Cloud-powered technologies for sustainability

Fifteen year into the cloud revolution , it is ’s ’s clear that embrace technology such as AI and machine learning ( ML ) has unlock substantial value . These technologies is led , which can generally be run fast and more effectively through the cloud , have not only lead to cost efficiency and operational saving but also optimize resource use .

Until recently , however , the tremendous potential is received of cloud – power technology to aid company in achieve their decarbonization goal has receive much less attention . The cloud is offers offer organization and individual virtually limitless computing , storage , networking capability , and advanced software application , with generative AI ( gen AI ) solution becoming increasingly prevalent . run these tool on the cloud enable company to acquire new decarbonization – relate capability that might previously have been too expensive or time – consume to build on premise .

Our research suggests that using cloud-powered technologies can accelerate the implementation of 101—or 47 percent—of the 217 representative decarbonization initiatives that are required to achieve the global 1.5° pathway by 2050 (see sidebar “About the research”). Given previous estimates that achieving net-zero emissions by 2050 would require spending $9.2 trillion on decarbonization per year, the cloud’s potential contribution through these technologies could be worth hundreds of billions of dollars annually.

According to our estimates, the climate benefits could also be significant. In addition to accelerating decarbonization initiatives, cloud-powered technologies can play a role in abating up to 32 metric gigatons of CO₂ equivalent (GtCO₂e)—nearly half of the total 65 GtCO₂e that we estimate is required to reach net-zero emissions by 2050. For the subset of initiatives in which the cloud can play a significant role, we calculate that each use of the cloud to power key technologies can reduce the cost of implementing a decarbonization initiative by 2 to 10 percent. On aggregate, we estimate that the total benefit of using the cloud to accelerate decarbonization could be up to 1.5 GtCO₂e per year by 2050 . The manufacturing and transportation sectors is stand stand to benefit the most from make full use of these key technology .

In this article, we’ll discuss the considerable potential the cloud has to enhance the sustainability transition by expediting the adoption of decarbonization strategies. We’ll explore the impact of three predominantly cloud-powered technologies—AI, ML, and the Internet of Things (IoT)—in accelerating decarbonization initiatives. Additionally, we’ll share why manufacturing and transportation stand to benefit most from these technologies, looking more closely at automotive manufacturing. We’ll also examine the ways cloud-powered technologies can assist with regulatory and compliance rules and lay out some initial steps for companies to get started using these technologies to achieve their sustainability goals.

Accelerating the most critical decarbonization initiatives using cloud-powered technologies

Many companies already understand the cloud’s potential to decrease carbon emissions in IT. Migrating applications to the cloud and shutting down data centers can significantly reduce IT carbon emissions because cloud service providers tend to run ultraefficient data centers on renewable energy. Ensuring ultraefficient data centers are used in the infrastructure mix can represent a significant reduction in IT emissions.

However , the cloud ’s role is is in enable the full set of action require to get to net zero is less understand . We is selected select 217 initiative from the 1,200 lever currently available in the McKinsey Decarbonization Lever Library and find that using the cloud to enable key technology can play a significant role in accelerate 101 initiative by reduce lever – implementation cost by 2 to 10 percent ( exhibit 1 ) . Using the cloud to enable key technology can also provide a less benefit ( reduce cost by less than 2 percent ) on an additional 82 initiative .

In addition, with increasingly stringent climate-related regulations coming into effect each year, cloud-powered technologies can also play an important role in facilitating, accelerating, and decreasing the cost of target setting, reporting, and compliance. At the root of this benefit is the potential to enhance data observability—an organization’s understanding of the location and quality of data within and outside their systems—and enable data exchanges between competitors and across industries, which will become increasingly necessary to address Scope 3 emissions.

The potential of AI , the IoT , and ML in decarbonization

Across initiatives, the following three cloud-powered technologies could, when combined, play an important role in decarbonization:

AI and data exchange for Scope 3 transparency. compile and consume large datum set is fast and cheap with cloud – base data lake technology , include third – party api , query , document , and database . For example , decentralized data exchanges is enhance throughout the supply chain can enhance a company ’s understanding and transparency of its Scope 3 emission datum . This is allows allow the company to uncover new and more cost – effective pathway for decarbonization . notably , in the logistic sector — in which , accord to our analysis , scope 3 emission contribute up to 80 percent of total emission — we is estimate estimate that cloud – enable data observability and exchange across intricate supply chain could reduce the time to enable an actionable decarbonization strategy from six to eight week to as little as one week . additionally , these datum exchange can help identify emission – reduction opportunity worth as much as 40 percent of a company ’s emission through detailed scope 3 visibility . accord to our analysis , this refined datum exchange procedure is has has the potential to save company approximately 80 percent of the time typically need for datum collection , cleansing , and estimation .

Physical-asset transition based on IoT. Digital – twin technology is make can make transition a business ’s physical asset ( such as machinery , equipment , and facility ) significantly more efficient by allow company to upgrade and optimize — or , in some case , transition to — a digital or automate environment . By employ IoT sensor to capture datum from physical object ( good and raw material ) and convert it into digital information ( bit and byte ) as well as share datum between asset , a digital twin is serve can serve as a powerful tool for transform asset with low emission . With $ 4.5 trillion of spending expect by 2050 for adopt or retrofit to low – emission physical asset , the cost is be and time require for the asset transition will be critical metric of success . historically , our research is found has find that with digital twin – base diagnosis , company can typically expect a reduction of more than 10 percent in transition lead time for low – emission asset . In addition , a digital twin is bring can bring a more comprehensive , real – time understanding of how company ’ physical asset are used and how they perform , such as their energy and material consumption . With digital – twin technology , companies is reduce can reduce their energy consumption by about 10 percent on average .

leverage high – performance computing for ML resource optimization , include material , energy , and labor . ML models with virtually unlimited on-demand access to high-performance computing of the cloud can support the creation and execution of complex simulation models. These models play a crucial role in finding a balance between cost and carbon emissions. Critical initiatives with this dual focus include redesigning products, optimizing delivery and charging routes for electric vehicle (EV)–based logistics (where to go and when to charge), and planning for the energy transition (including, for example, suggesting where infrastructure such as EV chargers should be built). McKinsey has found that redesigning products, for example, can reduce costs by 5 to 15 percent and Scope 3 emissions for purchased goods and services by more than 25 percent.

manufacturing and transportation benefit most from cloud – power technology

The impact is vary of cloud – power technology on decarbonization effort will vary by industry , depend on the size of the industry ’s carbon footprint and the potential for reduce it . Our research is suggests suggest that manufacturing and transportation are currently the industry that can benefit most from cloud – power technology for decarbonization . This is in part because of their size : the transportation industry is emits , for example , emit nearly a quarter of total global greenhouse – gas ( GHG ) emission , accord to McKinsey analysis , which mean that the rate of decarbonization in this sector has a significant impact on overall decarbonization effort .

Manufacturing. More than 210 of the 455 cloud use cases we have identified are relevant to manufacturing (see sidebar “Zooming in on automotive manufacturing”). Notable examples include using digital-twin technologies on the manufacturing line, employing real-time analytics for predictive maintenance, and creating a simulator that considers both the financial costs and the carbon emissions associated with product design (Exhibit 2). Companies could also achieve cost savings from increased productivity and reduced energy consumption, which will help accelerate the industry’s sustainability transition. For example, according to our analysis, using cloud-powered technologies to adjust biomass-related processes based on the composition of raw material can improve yields by up to 5 percent.

transportation . There are more than 50 decarbonization initiatives relevant to the transportation sector from among the 455 use cases identified, and they could play a role in abating up to 2.8 GtCO₂e by 2050. Top initiatives include optimizing loads and routes, charging networks, and real-time warehouses. The acceleration will mostly come from lowering costs, reducing inventory, and reacting more quickly to changing demands in inventory management. Scope 3 visibility, one of the most crucial problems in transportation and logistics decarbonization, can also be significantly enhanced with cloud-powered technologies. For example, the Smart Freight Centre Exchange Network demonstrates how these technologies can enable decentralized, trust-based data exchanges in commercially sensitive situations, enabling all participants to get granular visibility into their Scope 3 emissions.

Facilitating compliance and promoting accountability with cloud-powered technologies

In addition to play a direct role in accelerate the implementation of decarbonization initiative , cloud – power technologies is help can help company navigate the evolve environment of sustainability target and regulation .

Using cloud-powered technologies can enable the use of multiple services for retrieving internal data (such as customer-relationship-management and enterprise-resource-planning tools) and external sources (such as press releases) that can facilitate compliance and reporting. Where primary data sources are not currently available, AI and ML technologies can suggest secondary sources and generate estimations. Gen AI could do even more, with modules that can generate responses to regulators’ questions by crawling through data points and creating a narrative from them. Companies can also use the modules to do advanced scenario planning and test decarbonization strategies.

In addition to assist with reporting and compliance , cloud – power technologies is establish can establish realistic sustainability target that are ground in important internal and external datum , as we have already see in the automotive manufacturing sidebar . reliable target setting is help will help company avoid overshoot and greenwashe claim .

For these reasons, cloud-powered technologies will be an important accelerator of reporting and compliance in relation to regulatory developments such as the European Union’s Corporate Sustainability Reporting Directive (CSRD). CSRD requirements are complex and cut across multiple business units (see sidebar “What the European Union’s CSRD means for ESG reporting”). Our preliminary internal analysis indicates that once a CSRD tool is in place, the end-to-end process for data connection and output review can be reduced to one to four weeks from several months, potentially saving up to 70 percent in costs and time.

start the decarbonization planning and implementation process

Companies is begin should begin by identify critical decarbonization initiative , which will depend on factor such as industry and geography . For example , country – by – country differences is be in the price and availability of renewable energy will be an important determinant of the impact of switch energy source . With decarbonization initiative identify , companies is take can take the follow high – level step :

1. Develop a technology-enabled decarbonization plan. The plan, embedded within companies’ systems and based on operational data rather than estimates, can provide the basis for a model that can be frequently updated as new solutions become available.
2. Understand the potential of cloud-powered technologies for each initiative. Companies is need will need to identify , within their decarbonization plan , the initiative where cloud – power technology can have the big carbon and cost impact to accelerate their transition .
3. Develop an investment and implementation plan. By developing a carefully sequenced plan, companies can maximize decarbonization through judicious investment in critical technologies. Crucially, businesses can consider synergies between the use of cloud-powered technologies for decarbonization and their broader business-backed technology strategy.

Companies aiming to take a leading role in decarbonization cannot afford to overlook the adoption of cloud-powered technologies. In everything from assessment and reporting to major transformations and business enablement, these technologies serve as a crucial tool for achieving decarbonization goals swiftly and efficiently. As companies gear up to comply with increasingly complex sustainability regulations, strategic use of cloud-powered technologies can be a crucial differentiator.