Originally published on TriplePundit
Big tech companies are looking for ways to differentiate in a hyper-competitive landscape amid economic headwinds that caused tech giants to lose a combined market value of around $2.5 trillion in 2022.
Rather than seeing that as an excuse to cut programs that might seem ancillary to the bottom line, like those related to sustainability and environmental, social and governance (ESG) issues, many tech leaders see ESG as critical as ever to their business in 2023. In fact, aligning the core business and value creation to ESG performance is how a number of tech firms are seeking to stand out from the crowd.
Among them is global tech leader HP, for which ESG has long been a defining aspect of doing business. HP has reported on its Sustainable Impact goals and progress for more than two decades and was among the first companies globally to publish its complete carbon footprint over 10 years ago. The company is aiming to halve greenhouse gas emissions by 2030 and reach net-zero emissions by 2040.
Linking business success and ESG investments
HP publicly shares how its ESG investments influence business success. The company reported that $3.5 billion in net sales were influenced by its Sustainable Impact efforts in 2021 — a threefold increase from a year earlier. In 2021, HP also tracked more than $7 billion in new sales that meet customer requirements for eco-labels, like Energy Star and EPEAT. This is a sign that HP is being rewarded amidst growing consumer pressure for more sustainable products and services.
“We are seeing increasing interest in sustainability and social impact from our customers, investors, and employees,” James McCall, HP’s chief sustainability officer, told TriplePundit. “We know that it’s a factor in attracting and retaining talent, and we’re seeing a rise in employee engagement, including employee volunteering. With our customers, sustainability is increasingly a purchase consideration.”
Circularity takes center stage
HP and other tech firms are largely dependent on the finite resources that provide the materials for their products, from hard-to-recycle plastics to critical minerals. As such, they face a tough balancing act in meeting their environmental and social ambitions. It is not surprising, then, that HP’s sustainability strategy includes a key focus on circularity, or systems where materials are reused and recycled in perpetuity and nothing becomes waste.
The company is leading the way when it comes to using recycled materials. Acknowledging there is no universally accepted definition of what it means for a company to be “circular,” HP created its circularity goal by focusing on the materials and products it places on the market, committing that 75 percent of HP’s products and packaging will come from circular sources by 2030.
Toward robust measurement and disclosure
Ambitious goals mean that HP must be robust in its data-gathering so it can be accurate in its measurement and confident in its disclosure. Companies with the right systems in place for data collection will be better prepared to meet upcoming ESG regulations, like the anticipated climate risk disclosure requirements from the U.S. Securities and Exchange Commission (SEC) and the EU’s Corporate Sustainability Reporting Directive (CSRD), for example
HP aims to halve its absolute value chain emissions by 2030. And it says it’s always pursuing areas for improvement, such as using a new life cycle assessment (LCA) tool to calculate emissions associated with its personal systems products. LCAs like these evaluate environmental impacts at every stage of a product’s life, from raw materials sourcing to production, distribution, use and, ultimately, reuse or disposal. “It’s an ongoing collaborative process that involves continuous information and knowledge sharing from across multiple organizations,” McCall said.
Data collection remains a complex challenge
HP was one of the first in the tech industry to provide information connecting sustainability with sales wins, first publishing this data in its 2019 Sustainable Impact Report.
“Not only is tracking and sharing this data important for our own leadership, we also heard from customers and peers that this type of information helps them reinforce their own business case toward investing in sustainability initiatives,” McCall said.
Still, collecting data on ESG programming and impact all over the world is a tall order for any company. “Historically, measurement and metrics has been complex,” McCall noted. “We collect data from more than 100 sites globally, and that process has varied by issue, business unit, function and geography. In 2021, HP set its aggressive and comprehensive 2030 agenda, taking that complexity into account.”
Another sign of a company committed to strong governance for sustainability is third-party verification of its data. HP has voluntarily reported on its sustainability work for more than 20 years. For the past 10 years, EY has performed an independent review of selected key performance indicators in HP’s reports. With its 2021 Sustainable Impact Report, EY reviewed 10 metrics spanning Scope 1, 2 and 3 greenhouse gas emissions.
“We are also implementing even more robust reviews for HP’s disclosures, leaning in on our company’s approach to financial reporting,” McCall said. “All of this helps reinforce our long-standing commitment to authenticity.”
Tying executive compensation to ESG performance
HP is among a growing number of companies that has added ESG-related incentives to its compensation strategy. “All members of our executive leadership team have responsibility for Sustainable Impact targets — and performance against these targets and other business objectives is tied to their total compensation, ” McCall said.
HP is not alone in this move to link compensation to ESG performance. According to recent Harvard Law School research, the vast majority of S&P 500 companies are now tying executive compensation to some form of ESG performance: 66 percent of S&P companies did so in 2020, a figure that increased to 73 percent by 2021. Most significant was the rise in use of diversity, equity and inclusion (DEI) goals, from 35 percent of S&P companies in 2020 to 51 percent in 2021. But also the share of firms tying carbon footprint and emissions reduction goals to executive pay also grew considerably, from 10 percent in 2020 to 19 percent in 2021.
Why are firms making this part of their governance strategies? According to Harvard Law, to signal ESG is a priority, to respond to investor expectations and to achieve the ESG commitments the company has made.
“Now is a time for bold moves”
For HP, integrating ESG and business strategy ladders up to its aspiration“to become the world’s most sustainable and just technology company.” As he announced the company’s 2030 sustainable impact goals, HP President and CEO, Enrique Lores made the case for business transformation based on ESG factors.
“Climate change is a defining challenge of our generation that demands immediate action and investment,” Lores said. “Now is a time for bold moves and ambitious goals that will protect our planet and create new sources of innovation and growth across the global economy.”
This article series is sponsored by Workiva and produced by the TriplePundit editorial team.