Climate and Sustainability Issues Driving Changes in Business Climate

Feature Article | November 24, 2008 by Brian Wasson

SAP Carbon Impact screenshot

SAP Carbon Impact is a software to get a clearer view of the usage of carbon dioxide. (photo: SAP AG)

It seems that everywhere you look, climate change and sustainability are hot topics these days. From consumers choosing low-emission vehicles to companies now including a  product‘s “carbon footprint” on packaging, it’s becoming increasingly evident that businesses need to start paying more attention to sustainability in general and climate change issues in particular.

SAP brought together several sustainability thought leaders at a recent roundtable event in New York City to discuss the impact that issues like greenhouse gas (GHG) measurement, management, and regulation are likely to have on businesses of all sizes.

The meeting was hosted by Peter Graf, SAP’s chief sustainability officer and executive vice president of sustainability solutions. It also featured industry thought leader Dr. Stephen Stokes from AMR Research; Betsy Atkins, former CEO of carbon measurement software developer Clear Standards (acquired by SAP in May 2009) and current CEO of Baja Ventures, an independent venture capital firm focused on the technology and life sciences industry; and Anirban Chakrabarti, vice president and general manager of SAP Carbon Impact. SAP customers SunPower and Autodesk also joined the roundtable in a low-carbon-footprint way via Telepresence videoconference from California to answer questions.

Growing Worldwide Regulations

A primary driver of the carbon issue debate is the United Nations Climate Change Conference, also known as “COP15,” to be held December 2009 in Copenhagen. The conference’s goal is to create a new global climate agreement to reduce greenhouse gas emissions, a follow-up to the Kyoto Protocol, which established legally binding obligations for developed countries to reduce their greenhouse gas emissions (the Kyoto agreement expires in 2012).

For example, in the United States the Environmental Protection Agency (EPA) recently enacted a new rule that will  require the largest emitters (upwards of 10,000 facilities) to begin tracking their emissions as of Jan. 1, 2010. The EPA has also stated that it is ready to mandate limits on carbon emissions in 2010 from those same companies if Congress doesn’t pass a climate-change bill by the end of 2009. Just for reporting non-compliance, businesses could face fines up to $37,500 per day. And, more far-reaching legislation is making its way through the U.S. legislative system.

The European Union and Japan are calling for carbon consumption taxes, which could be extended to imports from countries who fail to back international efforts to fight global warming. France has also announced a domestic carbon tax.

Undoubtedly, pressure will continue to mount for governments to enact tougher laws and for companies to measure and report their carbon output. Businesses will need to manage the complexity of multiple, country- or region-specific regulations, potentially affecting their efforts to manufacture and sell in and to markets.

Consumer Pressure

The pressure isn’t only coming from governments. Consumers are now demanding that companies voluntarily disclose their organizational carbon footprint, and that they include labeling describing how much carbon was used to create their products. In Europe, consumer packaged goods companies are already reporting their carbon footprint on packaging. This means that U.S. companies that wish to sell their products abroad will need to do the same.

The increased focus and demand on measuring and reporting carbon will have lasting effects on the brands of companies throughout the world. As a result companies (such as Walmart) are mandating that suppliers lower their carbon footprint and consumers are basing buying decisions on a company’s real or perceived “green” quotient.

Driving Business and Economic Transformation

This increased focus on and awareness of sustainability and greenhouse gas issues is likely to be a transformational force within the global business community.

“We are looking down the barrel of an economic transformation, the likes of which we haven’t seen for the past couple of hundred years,” says Dr. Stokes of AMR Research. “Sustainability, in many ways, if it is manifested truly through business strategy and business value, is the lubricant to ensure that corporations make the appropriate transformation to this new, clean, efficient economy.

But not all companies see the urgency in addressing sustainability issues.

“There are three camps in business regarding sustainability,” says SAP’s Peter Graf. “Companies in the first group are cautious and have a wait-and-see attitude. They will only be moved by regulation. They are interested in complying with regulations in a way that is as cost-efficient as possible.”

“Companies in the second group,” continues Graf, “look at sustainability opportunistically. They want to be more energy efficient, for example, because it has a significant impact on the bottom line. Other drivers are creating a green brand or creating more sustainable products. This group is growing quickly, because the businesses finally understand that sustainability adds business value. There is money to be made. You can be more successful because you are sustainable, not in spite of it.”

Companies in the final group that Graf identifies take sustainability on as a strategic challenge, because they understand it is about business longevity. They see it as a bigger question to be addressed and understand the need to sustain their business models.

Dr. Stokes notes that sooner or later, companies will come to see the imperative of running their businesses in a sustainable way. “The great challenge and the great opportunity is that sustainability is a new business mantra, it is the new ‘flight to quality.’ It is delivering a new type of business model, a new type of value, and a new type of cultural and organizational transformation, which is absolutely matched by the times.”

Making Sustainability Work in the Real World

SAP has a unique opportunity to impact climate change worldwide and significantly accelerate the path of world economies toward sustainability. Its more than 89,000 customers worldwide account for more than 60 percent of global GDP by transaction and produce more than one-sixth of global man-made greenhouse gases. SAP is actively working with industry leaders, NGOs, customers and partners to develop and deliver solutions today that help companies measure, manage and reduce emissions while ensuring profitability and business sustainability.

“SAP has an unwavering focus on our own and our customers’ sustainability goals,” says Graf. “We have made a long-term, strategic commitment to sustainability because we believe it is a key aspect of being a best-run, clear enterprise — both for us and our customers.”

“It is fair to say that SAP has gotten its game together and built a structured and very high-elevation plan for where they’d like to be in the context of helping organizations deliver business value through sustainability,” says Dr. Stokes.

The company is drawing on its full experience and leadership in financial systems, which SAP pioneered in 1972, to make sure that customers have the same correct, auditable trails for sustainability metrics that they have come to expect from SAP financial systems. SAP systems can help businesses track carbon and other environmental aspects, as well as social aspects.

SAP understands the challenges first-hand as demonstrated by its commitment to reduce its own carbon footprint by nearly 50 percent, back to its year-2000 levels, by 2020. And it is also committed to continuing to develop and deliver solutions that will help enterprises meet their own objectives. For example, with SAP Carbon Impact (previously known as Clear Standards), SAP now offers a complete carbon and energy management solution.

Customers See the Value in Sustainability Solutions from SAP

“We’ve been very pleased with SAP Carbon Impact,” says Doug Richards, vice president of human resources for solar-energy pioneer SunPower. “It’s taken our game to another level. It was important that we had a system that could help us be real. We’ve been extremely careful to be sure that we have facts. The software has helped us get a baseline that is factual and then take mitigation actions that are achievable, explainable and deployable across the organization.”

“We want to prove a causal relationship between sustainability investments and our top line,” says Emma Stewart, senior program lead sustainable business and operations program for SAP customer Autodesk. “Carbon Impact has capabilities we don’t even realize yet that we will need a couple of years down the line.”

Helping organizations connect their sustainability strategy with its execution is the goal, says SAP’s Graf. “We want to give customers the analytical power they need literally at their fingertips so they can use the transactional information, the supply chain information, and all the sustainability information that they collect and make sense out of it. In order for sustainability goals to truly be impactful in the long run they must be closely integrated with business goals and processes.”

“Sustainability is a proxy for good management,” says Stewart. “It’s not just about environmentalism.”

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