I am often asked about the changes that I have seen in the sustainability market since SAP formally launched its efforts in early 2009. It is clear that sustainability has and will continue to rise in importance as mega-trends create pricing pressures on energy and other resources; product safety regulations expand across all regions; financial analysts begin to look at sustainability in company valuations; and stakeholders leverage social media to drive more sustainable behavior.
Facing these challenges and opportunities, sustainability efforts have matured and changed for the better. Here are three key changes for enterprises.
Alignment to Enterprise Strategy
During the heady days of 2009, the world was figuratively being painted green. Companies knew they needed to make commitments, launch programs, and issue reports. We saw incredible progress and successes. But the rush to green enterprises often ran into bumps on the road as proposed investments occasionally lacked business cases or ran ahead of the underlying strategy of companies. The end result was far too often internal backlash against “tree hugging,” external criticisms of “green washing,” and perhaps, worst of all, initiatives that did not stand the test of time.
We have found that this storming period has been good for companies. They are increasingly coalescing on a definition of sustainability that mirrors SAP’s definition – improving short- and long-term profitability by holistically managing economic, societal, and environmental factors. This definition puts sustainability in the heart of the business. Sustainability is seen as strategic lever for operational excellence and differentiation. These initiatives improve profitability by:
- Driving revenue and competitive advantage by optimizing plants and rapidly developing compliant, sustainable products.
- Lowering costs by driving down energy consumption and managing compliance effectively.
- Reducing risks by gaining greater business continuity through risk identification and mitigation.
Embedded into Operations
Looking back, we have seen a tremendous rise in the number of Chief Sustainability Officers (CSO). The role has been instrumental in driving the topic of sustainability into the board room and in pushing functional leaders to think outside-of-the-box. The end result is that sustainability is increasingly becoming directly tied to the business strategy.
As this shift occurs, it is not surprising that we are seeing sustainability be further embedded into the functions of the business. It is the plant manager, the design engineer, the facility manager, the head of supply chain, and other functional leaders, who now have management objectives around improving sustainability performance. This is a key step forward as the scaling of objectives across the enterprise is the foundation for driving behavioral and process changes. We will continue to see the CSO as a strategic adviser, but we fully expect the line of business owners to take charge of sustainability as a lever for reducing risks, lowering costs, and accelerating revenue.
Three Horizons of Adoption Appear
We expect line of business to adopt sustainability in three horizons – compliance and risk, energy imperative, and embedded sustainability.
Integrated reporting will see financial reporting be extended to include the financial impact of environmental and societal performance. There is a good deal of research underway here to determine how reporting can be extended. SAP is working closely with the Integrated International Reporting Committeeto ensure our solutions will be able to meet emerging requirements.
We see product lifecycle assessment as a critical component in driving more sustainable products and services; however, we are seeing more and more companies looking for mass product footprint to drive operational efficiencies by understanding the actual embedded resources in each product. By providing monthly information, leading companies like Danone can drive improved performance.
Of course, we still see reports as an important measure of progress! You can read more about our progress in the 2011 SAP Sustainability Report, released on March 23.
The first horizon has seen a shift from pure compliance to enterprise-wide operational risk management. Enterprises understand that their license to operate on complex industries requires them to increasingly focus and communicate their efforts to reduce both catastrophic and minor incidents. They are looking for an effective closed-loop process ensures operational continuity by proactive risk identification and reduction to prevent unwanted events.
The second horizon is seeing the rise of the energy and resource imperative. It is driven by the pressure on resources as the world’s population continues to grow and as economic development in BRIC nations expands the ranks of the middle class. The end result is not only increasing prices, but also greater price volatility. Companies are looking for energy and resource management solutions that enable them to:
- Gain Consumption and Cost Transparency – How are you doing today?
- Implement Energy and Emissions Mitigation – How do you improve tomorrow?
- Reduce Costs via Supply Portfolio Optimization – How do you work with your suppliers?
The third horizon will see a number of emerging topics be mainstreamed across operations. We are working on a number of these opportunities.
Scott Bolick is vice president of Sustainability Solution Management at SAP.