Hewlett Packard Enterprise has found that sustainability isn’t just good for public relations. Along with a growing number of leading companies, the IT giant is discovering it’s also a profit generator.
“We must rethink our traditional linear economy and transition to what is known as the circular economy, a model in which the value of natural resources are maximized and waste is minimized,” Chris Wellise HPE’s chief sustainability officer, told Karma at the Bloomberg Sustainable Business Summit last week. “This approach is not just environmentally and socially beneficial, but it’s also good for business.”
During the first three quarters of this year “sustainability was an important factor representing over $400 million in new revenue, a sharp increase from $240M for the same period last year,” Wellise said.
HPE’s predecessor Hewlett-Packard was a leader in sustainability, for instance building an electronics recycling facility in the 1990s, and the company has attempted to remain in the lead. HPE found that a focus on sustainability gave it expertise that would be helpful to customers, further strengthening its bottom line. They have been leaders in the field but their competitors are catching up in the quest to market sustainability.
“We must rethink our traditional linear economy and transition to what is known as the circular economy, a model in which the value of natural resources are maximized and waste is minimized.”
“IT organizations are reaching constraints related to power, cooling, and space, causing them to seek out more efficient IT solutions that enable them to meet their business objectives with less inputs,” Wellise said.
Information technology doesn’t conjure up images of polluting smokestacks, but the storage and processing of information requires immense amounts of energy and resources. Most of this energy comes from fossil fuels, emitting greenhouse gases that contribute to global warming.
HPE’s information technology and services have become more efficient since the company split from Hewlett-Packard Co. in 2015, and have helped customers cut costs and bolster earnings through greater productivity. That split also created HP Inc., the printer and computer division.
“Efficiency has always been the cheapest, fastest and best way to reduce pollution from energy,” Nathanael Greene, a senior renewable energy policy analyst at the Natural Resources Defense Council, told Karma. “The commercial sector has been on to this for a while.”
HPE is marketing it’s sustainability expertise, selling products and services that increase efficiency healthcare, agriculture, manufacturing, finance and other sectors. IT is leveraged to cut both the use of resources and costs.
Industry took notice of HPE’s focus on sustainability. In September, HPE was named the Computers & Peripherals and Office Electronics industry-leader in 2019 Dow Jones Sustainability Index.
Competition
Dell, Cisco, NetApp, Lenovo and IBM are among HPE’s biggest competitors, and all of the companies claim to be working for a sustainable future. HPE has differentiated itself in marketing its sustainability know-how to customers.
HPE is consistently rated as one of the most sustainable companies in the technology sector, while others have also made strides. Dell, for example has exceeded some of the ambitious sustainability goals for 2020 that were announced in 2013.
The success of HPE’s hybrid cloud offering GreenLake, which has around $3 billion in orders, has attracted the attention of competitors such as Dell and IBM, who are offering their own services. While HPE has become more focused on hybrid cloud and software, Dell has bet that it can remain nimble while retaining scale. Dell continues to make hardware while expanding its offerings in other areas such as cloud computing.
“We’ll let our share speak for itself,” Dell Technologies CEO Michael Dell told CRN earlier this month. “All these things are built on software and hardware infrastructure. We’re quite ahead” of HPE, he said.
Dell said that greater size gives his company an advantage over HPE when offering on-demand offerings. Producing both the software and hardware offers synergies that HPE and other competitors can’t provide, according to Dell.
‘Zombie’ Servers
“Sustainability can pay for customers,” Wellise said. “In the IT space, most servers are under-utilized by more than 80%, yet still consume considerable amounts of energy while doing nothing. The aggregate cost of these zombie servers is estimated to be $30 billion in unused data center capital globally.”
HPE’s GreenLake offers customers the ability to buy IT services on a pay-as-you-go model. The company has announced plans to provide its customers choice by offering its entire portfolio through a range of subscription-based pay-per-use services by 2022. CEO Antonio Neri announced on Oct. 23 at HPE’s annual securities analyst meeting that within the next few weeks the next generation of GreenLake will be released.
“HPE GreenLake is already the fastest growing business in HPE and we will likely see increased demand for more sustainable IT solutions across our portfolio as customers seek to maximize the efficiency of their infrastructure and hold their vendors up to these high standards,” Wellise said. “More and more of these organizations are realizing that sustainable innovation is not only good for their reputation, but also for their budgets, and we will continue to see this reflected in purchasing behavior.”
“I certainly would have hoped for this increased interest in the space, though I’m not sure I could have predicted it at the scale we are seeing today.”
One way that HPE boosts sustainability is by planning each product through its entire life cycle. The company has centers in Erskine, Scotland, and Andover, Massachusetts, where equipment can be changed to meet the needs of new customers within two days. Products are 89% revamped for use by new clients with the remainder recycled, according to the company.
“Sustainability leadership is also increasingly on the agendas of institutional investors, who are looking at environmental, social, and governance factors alongside financial analysis to deepen their understanding of company risk factors,” Wellise said. “Today, around a quarter of all professionally managed assets globally are invested according to ESG principles.”
“Today’s companies need to take notice, being prepared to share their ESG practices if they hope to attract these ESG-savvy investors.”
HP Inc. announced earlier this month that it plans to cut 7,000 to 9,000 jobs over the next three years. HPE shares are up 23% this year, while HP Inc. has tumbled 16% over the same time.
“While we’ve long championed sustainability, the split presented a rare opportunity for a fresh start at HPE, allowing us to rethink from the ground-up the ways we incorporate and advocate for sustainability into our business with a new structure, leadership, portfolio, and go-to-market strategy,” Wellise said.
HPE equities surged 4% on Oct. 21 after Bank of America Merrill Lynch Senior Equity Research Analyst Wamsi Mohan upgraded shares to buy from underperform. Mohan said the company’s improving cash flow and strong returns are among reasons to be bullish.
Companies typically didn’t highlight sustainability in their annual reports until recently, but now investors demand an accounting. The technology sector has been an especially swift in adopting sustainable practices, with major announcements by Google and Amazon to boost spending on renewable energy.
“I certainly would have hoped for this increased interest in the space, though I’m not sure I could have predicted it at the scale we are seeing today,” Wellise said. “It’s fantastic to see and be a part of.”
Investors are now looking for companies that take sustainability into account. HPE has found a sweet spot, where they’ve been able to increase profits by selling products that increase efficiency and provide customer savings. It’s led to a virtuous loop that other companies would do well to adopt.
