Business leaders have become acutely aware of carbon emissions and climate change, massive waste problems, and the inequalities in workforces and communities. But what is most important is the action required to effectively address these problems through the cooperation among corporations, scientists, NGOs, and governments.
To address the very real risks such sustainability challenges pose, companies need solutions that offer data transparency and visibility into the impact of their operations and supply chains to take informed, more sustainable decisions.
Business leaders need tools that enable them to quantify, analyze, and act on real-time data through their end-to-end operations to establish a “green line” through their entire business. Then, they need to report their outcomes comprehensively and accurately to a variety of stakeholders including employees, partners, customers, regulators, and investors.
This is our priority. We want to help business leaders achieve these aims by embedding a holistic management framework into our core enterprise applications and developing specific sustainability solutions like SAP Sustainability Control Tower, which will be available to customers this week.
SAP Sustainability Control Tower
SAP Sustainability Control Tower helps companies to collect real-time data, organize, and then report it using transparent, standardized metrics. The solution enables companies to obtain automated, timely, and auditable data on KPIs such as greenhouse gas emissions, socially responsible investing, and impact investing. And for those who want to go deeper, it also allows them to drill down into strategic areas within the company, as well as specific geographies and across business networks. Offering the granularity needed to make informed decisions that place financial and non-financial considerations on equal footing.
The solution is just one of our initiatives to help our customers address sustainability issues. SAP is also working with key ecosystem partners and many customers — more than 100 of the world’s largest enterprises — to build a range of solutions that help companies of all sizes bake sustainability into their core operations.
These initiatives include solutions that help customers to consider sustainability from the design stages of a product, solutions that measure carbon emissions across their networks, as well as offering end-to-end transparency of environmental, social, and governance (ESG) reporting. With the rapidly changing nature of reporting requirements, frameworks, and standards, corporate reporting is a big area of focus for many business leaders.
Standardization
In recent years, there has been a call from global organizations, such as the World Economic Forum (WEF), United Nations Global Compact, Global Reporting Initiative, Ellen MacArthur Foundation, and Value Balancing Alliance, to standardize how companies should report their results and environmental commitments, as well as how they contribute to social equality and economic growth.
Regulators that including the U.S. Securities and Exchange Commission are also considering introducing standardized reporting requirements governing climate change disclosures, CO2 emissions, and companies’ green lines.
Anticipating these changes, a growing number of companies have adopted voluntary reporting standards because it helps them to attract investors, improve their corporate reputation, or make acquisitions. In the process, they are reevaluating their reporting models and moving from traditional financial reporting, focused on revenue and profits, to a model that links financial and non-financial metrics into one holistic reporting framework.
New Initiatives
Integrating financial and non-financial performance can be confusing for companies, investors, and financial analysts. At the recent COP26 meeting in Glasgow, the International Foundation for Reporting Standards announced the formation of a new International Sustainability Standards Board (ISSB), which will develop a global set of sustainability disclosure standards.
At SAP, we believe companies must have a clear and common set of standards that are adopted across industries and geographies. This allows executives to make more consistent and sustainable decisions, along with allowing stakeholders to compare the impact driven from non-financial performance.
WEF has teamed up with major standards-setting organizations to create a framework called the Stakeholder Capitalism Metrics, which can be used by companies to map their core financial reporting against ESG indicators. We are incorporating these metrics into the SAP Sustainability Control Tower solution. We also are working with organizations like the Value Balancing Alliance, which has devised a methodology for how we can assign a financial value to non-financial activities, increasing the ability to guide ESG investments and impact.
These new holistic reporting models require companies to include ESG metrics to assess and manage long-term performance, identify connectivity between ESG and financial KPIs, and focus on stakeholders rather than just shareholders.
They rely on access to data that is high-quality, transparent, consistent, timely, and ultimately auditable. Indeed, 79% of companies that see sustainability as materially relevant now say measurement and reporting of environmental data informs their company’s strategy and decision-making. Collecting and analyzing this data are the first steps, but in a survey conducted by the SAP Insights research center, only 21% of business executives said that they were completely satisfied with the quality and availability of data collected for sustainability.
The Customer View
That is why SAP is expanding its portfolio of tools that provide companies with transparency into their sustainability ambitions.
As BMW Chief Financial Officer Dr. Nicolas Peter pointed out at the 2021 SAP Sustainability Summit, “[T]he topic has a high relevance in our industry. We can clearly observe there is a shift in the discussion with our investors and capital markets from a profit maximization to value optimization. In the case of the automobile industry, sustainability is no longer a niche issue; it constitutes a significant share of time in conversations with our stakeholders.”
He added: “Government, standard bodies, and regulators have played a key role in how we have redefined our sustainability strategy: to reduce CO2 emissions over the life cycle of our products, reuse materials, and implement sustainable standards across our supply chain.”
Significantly, BMW is one of the first automobile manufacturers to combine its Annual Report and Sustainable Value Report.
To be a successful company of the future, one that can quickly adapt and react to the turbulent external world, sustainability must be embedded into the core of a business. And this means considering financial and non-financial metrics in strategic and operational decision making.
There is still some way to go on the journey of forming a standardized, global framework for sustainability reporting. But for companies, with the power of digital technologies, action can be taken now to expand the scope of corporate reporting and drive sustainable business steering at scale.
And as always, SAP will be there to help them on this journey.
Luka Mucic is CFO, member of the Executive Board of SAP SE, and Board sponsor for SAP’s sustainability efforts.