Green IT is Good For Profits
For companies, going green in IT operations not only reduces energy consumption, it also boosts profits, according to new research from the University of Maryland’s Robert H. Smith School of Business.
Information technology systems consume a lot of energy and create carbon emissions, making IT an important area where firms can focus their sustainability efforts, says Sunil Mithas, the Ralph J. Tyser Professor of Information Systems at Maryland Smith. Along with three co-authors — Jiban Khuntia of the University of Colorado at Denver, Terence Saldanha of Washington State University, and V. Sambamurthy of Michigan State University — he studied how investing in green IT systems reduced energy consumption and positively impacted profits for firms in the fast-growing emerging market of India. He says the findings should have companies pushing to implement green IT initiatives that promote greater environmental sustainability — not just for the good of the Earth, but also for the financial reward.
Climate change and the future of the earth’s natural resources have become a global priority, and with increasing pressure from investors, customers and many governments, more companies are working to reduce their environmental impact with more sustainable operations practices, says Mithas. Because technology use and computing needs are continuously growing, IT operations can be part of the solution to create sustainable businesses and curb carbon emissions, say the researchers.
In information technology, going green can mean designing, manufacturing, using and disposing of computers, servers and associated subsystems efficiently and effectively with minimal or no impact on the environment. Green IT also involves creating better business practices so firms can save energy, reduce electronic waste, better manage operations and consider their environmental footprint by looking at the activities of their suppliers and customers.
The researchers looked at how firms were impacted when they implemented green IT operations within the firm and when they worked with outside suppliers that operate with sustainable practices. They find that both actions cut a firm’s energy consumption, but only operations-oriented green IT initiatives increased the firm’s profits, thanks in part to the cuts in energy costs.
“This suggests that if a firm wants to earn profits from its green IT, it needs to explore possibilities of increasing operational efficiencies through operations‐oriented green IT implementations,” write the researchers. But firms won’t see a boost to profits from working with green suppliers.
Mithas and his co-authors surmise one reason may be that choosing green product suppliers could cost firms more than other suppliers. Or if the green supplier saves them money, their competitors may be reaping the same benefits from the same suppliers, negating any advantage for the firm.
“Our findings suggest that green IT need not be viewed merely as another politically correct technology initiative or management ‘fad’ with no economic rationale; instead green IT can be evaluated like any other resource or value‐adding initiative with positive profit implications,” write the researchers. Mithas says the profit boost should provide the motivation for managers to implement green IT and justify any upfront costs to implementing green technology within a firm.
The researchers go as far to say policy makers, regulators, and institutional investors should demand the disclosure of firms’ sustainability initiatives, including those related to green IT, to bring more attention and transparency to the importance of sustainability initiatives. They suggest that governments could encourage early and broad adoption of green IT initiatives through tax policies and rebates, or with mandates or encouragement from regulatory bodies such as the Securities and Exchange Commission, the Environmental Protection Agency, and various industry associations that can play an important role in the disclosure of information related to greenhouse gas emissions and green IT.
The study provides one of the first empirical tests of how green IT investments at the firm level are associated with energy cost reduction and higher profits.
Read more: Information Technology and Sustainability: Evidence from an Emerging Economy is featured in Production and Operations Management.