding of climate and related topics [10].

This variety of practices raises questions as to how various types of companies address environmental issues, which policies and targets they settle upon, and which actions are undertaken to reduce greenhouse gas emissions.

2. Digital Business Services

Increasingly advanced ICT (information and communications technology) systems have been applied across almost all sectors of the economy in the decades since discussions on “the microelectronics revolution” took off in the 1980s. Numerous user devices are now employed (including tablets and smartphones), with interfaces including speech recognition and synthesis, augmented and virtual reality; tools such as advanced data analytics and artificial intelligence are being deployed to provide decision support (if not complete automation) in an expanding range of circumstances. The underpinning digital technologies are supported by a range of service activities. Specialized digital service firms have proliferated to help companies initiating or adopting innovations to enhance their efficiency, effectiveness, market reach, and customer loyalty.

Such digital business services (DBS) mainly involve companies from three types of industry: digital business consultancy services, digital advertising, and ICT services [21][22]. These sometimes evolved or spun off from more “traditional” ICT hardware, telecommunications, advertising/marketing, and consultancy services firms; sometimes they are fairly new entrants. Some firms that mainly belong to other sectors, such as engineering, design or R&D, may also supply clients with support in digitalization; and of course, end-user companies may employ their own in-house staff for these functions. Indeed, some in-house expertise may be required to make full use of the service firms’ inputs.

Taking the three types of DBS in turn, consultancy services can focus on customer-specific ICT-related aspects of corporate and innovation culture, as well as providing more general insights concerning benchmarking and best practice, the management of technological transformation and related organizational change, and the design and execution of digital strategies. Investigation of the trade-offs between market and technological opportunities, and the corresponding risks associated with rapid digital transformation, can inform the redesign of business models and restructuring of value chains (hopefully bolstering their operational flexibility, reliability, and resilience). The digital transformation consulting market size alone was anticipated to grow from USD 5 bn in 2020 to USD 11bn in 2026 [23]. While the accuracy of these, and subsequent, estimates of market growth is bound to be affected by the global pandemic and international tensions of the 2020s, they do give some idea of the dynamic nature of these industries and their markets.

Digital advertising, including search advertising (the largest segment) and social media, has displaced much “traditional” advertising in recent years. This market is estimated as USD 465.6 bn globally in 2021, and as growing to USD 643.7 bn in 2025 [24]. In 2021, the majority of US advertising revenue was generated by digital advertising [25]. Although in 2019, global advertising dollars were still mainly spent on traditional media [26], in recent years, traditional media expenditures have been regularly slashed, while marketers continue to place a premium on digital media [27]. Digital advertising businesses apply their expertise in using digital media and information about target audiences to promote (and often personalize) messages to the latter. They gather information on how and how far particular techniques, campaigns and strategies influence consumer sentiment and patterns of expenditure.

ICT services, in particular, have provided information and remote computing (cloud) services. They operate and/or access data centers with computing, storage and router facilities, and encourage and support clients’ use of cloud computing, Software as a Service (SaaS), online security services, etc. In 2020, all ICT services generated more than USD 0.9 trillion, of which 35% was generated by ICT outsourcing and 6% by ICT consulting and implementation The market for software application in respect to business intelligence and analytics, which is very prominent for digital business consulting, is expected to grow from USD 15.9 bn in 2021 to 17.6 bn in 2024 [28]. Consultancy services inform and advise clients’ decisions concerning the use of cloud services, knowledge management practices and systems, and AI applications.

The majority of ESG-related research is focused on energy and industrial sectors, while most service industries—the main exception being transportation— are often seen as relatively unimportant from the perspective of GHG reduction [29]. But some DBS may be significant in their own activities, as well as in their influence on clients: transport is not the only energy-intensive services industry. The ICT sector in general has an environmental footprint, and the share of global GHG emissions associated with ICT-related services is estimated to be 2.1–3.9%, potentially reducing to 1.97% of global emissions by 2030 according to the Global eSustainability Initiative [30][31]. ICT services consume electrical energy, which may or may not be “green”. Technologies such as artificial intelligence and large-scale data analytics can be energy-intensive, as the learning phase of complex algorithms requires high computing power. Data centers for cloud computing require a high amount of electricity [32]. However, future GHG reductions are possible. In 2020, the International Telecommunication Union (ITU) introduced a new standard, providing a framework for the ICT sector industry to achieve the goals of the Paris agreement and reduce GHG emissions by 45% from 2020 to 2030 [32]. According to some estimates, the transition to renewable energy could reduce the ICT sector’s emissions by 85% [33]. Some internet and software giants have pledged GHG-related goals (such as Microsoft’s aim to reach net zero by 2030 and be carbon-negative by 2040), or claim to be already using only renewable energy sources such as solar, wind or hydropower energy to cover their power consumption (Netflix, Google, Apple) [33]. Companies develop “environment-friendly” offices, digitalize their daily operations, and try to reduce all kinds of waste including water, plastic and especially electronic waste, often cooperating with recycling organizations. Some companies promote transition to clean energy for their employees both in travel and at home, and are involved in reforestation and other environment conservation programs.

Thus, DBS firms can play a large role in global GHG reduction by influencing client behaviors. They provide “green know-how” to improve energy efficiency, inventory management and transfer products from analogue to digital format, leading to assertions about, for example, green software, services, consulting and platforms, and even the “green internet of things” where smart grids, connected vehicles, and other resource-efficient applications support a smart city [34].

3. Eco-innovation Metrics

Eco-innovation refers to the production of a new (or rarely highly modified) product or service, as well as the storage, delivery and marketing which are accompanied by a reduction in environmental impact [35]. The implementation of such innovations leads to a shift to environmentally-friendly production processes, a reduction in non-renewable natural resources per unit of product and a mitigation of environmental pollution risk [36][37][38]. Eco-innovation has also another beneficial effect on the environment by installing “clean” technologies with fewer harmful emissions [39]. Eco-innovation actions should take not only in terms of one-off pollution reduction, but through implementing green corporate culture, environmental workshops, technological innovation and green marketing [40].

Eco-innovation may involve product, process, organizational and marketing innovation [35][39]. The key indicators of product related eco-innovation include use of cleaner (or recycled) materials and/or of inputs with lower environmental impact, and the manufacturing of products with a longer life cycle [35][41]. The essence of process attributed practices lies in environmentally productive efficiency, reducing chemical and other waste and decreasing use of water and renewable energy [39]. Green human resource, pollution prevention plans and environmental audit are organizational practices [35], which can be complemented by new managerial arrangements of operations (new forms of work organization or quality and supply chain management) [36] as well as the channels of information distribution aimed at involving customers into eco-innovations [42]. Marketing practices include the introduction of reusable and green design packaging, as well as quality certifications [35].

4. Eco-innovation-related Actions Taken by Digital Business Services (DBS)

Three types of innovation-related actions which are frequently used by DBS: creating environmental products, environmentally responsible product use, eco-friendly supplements to the existing product. Designing eco-innovation-related products generate value with environmentally positive effects or, at least, with reduction in negative impact by decreasing energy use or air/water pollution. IT companies frequently claim that using their services can pursue customers to reduce their energy use and carbon impact. For example, cloud services help customers significantly decrease emissions, while paperless digital workflows are associated with a decrease in forest demolition and water usage. Online video chat services provide consumers with a safe way of communication which creates an opportunity to reduce CO2 emissions with a platform for remote working.

Another group of business eco-practices in DBS is environmentally responsible product use, where it is not the products or services whose environmental impact is at stake: the focus is on that the promotion of client practices that can support their path towards eco-friendly development. Examples of such products are found among environmental consulting services, assessing climate-related risks or actually aimed at boosting resource use efficiency (e.g. minimizing electricity use and company travel).

The third option of eco-innovation in DBS is to add features and updates to existing products or services in order to make them more eco-friendly. Such action can be defined as product impact minimization. For instance, DBS-related companies apply this approach when they decrease their products’ energy use (for devices or software), work on more sustainable packaging, or improve products’ recyclability. Another way of product impact minimization is to provide a service for simulating possible environmental outcomes for different options of campaigns and projects that clients can choose from. These might be renewable (clean) energy products, which use such sources of energy as wind, solar, hydro and geo-thermal and biomass power.

This overview of business eco-related-practices is particularly relevant to DBS. But it may be of more general relevance in providing insights for the design of net zero strategies and management of climate risks for companies seeking to meet sustainable development requirements by implementing pro-environmental innovation. These measures are required to help address the challenges related to climate change.

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