Rethinking Technology Modernization – A Pathway to Meeting Sustainability Goals

Speaker: Our next panel is Rethinking Technology Modernization, a Pathway to Meeting Sustainability Goals. Please welcome Kush Sharma, who is the VP and Regional Head of Utilities at Infosys, Jonathan Birdwell, Global Head of Policy and Insights of Economist Impact at The Economist Group, who is moderating, and Beatriz, who is the CFO of Ferroglobe for our next panel. Please welcome them.

Jonathan Birdwell: Wonderful. Good morning. So we are the last of the business sessions before the tennis great meet and greet, and of course the champagne reception. But I think it's gonna be a really fascinating discussion. I will look maybe to bring in some questions from the audience as well towards the end if we have some time. But as was said, I'm Jonathan Birdwell. I'm Head of Policy and Insights at Economist Impact. We're the in-house think tank of The Economist Group, publisher, of course, of The Economist newspaper. Hopefully many of you are readers of The Economist. One of the key topic areas that we focus on at Economist Impact is sustainability. We have a platform where Infosys is actually our innovation, digital innovation partner called the Sustainability Project, which houses all of our research. And so I do, you know, encourage you to go check it out. But one thing we're constantly hearing in the context of sustainability now is that the time for setting goals is over. Everyone has their net zero transition goals. Now is the time to act, right? And what do you do? How do you implement? That's what everyone's talking about now. And of course, that action requires investment. It requires investment in technology, thinking about how you integrate AI, what's your cloud strategy, and particularly in this difficult economic climate, right? How do you balance those investments in terms of their sustainability outcomes, in terms of their financial implications? So the topic of this session today, Rethinking Technology Modernization, a Pathway to Meeting Sustainability Goals, will focus on some of these issues and I'm very pleased to be joined by Beatriz, Chief Financial Officer of Ferroglobe, and of course, Kush Sharma from Infosys.

So Beatriz, I'm going to come to you first. Can you tell us a little bit about Ferroglobe? What are your sustainability goals and how are you integrating those into your financial decision making?

Beatriz Garcia Cos Muntañola: Yeah, thank you for the question. So Ferroglobe is a traditional manufacturing company on the mining and metals space, so very different from everything that we are talking here. But still everything related to technology and sustainability is extremely important. We produce silicon, silicon alloys and manganese that basically goes into the automotive industry, it goes into the solar industry, it goes into the battery industry. So a lot of old products but as well contributing very actively to the new type of business, batteries and solar for instance.

Jonathan Birdwell: And so how are you thinking about your sustainability strategy? What are your goals and what role does technology play in helping you, Ferroglobe, to meet those goals?

Beatriz Garcia Cos Muntañola: For us it's extremely important because we are issuing a lot of CO2, right? So that's the first point. And we have a target to reduce 38% of our CO2 emissions by 2030, right? This is an amazing and very challenging task for us. Not only because it's difficult from a technology perspective, manufacturing technology perspective, but as well because it requires a massive amount of investment, right? So we have a plan that involves more or less more than 100 millions of US dollars of CapEx. We are a small company, we are a 2.6 billion company listed in the US just to put things in perspective, right? And all these investment plans need to be funded and need to make sense for our boardroom and for our investors, right? And this is a big challenge that we have at the moment, how to fund these 100 millions. But what is interesting when you run the financial models to see, okay, does it make sense for the company to invest 100 millions to achieve these 38% of the carbonization? It makes sense. So that's the funny thing, right? So funny enough, the numbers fly to get this done. And what is very important, we were discussing with Infosys a couple of days ago, is how technology can help us to make these investments more efficient.

Jonathan Birdwell: So how exactly do you measure and report on that return on investment for sustainability initiatives?

Beatriz Garcia Cos Muntañola: Yeah. Well, on the manufacturing side, what we have been doing is, okay, you know that the CO2 is a very expensive per ton nowadays. So what we are doing is, okay, in the future, we need to buy X number of CO2, yeah? And on the other side, the price is increasing. So I still remember the price of CO2 being at around 30 euros per ton. And now, in the US, they are modeling that we'll go up to 200 euros per ton. So that's amazing. So for the company, it's a huge cost that we need to face, right? So we are planning to put investments in place, in our manufacturing plants to reduce the emissions that we are doing, right? For us, this is quite challenging because our natural process of manufacturing, we are emitting CO2. So we are planning to use, for instance, a biocarbon instead of coal, traditional coal. But what is more important, to your point, is how we measure, report all these plants, and is what technology needs to be spread out of the traditional corporate environment. So we need to measure everything on our manufacturing plants, and this is becoming very challenging, how we need to put technology there to measure all these CO2.

Jonathan Birdwell: And Kush, I want to bring you in here. So in the context of tech modernization, what are the key considerations that you would say for companies that are aiming to balance sustainability goals with financial return on investment?

Kush Sharma: Sure, thanks, Sean. Look, I think just taking on from what Beatriz has mentioned, right, what's happening around us is a scenario where the cost of capital is very high, subject to borrowing money is getting increasingly difficult. In addition to that, the return on investment is a big question, right? So when companies like Ferroglobe, you know, Eon, BP, RWE, when they go to their investors or any other company for that matter, which has got an ESG goal and most have today, the first question about being asked by the investors is the investment, return on investment, right? Now, when you talk about the return on investment, we are not in a phase which was there about 5-10 years ago, you know, where 20%, 25% ROIs were, you know, tangible, right? We are sort of more drifting towards the 5-10. And that's where technology plays a key role, right? So when we speak about scope two, scope three emissions, right, I think, you know, cost of CO2 will rise, you know, and companies will need to spend more to offset that. But I guess what's really going to be very important is to measure through the supply chain, to optimize the supply chain, to transform the supply chain, right? And to make sure that the supply chain becomes more sentient. And in fact, the overall business becomes more sentient, right? So that the details, the data, the insights from the overall ecosystem is available at the business's disposal, right? And that makes the business more efficient, that transforms the business. And that's the role which technology plays, right? So in fact, you know, instead of trying to look at technology as an enabler for meeting ESG goals, technology would essentially become the transformer and the main stage participant for meeting the ESG goals.

Jonathan Birdwell: And actually, just on that point, and we've been talking, obviously, we're hearing a little bit about or a lot about generative AI. So I'm curious for you, as you look ahead, sort of what are some of the emerging tech and innovative solutions that you think are particularly promising in the space of helping companies reach their sustainability goals?

Kush Sharma: Sure. Look, again, you know, there's a lot of reporting around ESG. And we typically sort of cater to scope one emissions, right? But to deal with scope two and scope three, you have to make systems more inclusive, you have to make them more intelligent, right? And the transformation on the technology front started a few years ago, you know, cloud was the first layer, we brought in digital then. And the third wave now, as we all see it is AI. Now, AI is an extremely important method, a framework, a set of tools, and an overall way of doing things in the world of ESG. Because what that is going to be doing is to make the overall landscape, the ecosystem and the organization more sentient. It's going to make the enterprise respond to real time challenges in real time. And in a sense, measure the cost and the return of investment more real time than using traditional methods.

Jonathan Birdwell: So because at the moment, ESG reporting is quite burdensome, right? How much of it is, can be automated at this point in time? And how much do you think could be automated in say five years?

Kush Sharma: Look, I think the most part of the focus which enterprises have today, you know, is focused around, you know, measuring, monitoring and reporting scope one, right? And there is an increasing shift and focus towards scope two and three. The business case discussions are more use case based than tangible ROI based. So I think over the next few years, we will start to see a shift where when these technologies become more mainstream, you know, you could clearly see and demonstrate an ROI return, you know, as against just a few use cases which will help enable, you know, measurement, monitoring, and hopefully reduction of scope two, scope three.

Jonathan Birdwell: And so you mentioned, importantly, scope three, right? And Beatriz, I wonder to what extent scope three, so those emissions coming through across the value chain, to what extent are those part of your sustainability strategy? Are they a minor part? Are they a major part? Or are you more focused on scope one, scope two?

Beatriz Garcia Cos Muntañola: Great question, because to me from the insight of the company, this is the driver to be honest, to develop the ESG strategy for the company. Because, for instance, in my case, it's always the discussions with the chief commercial officer saying, okay, Beatriz, when we can talk to our customers and to demonstrate that we are already in scope three, I say, okay, let's prioritise that. But the chief commercial officer, for instance, in my case, he's the one driving that because we need to demonstrate to our top customers like Dow Chemical, like Evonik, these type of guys, they want us to jump into the scope three. So I have the pressure from the business to be honest, and they are leading this transformation, right? This is one angle. On the supply side as well, this is becoming extremely important for us. So at the end, the question, I think the real question for the company is, can you get a kind of price window because of this scope three? This is what we are assessing. And then can we take advantage of this price window from scope three, right? And what we are saying so far is that I don't think there is any longer a price improvement window to go into the scope three. You just need to jump into because otherwise you are out of the market. I think that's what we are learning so far.

Jonathan Birdwell: I did say I wanted to bring in questions from the audience. So if anyone does have any points that they want to make or stories of their own experience they want to share or questions, please just give me a hand. But I wanted to come back to you, actually, maybe Kush. Just in terms of the pace of technological change that's happening, right? And Beatriz, you mentioned the capital expenditure, the huge capital expenditure. Does that pace of change present a challenge to making the case for capital expenditure or is the tech able to kind of weave in updates as it advances?

Kush Sharma: Yeah, I think that's a great question. Look, I think from an investment lifecycle standpoint, right? Most of us are used to mid to long term investment lifecycles, right? Financial institutes have typically private equity they've invested for three to five years at a stretch. But I think the investment lifecycles are going to reduce, right? Because the change and, you know, in the previous panel, I heard one of my colleagues talk about one of the principles for build to change, right? A few years ago, the concept for software and technology was built to last, right? Now, as we make this shift from build to change, you know, this is exactly what's happening in the business out there. Now, we talk about change being pervasive. We talk about change being omnipresent. We talk about change being more today than ever before in context of technology because today, literally on a yearly basis, tech companies are releasing new capabilities, new features, and new technology is getting created, wherein in the past, the whole focus was around doing something lasting for five to 10 years, and then moving to the next. And in similar state, the investment lifecycles will shorten, companies will start to measure the outcome on investment on a shorter scale basis, as against five to 10 years. Now, what would this do in the longer term is still unknown, because if we were to look at the oil and gas industry per se, right? Companies who have pledged to become greener than the others are actually the ones who are struggling the most. Example being BP, wherein the ones who have not pledged or haven't made it vocal yet are still benefiting from the, you know, price of the shareholder, such as ExxonMobil, right? So those are the two extremes I would sort of, you know, quote for the audience and for all of us to ponder about as well.

Jonathan Birdwell: And Beatriz, what's your perspective on that question, the pace of change? Is that, is that, does that present challenges for you in having to make the case for that investment to your board?

Beatriz Garcia Cos Muntañola: Yeah, I think that's a very interesting question, because being a US listed company, so there's two different sentiments, I would say, in Europe and in the US. So I think the US is moving slower, at a slower pace in comparison with Europe. But in Europe you need to move, you don't have any option, right? So it's a very interesting discussion with the board, because then you say, okay, it does not make sense to move only in one part of the world and then continue in the US. So we want to move globally on that. But of course, in the US there is a very, very different sentiment in comparison with Europe in everything that is related to ESG. And then the second question from the boardroom is always, okay, what is the return on all these investments, right? And then the shareholders as well, or the investors out of the boardroom, they are quite challenging about the return on the investment. So it's a question about capital allocation, and that is quite a big challenge from the investors. What is the best way to allocate capital for the company? And they're really challenging everything that is related to ESG.

Kush Sharma: Yeah, and just to sort of supplement what we actually said, right, I mean, as a fundamental shift which we are seeing with our clients, right, still a large proportion of yearly budgets, tech budgets, are allocated towards initiatives which would be multi-year, right? But we are increasingly starting to see more and more budget being allocated towards short-term initiatives, what we used to call as minimal viable products being created to be tested and either to be taken forward or to be put to drench, right? And I think it's, you know, on one side, a change in the investment grade appetite. The second, it's a huge cultural change for all organizations to embrace. And tech stays at the center stage of all that.

Jonathan Birdwell: Why, what is driving that shift, though?

Kush Sharma: The need to experiment with newer capabilities, newer business models being introduced, you know, the need to reimagine your supply chains, you know, the need to interact with your customers differently. So these are the common themes across industries. And when you look into a specific industry, you will see, for example, the oil and gas industry is now trying to make more investments into renewable energy, right? The mining and the metals industry is more focused on looking at the forefront of what lies ahead, lithium, uranium, et cetera, right? And as they invest in this, they also know that the cost of these commodities will come down, you know, as the scale goes up, right? So it's a constant challenge and it's a very dynamic place to be.

Jonathan Birdwell: And we've heard mainly from CTOs, I think Beatriz, you might be the first CFO on the stage. So what is the role of the finance function in particular on some of these decisions, for example, informing the cloud strategy that Ferroglobe takes? How do you work in partnership with your CTO at Ferroglobe?

Beatriz Garcia Cos Muntañola: Well, in Ferroglobe, we don't have a CTO, so that's, I'm trying to manage as well the technology function, but they have very, very strong people in the team. So what we are trying to do now is to set up our strategy, our digital strategy in the company, right? And part of this digital strategy goes through these digital use cases that I have been hearing about. And I think I heard before about this data strategy. So we are working to build up now our data strategy. And I think as a parallel to that, we are working to move all our data in one place. I think I heard about that as well. So we are trying to move everything into the cloud. And I think...

Jonathan Birdwell: So the data lake?

Beatriz Garcia Cos Muntañola: Yes, yes, data lake. We have a project on that. And then what we are trying to do as well is to rethink about AI. And for us, being a manufacturing company, we are thinking that it's very interesting to plug AI in our manufacturing data. And so we are trying to move all our manufacturing data that is scattered in different places of the world in one place. And then we can start to work with this data and to plug AI. So for us, for instance, we are thinking on AI first on the manufacturing space rather than in other areas of the company.

Jonathan Birdwell: And obviously for some industries, the shift to net zero is going to be really very challenging. How do you feel? Are you optimistic? Are you excited about the potential for Ferroglobe to reach your sustainability goals? Or do you think it's going to be a difficult road over the next five years to do so?

Beatriz Garcia Cos Muntañola: I think that's a great question because we are very excited and committed. And I think this is a great opportunity as well to drive a change into the company to become a new type of company. But it is really challenging for a lot of manufacturing companies because for instance, in our case, we use CO2 as part of our manufacturing process. So it's extremely challenging. And we produce silicon and silicon is just a blending of quartz and coal. So for us, the only chance to be sustainable is to change this coal by biocarbon, right? So then you can argue if biocarbon to which extent this is sustainable. So it's quite challenging for us just to put an example.

Jonathan Birdwell: And Kush, I mentioned that at the beginning that there was a sense that there's an urgency for action now. Infosys is that sort of an interesting place you're working with clients to help them meet your sustainability goals. I'm assuming you have sustainability goals as well. Do you see a kind of push among your clients to actually start the implementation now? And also just like a separate question, as Infosys itself a company, how are you thinking about sustainability and what you do?

Kush Sharma: Well, look, we've been carbon neutral since 2020, right? And it's been a deliberate part of our overall board strategy since 2011. And I think it's very important to recognize that whilst on one side, we might see sustainability and ESG as a good to do kind of a thing, right? In times to come, you know, companies like us who serve, you know, large organizations and corporates globally, being a part of the supply chain with the carbon neutral capability in itself is a win, right? Because in a way, we are not going to be adding to their scope to scope three, that is one, right? Second, you know, with regards to what we observe in the marketplace, every single organization out there, be it in the banking and financial services or insurance, or energy, utilities, retail, they are thinking continuously about how to reimagine their business, and how to reimagine their supply chain, how to reimagine their talent, and how to reimagine their digital capability. So those four levers or themes become, you know, omnipresent, right? Talent, supply chain, business and capability, talent capability, right? And, and this is where everything which we do for most of our clients, in fact, all of our clients sits, right? And an option of AI is set to increase. You know, you see a big narrative around it since the start of this year. You know, it's still early stage in terms of execution. But increasingly, more and more, as I said, right, clients are putting aside budgets, you know, for MVPs, it will take some time for these models to mature, because, you know, these models have to first learn and then continuously relearn. But the future is AI led.

Jonathan Birdwell: Any final comments for the audience?

Kush Sharma: I think my final take on this really is that we are sitting at a cusp of, you know, a huge transformation which lies ahead, wherein on one side, we have a challenge of where to invest our money for the best return. And on the other side, we have to continuously reimagine our business and business models, right? And trying to strike a balance is not easy. And I think what Beatriz and colleagues at that level do, right, is extremely challenging, but I think very rewarding, because, you know, we are a generation who would start it and take it to a logical point where the next generation then comes in and starts to reap the benefit. So let's embrace it. Let's go all out for it.

Jonathan Birdwell: Beatriz, final piece of information or advice for the audience?

Beatriz Garcia Cos Muntañola: Well, I think that's it. It's a very exciting, very exciting journey to embrace, as you said, I think we need to be able as well to adjust track because I'm not sure if we're going to be continuing with the same regulations, etc. So I think that's something to watch out. So we need to be very, very, very careful and be able to adjust track when needed. I think that's my final remark on that.

Jonathan Birdwell: Brilliant. Thank you very much. It will be really exciting to see how sustainability initiatives evolve as the technology continues to evolve as well. So Beatriz, thank you very much. Kush, thank you as well. And back over to you.