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Cloud Sustainability and Its Intersection with FinOps

Overview

FinOps and cloud sustainability mutually support each other through a similar approach to conscientious and responsibility technology usage that enables workload efficiency toward sustainable outcomes that benefit our planet. If you are doing one of these – you are amplifying the other.

What problem are we trying to solve?

Climate change has increasingly become a political concern as it has become a more dominant voting issue for many citizens and a focus for action at an international level. This is resulting in regulations at national levels that place obligations on organizations and companies to report Greenhouse Gas (GHG) emissions. Business is seen as a fundamental part of the solution.

Many businesses are responding not only to growing customer demands, but also a realization that sustainability is not distinct to business but integral to it. Themes that were previously the concern of fairly marginal Corporate Social Responsibility (CSR) programmes are now ingrained into triple bottom line accounting which puts equal emphasis on people and the environment rather than exclusively monetary profit.

Businesses are reflecting on their purpose to acknowledge that they have a role to reform their internal operations and apply their unique skills and creativity in the innovation of a more sustainable future.

What are digital emissions?

Global greenhouse gas (GHG) emissions from the tech sector are on par or larger than the aviation industry, at around 3% for ICT and 2% for aviation respectively. Within ICT, data centers consume around 1% of greenhouse gas emissions and global electricity usage (equivalent to 200-250 TWh). Industry analysts predict that these emissions will, unless addressed, rise to 10% of global emissions within a decade.

Currently, most cloud providers only provide basic calculations for energy or carbon emissions from cloud usage to their customers (typically their scope 1 & 2), which can be a challenge for organizations who want to baseline and reduce their carbon footprint across all scopes.

Measuring and understanding the GHG impact is the first step to management and mitigation. Carbon accounting (also known as carbon footprinting) is an exercise to develop an inventory of emissions across an organization, product or service. It typically involves creating a baseline which can be used to assess improvement over time.

The standards developed by the GHG Protocol are the most widely implemented frameworks for carbon accounting (used by 92% of Fortune 500 companies). Whilst carbon dioxide is the primary GHG emitted globally these methodologies consider other types and families of gases (e.g. methane, nitrous oxide, hydrofluorocarbons), which are measured based on their global warming potential (GWP) in equivalence to carbon dioxide (expressed as CO₂e).

The GHG emissions associated with the ICT sector were estimated at 730 million tonnes CO₂e in 2015. Parallels have been drawn with the aviation industry, which has comparable GHG emissions. Unlike the aviation industry, the nebulous, fragmented, and intangible nature of the internet and digital technologies have meant that these emissions have largely gone under the radar in terms of scrutiny and awareness. There have been substantial efficiencies in data centers in recent years, although this is pitted against ever increasing demand. The complexity of digital has presented challenges to carbon accounting, but the availability of data also presents opportunities that are not available to more traditional industries.

The difference between on-premise data centers and the cloud adds an interesting dynamic to GHG emissions and an organization’s accounting and reporting of it. In one sense cloud technologies simplifies reporting by shifting obligatory Scope 1 (e.g. refrigerant gasses) and Scope 2 (e.g. electricity from the grid) emissions that would be evident for on-premise data centers into Scope 3. However, the omitting of Scope 3 emissions is increasingly inadequate since although there is no direct control over the emissions there may be considerable influence that an organization can take in their reduction or management.

A challenge for measuring the emissions associated with cloud services is that traditionally the providers have been opaque about key metrics, particularly scope-3, with the big-3 providers all utilizing differing calculation models and providing varying levels of granularity in their data.

What are scope 1, 2 & 3 emissions?

A core concept to GHG reporting under the GHG Protocol is that of scopes, which differentiate the different classifications of emissions (see EPA definition here):

The three types of emissions scopes

  • Scope 1 – Direct GHG emissions (e.g. refrigerant gas emissions from your owned and operated equipment)
  • Scope 2 – Emissions associated with the generation of electricity, heating/ cooling, or steam which has been purchased for your own consumption (e.g electricity purchased from the national grid for your own data centers)
  • Scope 3 – a reporting organization’s indirect emissions other than those covered in Scope 2 (e.g. external services such as Amazon AWS, Microsoft Azure etc.)

From the cloud consumer perspective, all the hyperscaler emissions fall under the category of your scope-3, but from their perspective, they have their own scope 1, 2 & 3 emissions.

Why is scope-3 so important?

Scope 3 emissions are less tangible and are often described as ‘tricky’ to truly get a handle on – as exemplified by any movement from on-premise data centers to cloud services.

Most companies downplay their impact on carbon reporting or consider them out of scope because they are the responsibility of a supplier and/or customer. Increasingly however, companies are expected and recognise the value in reporting these emissions, even if they are unable to quantify them in their entirety

Scope 3 emissions make up a surprisingly high percentage of total emissions for many businesses, often the largest portion of the total. When food giant Kraft mapped out the sources of its own emissions, it found that over 90% of total emissions associated with the company were Scope 3 (Greenhouse Gas Protocol). This isn’t untypical; the best estimates place Scope 3 emissions somewhere between 80% and 97% of total emissions for a large business.

For a cloud provider Scope 3 emissions are estimated to account for more than 80% of their carbon footprint, with their scope 3 including significant carbon emissions from their core infrastructure and wider supply chain, including the manufacture of data centers, servers, storage, networking etc.

There are a number of benefits associated with measuring Scope 3 emissions. For many companies, the majority of their greenhouse gas (GHG) emissions and cost reduction opportunities lie outside their own operations.

So, while many businesses do focus solely on Scope 1 and 2, this means only tackling a small percentage of the emissions linked to your business. Ignoring the emissions in your value chain means that you will never get a grip on your company’s true carbon footprint. It’s a huge missed opportunity.

From an IT perspective, this is particularly true for large consumers of outsourced services such as those delivered by Amazon AWS, Google or Microsoft Azure. By measuring Scope 3 emissions related to external providers, organizations can:

  • Assess where the emission hotspots are in their supply chain
  • Identify resource and energy risks in their supply chain
  • Identify which suppliers are leaders and which are laggards in terms of their sustainability performance
  • Identify energy efficiency and cost reduction opportunities in their supply chain
  • Engage suppliers and assist them to implement sustainability initiatives
  • Improve the energy efficiency of their products

 

Cloud Sustainability Terms

This section gives FinOps practitioners an easy-to-use glossary and index of key terms, references, and an acronym list, including a list of common industry bodies and groups focused on sustainability.

General glossary

Terminology Description
Activity data An activity is any action that creates emissions. It’s essentially anything that your company does, uses, or benefits from that generates greenhouse gas emissions. Activity data is the quantifiable measurement of that activity. Example: 341 kilowatt-hours (kWh).
Anthropogenic Made by people or resulting from human activities. Usually used in the context of emissions that are produced as a result of human activities.
Avoided emissions The measurable quantity of emissions that a company intentionally avoids generating as a result of choosing a different activity or changing a process.
Baseload power A long term, continuous, and reliable power supply, often supplied by hydroelectricity, coal or nuclear power. It is a stumbling block for many forms of renewable energy
Carbon Dioxide Equivalent (CO2e) A metric used to compare the emissions from greenhouse gases based upon their global warming potential (GWP). Carbon dioxide equivalents are commonly expressed as “million metric tons of carbon dioxide equivalents (MMTCO2Eq).” The carbon dioxide equivalent for a gas is derived by multiplying the tons of the gas by the associated GWP. MMTCO2Eq = (million metric tons of a gas) * (GWP of the gas)
Carbon Footprint A carbon footprint is the total greenhouse gas (GHG) emissions caused by an individual, event, organization, service, place or product, expressed as carbon dioxide equivalent (CO2e)
Carbon Intensity This is defined as “The amount of carbon by weight emitted per unit of energy consumed”. When we talk about the carbon intensity of electricity, we are referring to the number of grams of carbon dioxide (CO2) that it takes to make one unit of electricity a kilowatt per hour (kW/hour). When electricity is generated using coal power stations, the carbon intensity value is high as CO2 is produced as part of the power generation process. Renewable forms of generation such as hydro or solar produce almost no emissions, so their carbon intensity is very low. The lower the carbon intensity, the greener the electricity.
Carbon insets Carbon insetting is an investment by an organisation in emissions reductions projects within the company’s value chain.
Carbon negative A company is considered carbon negative when it removes more carbon than it emits each year.
Carbon neutral A company is considered carbon neutral when it reduces its emissions, and/or when it pays other companies not to emit the equivalent of its remaining emissions.
Carbon offsets The practice of reducing or removing greenhouse gas emissions to balance ongoing greenhouse gas emissions, which can be used to achieve net zero targets.
Carbon reductions Reducing the amount of greenhouse gas emissions that are going into the atmosphere.
Carbon removals Removing greenhouse gas emissions that are already in the atmosphere.
Cradle to gate Accounting for scope 3 activity only in upstream emissions (that is, everything that occurred before goods and services reached your company).
Cradle to grave Accounting for scope 3 activity through the whole lifespan of goods and services.
Decarbonization The term decarbonization literally means the reduction of carbon. Precisely meant is the conversion to an economic system that sustainably reduces and compensates the emissions of carbon dioxide (CO₂). The long-term goal is to create a CO₂ free global economy.
Digital Carbon Footprint A digital carbon footprint is the CO2 emissions resulting from the production, use and data transfer of digital devices and infrastructure.
Double Materiality The concept of double materiality describes how corporate information can be important both for its implications about a firm’s financial value, and about a firm’s impact on the world at large, particularly with regard to climate change and other environmental impacts
Double Counting Occurs when GHG emissions (generated, avoided, or removed) are counted more than once in a GHG inventory or toward attaining mitigation pledges or financial pledges for the purpose of mitigating climate change.
E-waste Discarded electronic appliances and infrastructure such as servers, storage, network devices etc
Emissions Trading Scheme (ETS) A tool that puts a price on emissions of greenhouse gases with the aim of reducing them
Emissions data (M) An output from the system that is the result of an emission calculation. Example: 51 billion tons of carbon dioxide
Emission factor (M) A value that is used in an emissions calculation to convert a quantity of related activity into emissions values for corresponding gases.
Emissions Removal The action of removing GHG emissions from the atmosphere and store it through various means, such as in soils, trees, underground reservoirs, rocks, the ocean, and even products like concrete and carbon fiber.
Emissions source Any of the 23 types of operational activity that are organized into predefined groupings according to the Greenhouse Gas Protocol.
Energy intensity Energy intensity helps you identify how energy usage and facility square footage might be related. It can be calculated as Kilowatt-hours (kWh) ÷ Square feet (sq. ft.).
Estimation factor A value that is used in calculations to convert one type of known activity data into an approximate usage value when actual usage information isn’t available. Example: A company that doesn’t receive a utility bill for space that it leases can calculate its emissions by using an estimation factor that is based on consumption in that region.
Factor A value that is used in calculation models to convert one type of data into another type. Example: One emission factor can convert electricity usage into metric tons of carbon dioxide.
Factor mapping A method of linking the dynamic attributes of activity data to an emission factor when the calculation job is run. The benefit of using factor mappings is that you don’t have to create a separate calculation model for each emission factor.
False negative When a system fails to detect an anomaly that has occurred. Example: The system fails to capture an anomaly when a service outage occurs.
False positive When a system incorrectly detects an anomaly although none has occurred.
Global warming potential (GWP) Each greenhouse gas has a different impact on global warming. To enable comparison of different greenhouse gases, each has a global warming potential value that is relative to metric tons of carbon dioxide equivalents (mtCO2e).
Greenhouse Gas (GHG) Any gas that absorbs infrared radiation in the atmosphere. Greenhouse gases include, but are not limited to, water vapor, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6).
Greenhouse Gas (GHG) Protocol Comprehensive global standardized frameworks to measure and manage GHG emissions from private and public sector operations, value chains, and mitigation actions. The GHG Protocol supplies the world’s most widely used GHG accounting standards. The Corporate Accounting and Reporting Standard provides the accounting platform for virtually every corporate GHG reporting program in the world.
GreenOps Processes, Tools, culture and behaviour that relates to Cloud or Digital Sustainability
Green Tariffs (eco-tariff) An eco-tariff, also known as an environmental tariff or carbon tariff, is a trade barrier erected for the purpose of reducing pollution and improving the environment.
Greenwashing Greenwashing (a compound word modelled on “whitewash”), also called “green sheen” is a form of marketing spin in which green PR and green marketing are deceptively used to persuade the public that an organization’s products, aims and policies are environmentally friendly.
Grid Emission Factor Grid Emission Factor (GEF) measures average CO2e emissions emitted per MWh of electricity generated. The mix of power generation technologies available in each geographic area will heavily influence the grid emission factor for the power grid. A lower GEF is better as this represents less CO2e for each MWh consumed.
Life cycle assessment (LCA) The process of attempting to measure the environmental impacts of a product or service throughout its existence.
Limited Assurance A level of assurance that is less than that provided in an audit. The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the assurance engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the appointed auditor’s conclusion. A limited assurance engagement is commonly referred to as a review.
Net zero A defined target for net zero emissions refers to achieving an overall balance between greenhouse gas emissions produced and emissions taken out of the atmosphere by an agreed date.
Net zero Transition Plan There is no formal definition, however this research identifies what organisations have been including in their plans, as well as the terminologies they use on this topic.
Paris-aligned Net zero targets which aim to achieve the Paris Agreement goal of keeping global average temperatures to well below 2°C and aiming for 1.5°C
Performance Per Watt is a measure of the energy efficiency of a particular computer architecture or computer hardware. Literally, it measures the rate of computation that can be delivered by a computer for every watt of power consumed.
Physical climate risk An event-driven risk (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations such as direct damage to assets and indirect impacts from supply chain disruption.
Power usage effectiveness Power usage effectiveness is a unit of measurement for how efficient a data center is, measured by the amount of power going into the building compared to the amount of energy used by the information technology equipment inside. PUE = Total Facility Power / IT Equipment Power. A PUE of 2 means for every 2 watts going in, only 1 watt is used by the IT equipment, the rest of the energy is being used for cooling, lighting, security, etc. With PUE a lower number is better with an ideal of 1.0.
Race to Net zero A global campaign launched by the COP26 leadership committee that calls on countries, regions, cities, and companies to set targets to hit net zero carbon emissions by 2050. It currently does not recognise offsetting as a valid mechanism by which to achieve net zero.
Rapid Evidence Assessment Rapid evidence assessments provide a more structured and rigorous search and quality assessment of the evidence than a literature review but are not as exhaustive as a systematic review.
Reasonable Assurance Reasonable assurance refers to the degree of satisfaction of the auditor that the evidence acquired during auditing backs the declarations embodied in the financial reports.
Reference data Contextual, supplemental information that goes into an emissions calculation or helps provide context for calculation outputs. Examples: Facilities, locations, industry, equation definitions, activity metadata
Removed emissions The measurable quantity of carbon dioxide emissions and other greenhouse gas emissions that a company intentionally removes from the environment.
Renewable energy Renewable energy is energy produced from sources like the sun and wind that are naturally replenished and do not run out.
Renewable Energy Credit A Renewable energy credit (REC) is a certificate corresponding to the environmental attributes of energy produced from renewable sources such as wind or solar. RECs were created as a means to track progress towards and compliance with states’ Renewable Portfolio Standards (RPS), meant to support a cleaner generation mix.
Revenue intensity Revenue intensity helps your company identify how emissions and revenue might be related. It’s calculated by dividing an emissions measurement by the related revenue (for example, mtCO2e ÷ Revenue).
Root Cause Corrective Analysis Identifying and addressing the root event/failure that led to the outage/issue
Science-Based Targets Initiative The initiative defines and promotes best practice in emissions reductions and targets aligned with specific temperature goals (1.5˚C or well below 2˚C of global warming). It is a widespread mechanism for corporate emissions targets to align to and an allocation approach is taken to attribute global or sector specific emissions to individual companies.
Scope The Greenhouse Gas Protocol has organized all sources of emissions into three types (“scopes”) for standard data collection, measurement, and reporting purposes.
Scope 1 emissions All direct emissions from fuel consumption under their control, for example, gas consumed in boilers, or petrol consumed in owned vehicles. From a cloud provider perspective, this is the emissions from combustion of diesel fuel and the use of refrigerants for cooling data centres.
Scope 2 emissions Emissions from indirect energy consumption. This is usually electricity but can also include purchased heat and steam. From a cloud provider perspective, this is the emissions from direct power consumption used to power the cloud providers data centres
Scope 2 emissions – Location-Based Method Scope 2 emissions are calculated based on average emission factors for the organisation’s electricity grid.
Scope 2 emissions – Market-Based Method Scope 2 emissions calculations take into account contractual arrangements that the organisation uses to procure power from specific sources, for example renewable sources. Types of contracts include Energy Attribute Credits (RECs- Renewable Energy Credits), GOs(Guarantees of Ownership), PPAs (Power Purchase Agreements).
Scope 3 emissions All other indirect emissions from activities of the organisation, occurring from sources that they do not own or control. These are often referred to as “supply chain emissions”. From a cloud provider perspective, this is the emissions from “everything else” – raw material extraction, manufacturing and delivery of physical assets
Sequestered Emissions Refers to atmospheric CO2 emissions that are captured and stored in solid or liquid form, thereby removing their harmful global warming effect
Spend-based accounting When the money that your company spends on an activity is used as a proxy for actual usage data. Example: $10,000,000 airline travel × Emission factor = Scope 3 Category 6 emissions
Standards Body An organization whose primary function is developing, coordinating, promulgating, revising, amending, reissuing, interpreting, or otherwise contributing to the usefulness of technical standards[1] to those who employ them.
Sustainability Focused Organizations An organization whose primary function is developing, coordinating, promulgating, revising, amending, reissuing, interpreting, or otherwise contributing to the usefulness of technical standards[1] to those who employ them.
Sustainable procurement Decisions when buying products and services that include social and environmental factors along with price and quality.
Transition climate risk Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. These may pose a financial and reputational risk to organisations
The Paris Agreement The Paris Agreement, adopted within the United Nations Framework Convention on Climate Change (UNFCC) in December 2015, commits participating all countries to limit global temperature rise, adapt to changes already occurring, and regularly increase efforts over time

Acronyms & Initialisms

Term Full Wording
BECCS Bioenergy with Carbon Capture and Storage
BEIS Department for Business, Energy, and Industrial Strategy
CDSB Climate Disclosure Standards Board
CCS Carbon Capture and Storage
DCIE Data center infrastructure efficiency
ESG Environmental, Social, and Corporate Governance
ETS Emissions Trading Scheme
FGD Focus Group Discussion
GHG Greenhouse Gas Emissions
GRI Global Reporting Initiative
IIRC International Integrated Reporting Council
ISAE3000 International Standard on Assurance Engagements for Non-Financial Reporting
ISAE3410 International Standard on Assurance Engagements on Greenhouse Gas Statements
LCA Life Cycle assessment
PUE Power Usage Effectiveness
GPUE Green PUE
REA Rapid Evidence Assessment
SASB Sustainability Accounting Standards Board
SBTi The Science Based Targets initiative
SDG Sustainable Development Goal
SIC Standard Industrial Classification
TFCD Task Force on Climate-related Financial Disclosures

Standards Bodies & Sustainability Focused Organisations

Term Full Wording Description
ASDI Amazon Sustainability Data Initiative The Amazon Sustainability Data Initiative (ASDI) seeks to accelerate sustainability research and innovation by minimizing the cost and time required to acquire and analyze large sustainability datasets. ASDI supports innovators and researchers with the data, tools, and technical expertise they need to move sustainability to the next level.
CCAF Center for Climate Aligned Finance The Center was established by RMI to help the financial sector transition the global economy toward a zero-carbon, 1.5°C future
GHG Greenhouse Gas Protocol GHG Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions.
GRESB Global Real Estate Sustainability Benchmark GRESB is a mission-driven and industry-led organization that provides actionable and transparent environmental, social and governance (ESG) data to financial markets.
GSSB Global Sustainability Standards Board The GSSB has sole responsibility for setting the world’s first globally accepted standards for sustainability reporting – the GRI Standards
The Carbon Trust Providing solutions to the climate crisis and supporting organisations globally as they accelerate towards Net Zero.
Energy Star A program run by the U.S. Environmental Protection Agency (EPA) and U.S. Department of Energy (DOE) that promotes energy efficiency
The Green Grid A nonprofit, industry consortium of end-users, policy-makers, technology providers, facility architects, and utility companies collaborating to improve the resource efficiency of data centers.
ITIC Information Technology Industry Council The Information Technology Industry Council (ITI)[1] is a Washington, D.C.-based global trade association that represents companies from the information and communications technology (ICT) industry.
PCAF Partnership for Carbon Accounting Financials An industry-led partnership to facilitate transparency and accountability of the financial industry to the Paris Agreement
RMI Rocky Mountain Institute RMI decarbonizes energy systems through rapid, market-based change in the world’s most critical geographies to align with a 1.5°C future and address the climate crisis.
SASB Sustainability Accounting Standards Board SASB Standards connect business and investors on the financial impacts of sustainability
SBTi Science Based Targets Initiative The Science Based Targets initiative (SBTi) drives ambitious climate action in the private sector by enabling organizations to set science-based emissions reduction targets
SDIA Sustainable Digital Infrastructure Alliance A nonprofit network of 100+ members & partners working across Europe and beyond to create a sustainable digital economy
TFCD Task Force for Climate Related Financial Disclosure To support the goals of the Paris climate agreement, the Financial Stability Board (FSB) created the Task Force on Climate-related Financial Disclosure (TCFD) in 2015. This voluntary disclosure platform was designed to “provide a framework for companies and other organisations to develop more effective climate-related financial disclosures through their existing reporting processes” and support “more informed investment, credit [or lending], and insurance underwriting decisions”.
UNFCC United Nations Framework Convention on Climate Change The United Nations Framework Convention on Climate Change established an international environmental treaty to combat “dangerous human interference with the climate system”, in part by stabilizing greenhouse gas concentrations in the atmosphere
WRI World Resources Institute WRI is a global nonprofit organization that works with leaders in government, business and civil society to research, design, and carry out practical solutions that simultaneously improve people’s lives and ensure nature can thrive.
WBCSD World Business Council for Sustainable Development The Partnership Platform is a global registry of voluntary commitments and multi-stakeholder partnerships made by stakeholders in support of the implementation of the Sustainable Development Goals (SDGs), and through various UN conferences and thematic action networks, including the UN Ocean Conference, the Small Island Developing States Conference, the UN Sustainable Transport Conference, the Rio+20 Conference, and others.

Units & Measures

Term Full Wording
Metric tons of carbon dioxide equivalents (mtCO2e) Each measurement of greenhouse gas can be converted to metric tons of carbon dioxide equivalents by using that greenhouse gas’s global warming potential (GWP) factor.
kg of carbon dioxide equivalents (kgCO2e) Each measurement of greenhouse gas can be converted to kilograms (kg) of carbon dioxide equivalents by using that greenhouse gas’s global warming potential (GWP) factor.
Litres of H2O consumed Measurement for water consumption (commonly used in data centers)
MWh of electricity Total megawatt hours (MWh) used from electricity
kWh of electricity Total kilowatt hours (kWh) used from electricity
m3 of water Typically, total water consumed in cubic metres

References & citations

Definitions above were retrieved from Microsoft and Wikipedia

Additional Resources

  • Cloud Environmental Sustainability Self-Assessment Tool
  • FinOps and Sustainability Insights article
  • View the cloud Sustainability Panel at FinOps X 2024 including HSBC, Teradata, Nubank and FinOps Foundation below.

Thank you to all our contributors