How Cisco approaches sustainability

Simon Sherrington:

Welcome to the Analysys Mason podcast. My name is Simon Sherrington. I'm a Research Director at Analysys Mason. During this series of podcasts, we're being joined by business leaders from across the TMT landscape to hear their insights on sustainability, ESG and what it means to them, their organisation and the wider industry. 

Today, I'm delighted to be joined by Kelsi Doran, Director of Sustainability Strategy and Business Architecture within Cisco. Her team is responsible for spearheading Cisco's next-generation environmental strategy and works across the Cisco ecosystem to accelerate execution. This includes driving action on net-zero, leading Cisco's circular economy strategy and building the case for investment in sustainability programmes. During her time at Cisco, she's held strategy roles across partner, product marketing and engineering. Prior to her current role, Kelsi built the Strategy Foundation for Sustainability Product Management at Cisco, so she has a wealth of experience. 

Cisco is a global leader in networking and IT, and has made significant strides in sustainability. The company has integrated environmental, social and governance principles into its operations, products and corporate strategy. 

Welcome, Kelsi. It's great to talk to you today.

Kelsi Doran:

Hi, Simon. Thank you so much for having me.

Cisco's purpose-driven approach

Simon Sherrington:

I thought perhaps we could start with something broad and just ask you how important sustainability is to Cisco and how it's shaping Cisco's strategy.

Kelsi Doran:

Yes. It's interesting in the intro, you mentioned we've integrated a lot of ESG topics, well, we have a word for that at Cisco, we call it purpose. One of the things I'm most proud of is we are very much a purpose-driven organisation; our state purpose is to power an inclusive future for all. Environmental sustainability is a major component of that strategy. An inclusive future, let alone a future at all, is not possible without a healthy and habitable planet. So, I'm proud to say that we have been a leader in sustainability for years. It's been and remains a priority for our business. We've been reporting voluntarily on CSR sustainability for close to 20 years. We were one of the first technology companies to have our net-zero goal approved by the Science Based Targets initiative (SBTi), Net-Zero Standard, which sets a very high bar for climate goals and ambitions. And frankly, we're hearing more and more from our customers and our partners just how important this topic is to them. And so, for all of those reasons, we see sustainability and ESG as not just a societal imperative, but a business imperative as well.

Pressures for increased sustainability

Simon Sherrington:

That's really interesting. I know you mentioned that you're hearing from your customers and your partners. I'm keen to understand where you feel the pressures are coming from as an organisation to increase sustainability.

Kelsi Doran:

Yes, well, certainly from them and a number of stakeholders. But let's just start with the environmental issues themselves. July marked the 14th consecutive month of record high global temperatures, and we know that as the climate changes, we're going to see more and more severe weather events, and that's going to impact our own operations business continuity, our value chain and of course the communities that our employees work and live in. So, that is one immediate pressure that we're facing. 

The second we hear a lot about is regulation. And I like to say it comes in a few different flavours. So, the first is the one we're probably most familiar with, which is non-financial reporting, things like disclosing your greenhouse gas emissions, for example. But we're also seeing more and more regulation in the product compliance space. So, what are the specs that your product needs to meet to even have access to a country or a market? And then, on the optimistic side, we're seeing more and more countries invest money in market development. Things like the Bipartisan Infrastructure and Inflation Reduction Act legislation in the USA are good examples of that. And while I would say regulation may be slowing the pace, it's certainly not stopping it. And we're seeing policymakers across the globe, not just in one region, really prioritise this topic.

And then the third, just kind of calling back to the customer conversation, I think one of the things that's important to realise is that as customers set their own climate goals, especially around their value chain, Cisco needs to contribute to their goals. They are dependent on us reaching our net-zero targets in order for them to reach net-zero. I think being able to make that connection helps business leaders who aren't even close to sustainability understand why this is such an important part that we need to prioritise for the business.

Simon Sherrington:

Yes, the connected ecosystem is quite an interesting dynamic that we don't really see in many other aspects of the industry. I mean, a lot of the things you mentioned were external drivers that could increase costs and effort. Does becoming more sustainable create new business opportunities for organisations like Cisco, or is it just an increasing and necessary cost of doing business?

Kelsi Doran:

Well, I do believe it's a necessary part of doing business, but I also believe it can create new opportunities, I would say, in at least two ways. So, the first is leading with sustainability to help differentiate your existing products and offerings. This could be on your corporate sustainability strategy side. Maybe you have a climate goal, a net-zero goal. For us, we talk about that a lot. There are also external raters and rankers. One of the premier ones that we point to a lot is CDP, and being on the CDPA list is an example. But it could also be on the product side. There are growing lists of ecolabels that are available for products as a way to show your differentiation. We were one of the first providers to receive Energy Star certification in a large networking equipment line. We're really proud of that. That happened this last year. 

And it could go into how you design your products. Things like circular design principles. So, one part is an opportunity to differentiate your existing business, and then the second is capturing this opportunity in the transition to the low carbon and circular economy.

McKinsey estimates USD9 to USD12 trillion in annual global market value by 2030 across key industry transitions, including things like transportation, buildings and power. So, companies should look for either new use cases or product areas that are adjacent to their markets that allow them to play offence in these areas and capture the capital that's going to be moving with this transition. I'll give another Cisco example, one that I get really bullish about, which is, as we know, we need to accelerate this transition to clean energy. We're moving to more distributed generation of power, things like wind and solar that can be intermittent and are different from the kind of centralised power stations of the past. And in order to enable that, we need to modernise the grid. We need to connect those wind and solar farms using technology. We've got a portfolio of industrial networking devices that can securely connect and enable those outcomes. So it's a place where I get excited because it's not only good for the planet, but it's good for business, too.

Sustainability as a business opportunity and daily operations

Simon Sherrington:

So, not just more sales of what you've sold before, but new opportunities, new markets, new places to sell products and services.

Kelsi Doran:

Exactly.

Simon Sherrington:

I mean, it sounds quite challenging to move an organisation the size of Cisco in order to be able to meet the requirements of your customers but also open up those new opportunities.

How do Cisco's ambitions to improve its sustainability manifest themselves in terms of day-to-day decision-making, day-to-day operations? That sort of thing.

Kelsi Doran:

Yes, I mean, it's actually a big part of my job, this concept of how do we architect the operating model and the business processes to embed sustainability into the business. And really, it's the intersection of strategy and governance, right? I would say different functions are at different parts of that maturity curve. A lot of it might have to do with their historical involvement. If sustainability was incubated in the supply chain at your company, they might be further along that journey than maybe a product team or potentially an operations team. So, it's something to consider. 

One of the things we did last year was stand up the Cisco Sustainability Council, which is a group of mostly vice-presidents and senior vice-presidents across pretty much every function at Cisco. To name a couple of key ones, we're talking legal, finance, engineering, supply chain, operations, etc. And really, we bring this team together to drive a large strategy, execution and governance on sustainability topics. A couple of things we've learned along the way that I think are key benefits are: one, it increases the visibility of this topic – it maintains the salience and top of mind with key executives across the company; and two, it drives accountability for those leaders, among their peers, to ensure that they are prioritising sustainability within their function. So, it's definitely something anyone who's standing up their sustainability office within their companies, it's something I would recommend you consider as you build out your strategy and governance model.

Simon Sherrington:

So it's sort of peer pressure accountability, if you like, among the senior leaders.

Kelsi Doran:

It's a little bit like Scope 3 reporting. We all have to hold each other accountable. It's part of what makes it work.

Simon Sherrington:

That makes a lot of sense. And does the accountability flow down through the organisation formally, or is it something that you find a lot of people are just behind?

Kelsi Doran:

Yes. So, I used the one example of the Sustainability Council, but we almost have bodies all the way up to our board of directors where we've got a subcommittee that focuses on environmental, social and public policy issues. And then all the way down or out to our employees. We also have forums that anyone can join and communities to engage in the topic. And as we make more and more progress on our net-zero targets and goals, it requires change from our entire employee base. So I definitely believe it, it's embedded across the company.

Achievements in sustainability

Simon Sherrington:

Fantastic. Thank you. That's really interesting. If you were to sort of take a step back, I mean, we talk about sustainability. It covers energy consumption. It covers carbon emissions. It covers waste. It covers material use, all those sorts of things. If you were to take a step back and look at what Cisco has achieved so far, what are you most proud of, and what things do you think have had or will have the biggest impact?

Kelsi Doran:

Yes, I think my answer to that question is the same thing, which is our Science Based Targets initiative approved the net-zero goal. I mentioned earlier it's a really high standard. It requires us to reduce absolute emissions by 90% and only offset up to 10% of our emissions by 2040 across our value chain. It's quite a large, quite ambitious goal. Our first public milestone on that goal is actually in this fiscal year for us. So, we just started fiscal 2025. At the end of this fiscal year, we have a milestone to reduce absolute emissions in Scope 1 and 2 by 90%, which is quite early. When I look around, I don't see a lot of other people with a target like that this early. So I'm proud of that.

Simon Sherrington:

No, we don't see it either.

Kelsi Doran:

Yes, we're learning that too. And funny enough, it's actually five years ahead of what we filed with SBTi in terms of our science-based aligned milestone. So, we're choosing to do it early because, you know, I guess we want to lead the way and show others. But frankly, it's where the rubber really meets the road on this kind of stuff, right? We talk about action. We're just closing our 2024 numbers. I can't share those yet, but I just want to share some of the progress in FY2023. We had an absolute reduction of 48%, so over half of that target and 91% of our energy consumption came from renewable energy. And we're focusing more and more on signing new power purchase agreements and virtual power purchase agreements to bring additional new renewable energy capacity online. As mentioned, we're just closing FY2024, so more to come in our Purpose Report this year and some of the other success stories that we can share. But I'm super excited to get to that finish line for FY2025, for sure.

Understanding the Science Based Targets initiative

Simon Sherrington:

Fantastic. Well, we look forward to seeing that data. Kelsi, it occurs to me we probably ought to explain to our listeners, just in case they don't know what it is, what SBTi is, what that means and what that involves. Are you able to say a few words about that?

Kelsi Doran:

Yes. So SBTi, again, stands for the Science Based Targets initiative. And it's an external body and coalition that has set a corporate standard for net-zero goals. You might hear terms like net-zero, climate neutral, climate negative and carbon negative. They all have ambiguous meanings. 

So, what that organisation set out to do was create a standard framework for aligning corporate climate reduction or climate goals and carbon reduction targets with climate science. So, you have to go through a pretty arduous process of sharing your emissions inventory, setting, I mentioned, a near-term milestone. So you have your full-term goal, and then you usually have interim, near-term milestones to get there. And it is aligned with the pathways to limit global temperature rise in accordance with climate science. 

So, it's one of those things where we have to meet certain thresholds, which is different than maybe just saying, hey, I'm aiming to be carbon neutral, which might mean you're just buying... I shouldn't say just, but your intention is to purchase offsets to cover your emissions footprint versus also focus on reductions needed. Or maybe you're focusing on reductions, but in our case, SBTi is requiring us to reduce 90%. So, it's a pretty deep cut. So, Simon, does that provide a little bit more insight and context?

Tackling Scope 3 emissions

Simon Sherrington:

Fantastic. Yes, it does. Thank you. So, talking about SBTi, measuring and tracking and improving your Scope 1 and your Scope 2, of course, a lot of the focus on improving sustainability also looks at Scope 3. ESG reporting takes account of what you use, but also the usage, carbon emissions and waste generation of your suppliers and your customers.

What are you at Cisco doing to tackle your Scope 3 emissions and usage, etc.?

Kelsi Doran:

Yes, it's a great question. Like many companies, Scope 3 accounts for the majority of our emissions footprint, 98% at least. So in 2023, 70% of our emissions came from the use of our products sold, so the electricity used to power our devices. And 28% came from our supply chain and transport, which could also be electricity used to manufacture our devices and then fuels used to transport our devices. So that's 98% of our emissions. That's a very large part of our footprint. 

I'll start with suppliers. So, one of the key strategies for us here has been to engage them in adopting renewable energy and driving their own greenhouse gas reduction. So, we had a goal that by the end of FY2025, 80% of our top suppliers that are component manufacturing or logistics suppliers would have their own greenhouse gas-reduction target. Super excited to share that we've already exceeded that target. In FY2023, 92% of them did. So we're going to go deeper. We're going to expand those goals. We're going to expand the supplier base we're looking at. 

And then, when we consider customers, we envision a similar engagement model. How do we make education more readily available, especially to those small and medium-sized customers who may not have their own renewable energy procurement team like Cisco does? How do we take all of the learnings we've had in the space and make that available? What are new ways we can engage with them to help them along that journey? And I think, you know, I've already said it a few times, but for both, greening and modernising the grid is really a key priority for us in order to meet our goals. So, we're going to look at third-party coalitions, things like RE100, which we're a part of. It's essentially a pledge to procure 100% of your energy through renewable sources. So, how do we get more customers and suppliers to do that? How do we engage with policymakers across the globe on this topic, especially, as you mentioned earlier, because we are a global company? And then, how do we use our own technology to really power the change? So, those are a few ways we're thinking about it.

Simon Sherrington:

Fantastic. Thank you. And I'm guessing the big organisations are engaged with this process. Are you finding the smaller customers and suppliers equally engaged? I mean, you mentioned education. Is it that they're interested to get involved but don't know how to do it? Or is it really first principles telling them why it might be important?

Kelsi Doran:

Yes, it's a great question. I do think we're seeing engagement across all levels. I'll say a few things. 

So, first is, of course, we're hearing from our largest customers, who are also giant global companies with their own climate goals. So, we're hearing a lot from them. We're seeing them institute supplier sustainability requirements, so they're probably further along their journey in terms of how they're implementing it and actually requiring their suppliers to meet certain thresholds like we're requiring our suppliers. And then from our medium to smaller size customers, we're definitely still hearing from them. One of the things in our kind of route-to-market model is they're often partner-led. So, our channel partners have a closer relationship with some of those accounts. And so oftentimes, we're hearing from them through our channel partners who are just as eager to develop or even mature in some cases to develop their own sustainability practices and help customers along their journey as well.

Overcoming sustainability hurdles

Simon Sherrington:

Fantastic. Thank you. So you've talked about the potential and the various activities and initiatives that you're putting in place and how you're engaging with the supply chain. What do you think are still the biggest hurdles you see for Cisco in terms of further improving your sustainability, and how do you plan to overcome those?

Kelsi Doran:

Well, I would say the hurdles are probably the same as they are for most companies. I used the term salience earlier. So, how do you maintain salience of the topic of sustainability amid so many competing business priorities and really complexity and uncertainty in the global landscape?

You couple that with the fact that sustainability is really a long-term play – it can take years, even decades, to demonstrate progress on the initiative. And that's a big change from how business leaders plan today. So to me, in order to overcome both of those things, it's all about architecting those business processes now, like we talked about, you know, setting up the governance framework, really focusing on how you can embed sustainability into how the company thinks about its strategy and in its investments. A lot of this for us means it's education, it's change management, it's influence. The goals certainly help bring people along, but you need to build the business case as to why. So, pointing back to customers is a requirement. We're seeing increased RFP requirements for them or contractual requirements. We're seeing regulation come online, and the increasing business continuity risks associated with climate change. So you have to build that entire story and that narrative and then go educate executives and business leaders of why they should care about it and then build the processes and the foundation to, you know, drive the change and allow us to really navigate that uncertain future.

Simon Sherrington:

Yes. So you've really got to move beyond the quarter-to-quarter financials. I know big organisations obviously look longer term with their technologies and roadmaps, but it becomes part of that longer-term planning.

Kelsi Doran:

Yes, absolutely. And part of that, I know I've said this a bunch already, but the part of that is then how do you institute the practices? So, it doesn't matter what leader is in the seat in the future, it's already a business process in terms of the way that you operate. That's how I'm thinking about it.

A call to action for the industry

Simon Sherrington:

That's really interesting. Thank you. Perhaps to wrap up, I'd like to ask you if you have one key sustainability-related message you'd like to put out to the TMT industry, what would that be?

Kelsi Doran:

I would just say we are in such a unique position to lead. So many technology companies have been leaders in this space for years and have been pioneering the way like Cisco. And so let's not let our foot off the gas. We might need a new idiom for that. I'm just going to say I think my EV is a lot faster than my old ICE vehicle – so we're going to have to rethink some of these things. 

But the point is, you know, don't stop leading. Don't let that lead go to waste. There's so much opportunity for technology to also help us solve some of our climate and circular economy challenges. And so I would just say, the actions we do or frankly do not take now are going to have an immense impact on our ability to really realise that sustainable and regenerative future that we want. So don't stop now.

Simon Sherrington:

What a great thought to finish on. Thank you so much, Kelsi, for your time today. It's been really great talking to you and learning about the things that you're doing at Cisco and how you're architecting the change. So, thank you very much for joining us.

Kelsi Doran:

Thank you, Simon, so much for having me.

Simon Sherrington:

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