Communication

Communication is a fundamental human need, fulfilled by a variety of complementary products and services offered by the communication sector. Over the past decade, communication technologies have advanced rapidly, ushering in an era where data is regarded as “the new oil.”

The transition to the information age has been marked by digitization efforts and disruptive technologies, fundamentally altering the way people communicate and access information.

Innovative solutions and the expansion of network infrastructure have facilitated new business models.

The communication sector significantly impacts society, presenting both challenges (e.g., data privacy, information quality, and energy consumption) and opportunities (e.g., social inclusion, decarbonization).

Numerous companies potentially generate a net positive sustainability impact by offering products and services that replace traditional activities (e.g., enabling geographically independent communication instead of long-distance travel). However, unlike face-to-face communication, digital communication—which necessitates data flow across distances through a transmission medium—inevitably produces negative externalities, such as extensive energy use through digitization, social exclusion due to limited internet access, or privacy violations resulting from data mining.

Scope of the Sector

The sector encompasses everything from telecommunication operators to advertising and printing companies, including a wide array of businesses offering diverse products and services with varying societal, environmental, and economic impacts. Moreover, the communication sector is driven by constant technological innovation and disruption, transforming not only business models within the industry itself but also the conduct of business across all other industries.
The communication sector is characterized by market concentration, particularly in its Internet (3.7%), Telecommunications (3.1%), and Media Providers (1.2%) subsectors, where a few companies possess significant market power. Alongside this market power, data privacy has become a crucial ESG risk with the emergence of internet companies whose business models are based on collecting and selling data.

For instance, Facebook has increasingly lost its reputation as the company has faced scrutiny for its controversial handling of user data (Bloomberg 2018a). Since its IPO in 2012, Facebook has regularly been the subject of controversy impact assessments by Inrate Assessment. The company’s ambiguous use of customer data and lack of transparency to investors and stakeholders represent substantial reputational risks.

Beware of Data Breaches

The recent data breach involving consulting firm Cambridge Analytica had significant repercussions for Facebook in the stock market, causing its share price to plummet. This example highlights the importance of companies having stringent policies and robust data management systems in place. By doing so, they can avoid risks associated with data breaches, such as increased remediation costs, loss of customers, and potential reputational damage (Rahm 2014). Inrate considers good data management a top priority and has established a separate controversy indicator for data content and privacy.
While big data presents certain ESG risks, it also offers significant opportunities. The availability of vast amounts of data in shorter timeframes enables companies to analyze sustainability issues at stake, address them more effectively, and capitalize on them. The ability to access large volumes of data more rapidly allows companies to analyze sustainability issues, address them more efficiently, and produce more accurate reports, thereby increasing transparency. This, in turn, enables investors to better assess industry- and company-specific sustainability impacts and integrate them into their decision-making process (GRI 2016).

Supply chain management and responsible management systems are ESG topics that receive considerable attention.

These companies not only operate networks but also retail cell phones and electronic devices containing minerals with controversial human rights implications. Moreover, numerous devices are assembled by contract manufacturers known for poor working conditions. In general, ESG risks appear upstream in supply chains, primarily beyond first-tier suppliers. Demonstrating commitment to local legislation, such as the Dodd-Frank Act and the UK Modern Slavery Act, as well as participating in industry initiatives like the Global eSustainability Initiative (GeSI), boosts confidence among responsible investors. Offering alternative devices with socially responsible services and components can lead to a competitive advantage.

Environmental Impact

Although the communications sector primarily impacts society, environmental risks and opportunities deserve equal attention. To fully assess a company’s environmental impact, an analysis of the entire product life cycle—including supply chains, product use, environmental management, and waste management—is required.
Electricity consumption is a major environmental concern (GRI 2013a), as data centers account for approximately 1.4% of global electricity consumption.

This figure is expected to rise further in line with increasing data volumes (Castellazzi et al. 2017). Addressing electricity use in network infrastructure and preventing the generation of hazardous materials and e-waste from consumer goods are other issues that need to be tackled. Examples of risks associated with ineffective environmental measures include non-compliance with national pollution laws and high costs incurred by excessive energy consumption (CDC Group plc 2018). Inrate identifies these risks by covering sector-specific environmental issues in the assessment of communication companies.

Despite these challenges, communication products and services can have a substitution effect on some traditional activities, such as replacing physical media or reducing travel. This ultimately leads to a reduction in CO2 emissions, resource use, and pollution. Additionally, companies can improve energy efficiency by enhancing the efficiency of data centers and using renewable energy sources, such as developing photovoltaic systems (CDC Group plc 2018).