New York City’s Times Square is mostly devoid of tourists and locals these days. Instead, it has become an unlikely hub for resistance art and features a huge billboard proclaiming that doing good and doing well means doing better.
As that sentiment becomes more firmly rooted in the public consciousness, enterprises are responding with new business models and a more circular mindset. While doing well and doing better are already reflected in the top and bottom lines, what is missing is the doing good part of the equation.
That’s why SAP leaders are convinced that adding a green dimension to the top and bottom line is a crucial move. In the future, the success of a company will be determined based on all three of these dimensions. But any talk about top, bottom, or green lines must begin with a clear view of a company’s finances and its strategic plan to deliver on its mission.
Role of Reporting
“It is our ambition to maintain our position as the role model for sustainable corporate reporting,” says Christopher Sessar, head of Corporate Financial Reporting and chief accountant at SAP. “SAP has been a frontrunner in assigning value and reporting on non-financial targets, allowing us to build a bridge between the financial and non-financial dimensions.”
As a member of the Sustainability Council at SAP, Sessar aims to improve reporting processes in non-financial dimensions and enhance the portfolio by embedding intelligent reporting capabilities on non-financial measures in SAP solutions.
Members of the council are nominated by the SAP Executive Board and are responsible for integrating sustainability into their core business area. Sessar’s role is to make sure the company’s sustainability objectives and financial practices are in full alignment, connecting economic performance with environmental and social impact.
Sessar supported the implementation of SAP’s award-winning integrated reporting strategy as well as its new finance strategy. He is inspired by his peers at companies such as Chanel, Siemens, and Burberry in programs like the Prince of Wales Accounting for Sustainability (A4S) Academy Programme. Such programs are designed to help senior finance executives determine the impact of external factors on price, navigate the changing business landscape, and deliver on ‘purpose.’
Connectivity Matrix
The importance of corporate sustainability reporting cannot be overestimated. Its role is to drive decision-making and strategy execution through transparency and early warning.
Sustainability-focused enterprises like Kering, which manages fashion houses including Gucci, are developing ways to speak about their environmental impact in financial terms. Kering has developed a capital accounting methodology called Environmental Profit and Loss (EP&L), which measures and analyzes vital data like carbon emissions along the entire supply chain.
This makes the impact of the group’s activities visible and quantifiable by enabling the company’s use of natural resources to be translated into monetary values. To tighten the connection between profitability and sustainability, a portion of top management bonuses is based on their sustainability achievements.
For Sessar, Kering’s model and others, like PwC’s simulation of Financial Statement of the Future, are eye-openers.
“I was trained in the traditional interpretation of the accounting function,” Sessar explains. “By adding environmental and social values to a traditional balance sheet and profit and loss statement, the new models provide more meaningful and holistic insights into the true value creation process of an entity.”
SAP has developed its own methodology for putting a value on non-financial performance indicators. Using regression analysis, the approach highlights how key environmental and social indicators connect to corporate objectives and metrics. An interactive infographic offers a range of this information. For example, clicking on Carbon Emissions will show that lowering SAP’s carbon emissions can have a positive impact on employee engagement because loyalty should rise as employees see their company act responsibly.
[]“The connectivity matrix was SAP’s first attempt to put a price tag on environmental or social activities, such as training, or line items like energy consumption,” Sessar says.
The goal is to create one global standard taxonomy for internal and external reporting purposes that can be used regardless of industry or line of business. A global standard creates the consistency needed to compare companies across industries, giving shareholders a meaningful basis for making sustainable investment decisions.
“SAP must take a thought leadership role in this process, considering that there are many touchpoints with our products and technology,” says Sessar. “We need to share our experience in reporting and analytics excellence.” Sessar goes on to explain that SAP became a founding member of the Value Balancing Alliance along with other forward-thinking companies like BASF, Mitsubishi, and Novartis, for exactly this reason.
The alliance is a non-profit organization operating on the premise that planetary boundaries and social needs form the basis for a stable business environment. “We want to change the way company performance is measured and valued,” says Sessar. “We can do it with a global measurement standard for disclosing the positive and negative impacts of corporate activity and guidance on how they can be integrated into business steering.”
Evolution of Non-Financial Metrics
Sessar realizes this is easier said than done. Being part of this alliance will allow SAP to work with like-minded companies to create the foundation to transform the way businesses measure and value their overall societal impacts, dependencies along the value chain, and monetary effect on a company’s value.
Ten years ago, it was unheard of to talk a lot about non-financial metrics during earnings discussions. “Over the years, there has been a tremendous shift in both directions,” he says. “Now, investors ask for, and SAP proactively shares, figures about customer satisfaction like the Net Promoter Score along with employee survey results.”
In its dual role as enabler and exemplar, SAP is not only developing solutions to help companies become more sustainable through intelligent decision-making; it is using its own technology to steer a clear course as it strives to make the world run better and improve people’s lives.
SAP is using tools like SAP Analytics Cloud and SAP Digital Boardroom for global, real-time reporting activities. “We’ve been doing this for years, and it’s amazing to see how our reporting capabilities continue to grow,” Sessar shares. “The journey from manual reporting with Excel sheets to real-time reporting that provides instant transparency and tools for prediction and simulation is still ongoing, but changing fast,” he says. “We should use the momentum to move our social and environmental reporting to the next level, providing real-time insights, predictions, and simulations for the decision-makers steering our company.”
As a father of a two-year-old, Sessar reflects on the Climate 21 initiative and the question raised by Prince Charles early this year at the World Economic Forum in Davos: what good is all the extra wealth in the world generated from operating “business as usual,” if you can do nothing but watch it burn in catastrophic conditions?
Only a revolution in the way the global economy and financial markets work can save the planet from the climate crisis and secure future prosperity, and Sessar is determined to do his share by leading SAP’s accounting team on that path.
Follow me on Twitter: @magyarj