Ireland will soon have a Climate Change Act. According to the “Framework for Climate Change Bill 2010” , the new legislation will place the National Climate Change Strategy on a statutory basis. That strategy is designed to reduce the level of greenhouse gas emission in Ireland and will operate over five year cycles. The Department of Environment, Heritage and Local Government has confirmed, at the time of writing, that the Heads of Climate Change Bill is drafted and is currently awaiting approval at political level and it is expected it will be published in the coming months.
The typical refresh cycle for information technology (particularly PCs) is five years. Predictions at the beginning of the year for the IT market included that a refresh cycle in commercial accounts is more likely to occur during 2010. Technology developments in the form of new Intel processors and Microsoft Windows 7 were thought to be catalysts for this. It seems a logical time for many organisations to consider “going green” in a co-ordinated, more formal way and to keep pace with the imminent legal framework the government plans to introduce on sustainability. In this article, John O’Connor and Mark Rasdale provide a technology lawyer’s perspective on what motivates companies to “go green” and how green strategies will change how organisations procure and contract for technology.
What is a Green IT Strategy?
It can be an all encompassing label but, for the purposes of this commentary, it is the use of information technology or technology enabled solutions (as one component of the operations of a business) at a core enabler of a green, sustainable corporate strategy. The extent to which legal and compliance issues arise in a green IT strategy depends on what objectives are driving the strategy. In some instances, the legal issue may be the end goal in itself, compliance with a specific mandatory legislative requirement. In others, the legal issue may be the enabler of the strategy, ‘contractualising’ the green business requirements and objectives. And there will also be instances where legal issues have no bearing whatsoever on the strategy; the primary drivers are cultural and behavioural change, cost efficiencies, competitive advantage or other purely commercial considerations.
There are limited examples of legislation that imposes direct obligations on companies, across sectors, in relation to “green IT”. It is too early to assess what specific impact the proposed Climate Change Bill will have on providers and users of information technology. However, the UK CRC Energy Efficiency Scheme is an instructive working example of the likely practical impact. That scheme is mandatory and affects approximately 5,000 public and private sector organisations in the UK. It is anticipated that the scheme will affect 25% of total business sector emissions within the UK. Importantly, even smaller UK based subsidiaries of larger multinational groups can have obligations by virtue of a cumulative, group assessment of qualifying, emissions criteria.
Implementing smart technology solutions will become a key part in meeting the compliance burden under such statutory initiatives and, possibly, maximising the financial opportunity of associated carbon credits set-off schemes. Environmental and compliance risks will be also be central considerations in assessing the total lifecycle cost of technology solutions.
It is worth noting that the environmental context in which a company (particularly larger corporates) operates is increasingly relevant for the purposes of assessing various directors duties and reports under Irish law. Directors have a duty to ensure a company operates in compliance with law and to sign off on statements and reports that indicate the steps taken to ensure such compliance.
In terms of IT specific legislation, providers and users of hardware should be cognisant of legislation such as the WEEE Regulations which have application to certain IT and telecommunications equipment. Likewise, the Waste Management Regulations control the use of certain hazardous substances such as lead and mercury in electrical and electronic equipment, including mainframes, PCs, printers and other products and equipment for the collection, storage, processing, presentation or communication of information by electronic means.
Good contracting practice should result in formal green policies having a direct influence on the content of contracts and a legislative framework such as the Climate Change Bill should further facilitate this. Already IT providers are, at least to some extent, directly or indirectly obliged by contract to ‘step up’ to green IT standards through contractual undertakings and warranties to conform to good or best industry practice or to adhere to specific standards such as ISO 14001 and IEEE Standard 1680. These standards, while voluntary, seek to set the bar as regards best practice in relation to minimising environmental impact or corporate activities and the environmental performance of electronic products. There are signs too that more specific environmental standards will have increased prominence in contracts such as being independently certified as complying with Energy Management best practice according to the EN 16001. Increasingly, those involved in technology deals will require a good knowledge of the detail of these standards so that there is an informed approach to negotiating an appropriate level of contractual commitment, and thus liability, should the relevant standard not be met.
Compliance as Enabler
A good procurement function should be based on a solid legal (both contractual and regulatory) basis. Contract terms and conditions are most useful when tailored to business objectives and where the parties engage to appropriately allocate risk and responsibility between them. The increasing move towards and profile of the green IT agenda will result in change to the procurement and contracting practice. The challenge will be to effectively reflect specific and often complex green requirements in the contract that is ultimately agreed.
The procurement function is changing. Roles such as ‘Chief Sustainability Officer’ will become increasingly common. Automated procurement tools, online auctions and the like offer obvious financial benefits to companies but also enable a level of automated pre-qualification screening on environmental grounds such as blocking products that do not meet certain environmental standards or requiring specific justifications to be met as a condition of selection of certain offerings. Walmart, for example, has introduced a “Supplier Sustainability Assessment Program” which, through the use of fifteen questions to suppliers, is designed to capture, assess and monitor, on a systematic basis, the sustainability of its suppliers and steps those suppliers must take to manage their own supply base. The UK Government advocates that all procurement documentation must specify environmental criteria for IT that is consistent with expert advice available to central government. While the extent to which these requirements can be presented as mandatory conditions in a specific procurement will be determined in light of applicable procurement law, it is clear that procurement teams are gearing up to drive the green agenda forward.
Larger volume, longer term, IT deals in Ireland will increasingly be based on contracts that are tailored to address sustainability issues. To put green objectives and targets on a binding contractual footing will focus minds on the issue. Assuming the contracts are well managed, it will also increase the prospects of anticipated financial savings being realised and enable reliable and ongoing monitoring of progress. Whether an end-to-end managed service arrangement or a provision of one critical part of an organisations technology landscape (such as desktop services supply and maintenance or key applications development), the focus is likely to be on the complete life cycle of IT assets, from purchase to disposal. The following are some features that, increasingly, will feature in more sophisticated technology contracts:
- Inclusion of sustainability charters, key objectives and policies within contract terms and conditions;
- Inclusion of specific sustainability/ green IT KPIs into the usual service level matrix such as percentage utilisation of servers, power usage effectiveness of data centres, percentage of desktops operating on optimum energy saving modes etc;
- More transparent costing provisions in contracts to ensure that automatic pass-though of costs linked to energy inefficiency (such as high fuel or energy charges) cannot occur;
- Specific obligations regarding reduction in CO2 emissions and reduction in environmental footprint;
- Inclusion of carbon off-setting provisions in contracts as part of service credit matrix and pricing provisions;
- Maintaining a baseline sustainability score as a condition to receiving incentive payments;
- Audit and governance provisions will include the ability to conduct impact assessments in respect of green credentials and metrics through tools such as sustainability scorecards;
- Addressing “locked in carbon” risk through more specific obligations/assurances on suppliers regarding their supply chain management procedures, costs of manufacture (including use of scarce resource, pollutants emitted during manufacture and supply chain costs of transport) to ensure the sustainability objectives are flowed down to its supplier base as appropriate;
- Commitments to deliver best of breed, transformational technology such as server virtualisation, ultra thin client technology, private cloud solutions;
- Controlled use of third party data centres linked to compliance with specific standards such as the EU Code of Conduct on Data Centres Energy Efficiency .
As noted above, legal considerations do not necessarily always arise in a green IT strategy. For instance, effective use of desktop and device power saving functionality, communicating green IT policy on green printing, device usage and file saving to employees, use of efficient storage area networks and virtualisation solutions, investing in blade servers, actively using de-duplication technology and efficient data retention and archiving solutions are all important parts of any green IT agenda. Some indirect legal questions in relation to obligations around retention periods for data and risks associated with entrusting third parties to store archive copies, but on the whole these are issues that can be dealt with at an operational level. The higher up the “value chain” the technology dependency, the more likely it is that more involved legal issues come into play, but potentially in a way that can help rather than hinder progress.