Telecommunication operators have set ambitious targets to decarbonize their emissions footprint, but so far most have gone after the low-hanging fruit. Some have made progress on emissions from their operations (Scope 1) and those from the energy they use (Scope 2). However, few have squarely taken on the much more challenging emissions from their value chain (Scope 3), which account for the majority of their carbon footprint. The challenge is only likely to get more daunting, as operators will have to contend with increasing emissions from growing data traffic and the build-out of infrastructure for the new 5G and 6G networks to meet increasing demand for telco services.
While geopolitical, economic, and policy uncertainty have increased, there is also a rising imperative for companies to accelerate progress in the face of more frequent climate extremes and increased sustainability regulation. Emission regulations are tightening in Europe and beyond, while mandated disclosure requirements are also coming into force in many jurisdictions. Decarbonization progress, or the lack of it, will become more obvious as companies begin to comply with incoming mandatory climate reporting and new supply chain regulations.
At the same time, many investors and consumers expect businesses to act. In 2024, companies decided to stop data center projects in both Europe and Latin America due to their own sustainability concerns. Our recent telecom consumer survey, with 5,000 participants across five countries, showed that 45 percent of retail customers value sustainability in their telecom providers. Respondents also viewed certain operators as up to twice as sustainable as others in the same markets.
For telecom companies to make more significant progress toward sustainability, they need an in-depth understanding of both their carbon footprint and the specific decarbonization levers available to the business. Prioritizing and sequencing sustainability investments can maximize the efficiency and impact of capital spending. Tackling the first quarter of a telecom operator’s carbon footprint is often a relatively straightforward mix of reducing direct emissions and achieving efficiencies in its own operations. Decarbonizing the rest will be much more difficult, as most of any operator’s emissions are spread throughout their value chain. To help decarbonize their ecosystem, telecom companies should focus on the major sources of Scope 3 emissions, such as handsets, network equipment, and construction materials, as well as the services provided by third-party companies that build and operate telecom networks. But telecom operators cannot decarbonize their Scope 3 emissions on their own—they will need to partner with their suppliers and customers on these efforts.
Companies also should consider redesigning their organizations and practices to better support sustainability efforts. The telecom sector lagged behind others on some critical sustainability governance practices, according to our benchmark of the environmental, social, and governance (ESG) performance of 75 large global companies across sectors.
Sustainability can also provide new business opportunities for telecom operators. For example, our telecom consumer survey reveals that nearly four times more consumers indicate they are willing to buy refurbished handsets in the future than actually do so today.
Operators have many tools at their disposal. By analyzing the decarbonization levers available across the full value chain, we found that 60 percent of an integrated operator’s emissions could be abated for less than $100 per metric ton of CO2, with up to 15 percent of decarbonization measures generating cost savings greater than the initial investment. In this article, we explore ways telecom companies can decarbonize their operations and ecosystem, along with the organizational changes that operators can make to ensure their business produces results.
Decarbonizing a telecom business
A crucial first step for any telecom company is to develop a detailed understanding of its baseline emissions. The operator’s specific carbon footprint depends on many factors, including its business focus, types of customers, asset ownership, and network operation.
Each company is different, but the four most prevalent business archetypes in the telecommunications sector are traditional integrated telecom companies that own most of the physical assets together with the retail business; tower companies (TowerCos) and fiber companies (FiberCos) that are network-focused wholesale providers; and service companies (ServCos) that use other providers’ infrastructure to cater to retail customers. For each archetype, Scope 3 emissions in the value chain (Exhibit 1) account for at least half of an operator’s carbon footprint.
While the specific source of emissions varies between archetypes and companies, for a typical integrated telecom company (Exhibit 2), the upstream Scope 3 emissions come primarily from network services and the production of handsets and modems. Downstream Scope 3 emissions stem from the use and disposal of customer equipment. A smaller but still important part of an operator’s carbon footprint is Scope 2 emissions, which covers the energy used to power their fixed networks, mobile networks, and data centers. The small remainder of the typical footprint is its direct Scope 1 emissions, which come mostly from an integrated operator’s fleet of vehicles and generators.
There are many possible decarbonization levers across a telecom business, but the cost and emissions impact vary between companies and markets. As a result, a strategic approach is crucial for selecting and sequencing the necessary investments. A best practice is to use a marginal abatement cost curve (MACC) to prioritize the available decarbonization levers based on their specific cost and abatement potential. Exhibit 3 shows the MACC for a typical integrated telecom business (see sidebar, “How to read a MACC chart”).
How to read a MACC chart
Our recent work with a business unit of a European telecom operator suggested it could reduce Scope 2 emissions by 95 percent and Scope 3 emissions by a quarter with a 5 percent uplift in EBITDA and a payback time of three to four years. While individual companies vary, four major levers often drive the lion’s share of abatement.
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Clean energy: Switching a network to run on renewable energy cuts Scope 2 emissions, and can typically cut the total carbon footprint by up to 20 percent. However, the costs of switching to green energy depend on the local price and availability of clean power. Power purchase agreements (PPAs) and renewable energy certificates (RECs) are commonly used to source green electricity. For example, since 2010, Swisscom has run its Swiss network on 100 percent renewable energy, backed up by renewable-energy certifications of origin. In addition to decarbonizing, PPAs provide long-term price stability, while RECs offer sourcing flexibility, but both bring some financial risks and require navigating regulations.
On-site generation is another option for telecom locations with sufficient local clean-energy resources. For example, Vivo Brazil (Telefónica) indicated that its Distributed Generation Program has developed enough solar, hydro, and biogas power since 2018 to cover about 20 percent of its electricity needs. That green power was injected into local distribution networks, generating credits and electricity cost savings for the company. Although few telecom businesses are doing this today, there are operators with ambitious plans for on-site energy production. A case in point is Turkcell, which has set a 2030 goal to cover 100 percent of its electricity needs with its own renewable-energy resources from a 300-megawatt capacity of wind and solar plants.
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Energy efficiency: Companies can achieve up to 30 percent energy cost savings by combining technology solutions, site and equipment optimization, energy storage, pricing, and operational levers. These same practices can also make significant contributions to decarbonization. However, the decarbonization impact of any energy savings will depend on what power source the operator uses.
Data centers typically account for about a tenth of an integrated telecom company’s baseline emissions, and as much as 40 percent of that can be abated by using energy-efficient measures such as liquid immersion for cooling or artificial intelligence to optimize a facility’s base temperature. For example, Orange indicated that it used free-cooling technology in its two latest data centers to reduce artificial air conditioning by 80 percent. Software reconfigurations of networks—that enable remote monitoring, managing, and updating of equipment—are another way to enhance energy efficiency while reducing costs and improving network reliability.
Installing fiber cables is another lever, as they are two to three times more energy efficient than legacy copper cables. Telefónica indicated that in the past three years, replacing copper with fiber has saved it 208 gigawatt-hours and avoided 56,500 tons of CO2 emissions, equivalent to the carbon captured by more than 900,000 trees. While decarbonization and energy savings can be significant, fiber deployment is a substantial capital investment, so it needs to be aligned with the operator’s overall network strategy.
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Network sharing: One of the most effective tools for operators to reduce both costs and emissions is network sharing, which can cut up to 10 percent of total emissions, primarily from Scope 3. Network sharing can reduce materials used by more than 30 percent while delivering the same network quality, however it can be costly to implement depending on market conditions and spectrum allocation. It is particularly effective when rolling out new networks or with major network modernization projects.
About a third of mobile phone subscribers in Europe are currently on actively shared infrastructure, driving an estimated $2 billion to $3 billion in total cost-of-ownership efficiencies annually. It also provides an annual emission avoidance of up to three million tons of CO2, equivalent to the electricity used by more than half a million homes annually.
Tower companies have a significant global presence and today capture some of the network-sharing impact with passive equipment and construction, but there is more potential from the electronics and antennas with active network sharing.
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Green materials: Using lower-emission materials for network construction and devices can directly reduce Scope 3 emissions but requires a deep understanding of the supply chain and future demand. Shaping sourcing practices to drive the ecosystem toward green materials is detailed in the next section.
Decarbonizing the telecom ecosystem
Most of the footprint for a telecom company comes from outside its operations and beyond its direct oversight, from the sand used to make silicon for smartphone chipsets to the old handset that ends up in a landfill. That leaves operators with a critical decision to make: Do they want to be in the driver’s seat for the journey ahead or settle for the back seat, a mere passenger along for the ride? A telecom business that is just waiting for suppliers such as utilities or router makers to go green is not doing enough to shape its own decarbonization destiny. As much as 60 percent of a telecom company’s total emissions come from its upstream value chain, including manufacturers of smartphones, wireless routers, network equipment, material providers, and other suppliers.
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Much of Scope 3 emissions come from the global supply chain. Operators can work with equipment manufacturers to reduce emissions by switching to greener suppliers or by working with their existing suppliers and downstream manufacturers to encourage the use of green energy, recycled materials, or alternatives produced in a sustainable way. Semiconductors in the chipsets of phones and other devices are where most of the emissions lie. Semiconductor manufacturers have been urged to accelerate their decarbonization efforts, and telecom and technology partners need to play an active role in collaborating with them to speed up the delivery of decarbonization plans.1 Operators prioritizing decarbonization are already discussing sustainability of products with major equipment suppliers. Precommitments to buy sustainable products are expected to define which operators will be the first to make significant abatement progress in this space.
Collecting and reusing devices can cut emissions and costs while also opening a business opportunity for telecom operators. Some US operators are collecting and reselling refurbished handsets, and some European telecom businesses have optimized their returns process for mobile devices as well as wireless routers. The payoff can be substantial. Our analysis shows reselling refurbished broadband access routers can abate 82 percent of emissions compared with a new device at minimal cost. In 2023, BT Group reported that it collected over 2.4 million home hubs and set-top boxes, 71 percent of which were reused.
Secondhand devices made up a tenth of phone purchases, according to our recent survey of retail telecom consumers in Brazil, Germany, Italy, the United Kingdom, and the United States.2 More than 60 percent of those surveyed said they were likely to buy refurbished phones in the future or wouldn’t rule out the possibility. Price was the top reason for buying a refurbished phone, with sustainability coming in second.
More than 60 percent of the surveyed consumers also expressed a willingness to return phones, with sustainability flagged as the top motive. Telecoms are well placed for this opportunity, as customers said operators were their preferred place to return their old phones and among the top three places to buy a refurbished one. If the industry develops this opportunity at scale, a scenario with about 25 percent penetration of refurbished handsets is not an unrealistic target for the next few years.
The green IT revolution: A blueprint for CIOs to combat climate change
Green sourcing can extend beyond customer devices. Operators can buy servers and storage equipment manufactured in sustainable ways (for example, using green power and heat). They can also use low-emission materials including cement, steel, and aluminum when building new data centers or mobile towers. Interest in green materials is growing; for example, Microsoft is building two data centers with wood to reduce its embodied emissions. The tech giant’s Climate Innovation Fund is also investing in greener steel and cement.
Moving early to understand the supply chain can help to participate in and shape the ecosystem, particularly as green materials are expected to be in short supply over the coming years. We already see leading operators prioritizing greener materials used in the construction of their data centers. The Open Compute Project Foundation has announced collaborations with AWS, Google, and Microsoft. In its initial testing to develop and use green concrete, they more than halved the carbon impact of today’s typical concrete.
Reorganizing to decarbonize
Operators can accelerate their sustainability impact by rethinking their internal structures and processes. Significant decarbonization will only happen if it becomes a priority for operators, managers, and employees. Our benchmarking of the environmental, social, and governance (ESG) performance of 75 large global companies across industries found that the telecom sector lagged behind the average when embedding sustainability into its strategy, capital allocation, management incentives, and supplier networks.
There are four priorities for the sector to accelerate impact:
- Capital allocation. The introduction of sustainability criteria into capital allocation is key. Many operators include sustainability in their capital allocation in a limited way, while others do not consider it at all. Internal carbon prices are used in some situations, but these need to have more than a symbolic value to encourage significant action. In Brazil, Telefónica indicated it has introduced three internal carbon prices: an implicit carbon price for operational contracting, a shadow price for purchasing some hardware, and an internal fee on carbon emissions that generates funds for green initiatives.
- Procurement practices. Scope 3 abatement cannot be effective without stepping up sourcing practices. Prioritization can be important: Our research shows that about 80 percent of network Scope 3 emissions often originate in fewer than 20 contracts and ten suppliers. As Scope 3 emissions are outside the telecom company’s direct control, engaging with selected suppliers increases the company’s understanding of their supplier’s sustainability and helps to set decarbonization as a joint mission. For example, Danish telecom business TDC Net3 indicated that it developed a sustainability screening tool that allows it to select those with the lowest carbon emissions. It also plans to introduce life cycle assessments for Scope 3 calculations to improve data accuracy and help select less carbon-intensive materials.
- Chief sustainability officer (CSO). Sustainability officers are often not empowered enough. CSOs should have a prominent role, with decision rights for major projects and investments, and essentially be a peer of the CFO.
- Incentives. Few operators’ incentive plans include decarbonization and other ESG metrics. Much more impact could be achieved by including sustainability metrics, such as Scope 3 emissions, in KPIs and in incentive plans for employees and managers. One such plan is Telefónica’s variable remuneration system, around 20 percent of which is linked to ESG and carbon emissions reduction, as well as the customer satisfaction score.
Telecom’s sustainability opportunity
Telecom companies have an opportunity to be sustainability leaders, but they have a ways to go. The first step is to understand the impact of different actions and then prioritize the many ways available to decarbonize their business. They can make real progress by driving the ecosystem to be more sustainable, putting strong incentives in place, and attracting the necessary skilled and visionary talent.
