Last October, a major EV manufacturer began offering customers in its new home state of Texas its own brand of auto insurance—with a catch. Rather than pay regular premiums based on standard formulas of age, credit, and gender, policyholders will be assigned a “safety score” based on their actual driving. The car itself will play ombudsman, recording and reporting instances of hard braking and near collisions, with premiums fluctuating accordingly. It’s one of the first examples of how real-time data arriving from the networked Internet of Things (IoT) will not only be repackaged as new features and services, but also shape how consumers use those services.
In addition to compelling safe driving, for example, EV companies might someday wish to steer owners to charge their vehicles back to the grid during peak demand, using cash rewards and other incentives to reboot its renewables strategies. It has every reason to, given investors’ recent stampede into environmental, social and corporate governance (ESG)—which included pouring a record $120 billion into ESG-related stocks last year and awarding the leading EV company a trillion-dollar market cap, dwarfing its five next-largest rivals combined.
This insatiable hunger for sustainable investments, coupled with impending regulation by the SEC, has created a convergence in which IoT is being harnessed to accelerate ESG-friendly initiatives—whether that’s EV competitors racing to electrify or rewiring more energy-efficient homes or decarbonizing the grid. And this, in turn, has elevated the importance of a corporate figure who’s rarely associated with sustainability: the CIO or CTO. Networking cars and heating-and-cooling systems at scale demands their leadership and expertise. “Do you want to wait for regulation to catch up to you, or do you truly want to differentiate your business based on how innovative your products and services?” asks Sachin Lulla, who leads global digital strategy and transformation for the Ernst & Young, LLP advanced manufacturing and mobility practice. That’s the trillion-dollar question.
IOT MEETS ESG
The IoT can, at times, be as amorphous as the cloud, referring to just about anything with a chip in it. But the IoT-meets-ESG stack might be described as having five distinct layers, starting with the thing itself—whether an EV or an HVAC—then the bandwidth necessary to connect these objects. That’s followed by edge computing to reduce latency and energy consumption, before rising to include the cloud-based services where AI and analytics are brought to bear on the data. Finally, there’s the interface—where users or the device in question are nudged in a more sustainable direction.
This vision has been a long time coming, made longer by one-off projects and proof-of-concepts that squandered nearly a trillion dollars in a phenomenon known as “pilot purgatory.” “Most companies start from the bottom-
up when they should be starting from the top-down, with a big focus on the business value,” Lulla says.
For legacy automakers embarking on 10-figure electrification programs, making that case is simple: How can the IoT help steer consumers away from SUVs toward their new EVs? A key component of selling that switch is assuaging drivers’ range anxiety, or how far they can travel on a single charge. Although advertised ranges are fiercely contested for marketing purposes, they’re typically derived from the car’s basic battery chemistry (along with a healthy margin of error). But combining real-time charge levels with driving speeds, traffic conditions, and weather could yield range estimates with far greater precision—and thus wean customers off of internal combustion engines.
EDUCATING SMART HOMES
“Smart homes” are another great idea that has been on the horizon for a decade or more and will finally reach fruition thanks to ESG. Electric heat pumps and water heaters, for instance, are vastly more efficient than the coal- and gas-burning furnaces and boilers that they replace. Regulation already requires that they be connected to the grid to enable utilities to switch them on and off remotely, but this also creates an opportunity to use home water heaters as a battery of sorts, parking excess heat in off-peak hours to offset demand at other times.
In both of these cases, as with an automotive company’s fledging insurance business, new value is derived from delivering data-based products and services rather than “dumb” physical assets. This transition is critical to decoupling growth and profits from sheer consumption.
Hence, the importance of CIOs and CTOs, who have not only seen a decade’s worth of digital transformation efforts compressed into a matter of months, if not weeks, but also play a central role in enabling these new business models and ensuring regulatory compliance. “Because technology underpins all industries now, the CIO should be in the driver’s seat to partner with the business units on enabling their growth strategy,” Lulla says.
For years, IoT has searched for a path from pilot purgatory to essential solution. With ESG, it has finally found one.
The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.