Why sustainability matters

An opinion piece by Simon Carpenter.

JohannesburgWe face unprecedented challenges as we enter the second decade of the 21st century. In the last 50 years, the global population has doubled from 3.5 billion to 7 billion.

By 2050 it is estimated there will be 9 billion people on the planet (Africa will be at the forefront of this, with the fastest population growth rates in the world). Of even greater concern, from a sustainability perspective, are projections for the growth of the global middle-class – the primary engine of consumption.

On current trends, the global middle-class will grow from 1.8 billion people to 3.2 billion by 2030. For humanity at large, it is good news that people are being lifted out of abject poverty, but it comes with a price; that’s another 1.4 billion people with expendable income and aspirations to consume resources in the same way as consumers in the advanced economies of the West.

This demand for resources will outstrip anything we have seen to date and will require significant advances in renewable energy and in technologies to ensure food and water security, clean air, safety and security to stave off further threats to the planet.

The ramifications for business are enormous, especially on the relatively resource rich and under developed African continent; there are both great opportunities and risks. Businesses can grow by meeting the needs of new markets, but they must do so while working with diminishing resources and in the context of increased regulation, consumerism and price volatility.

It is very apparent that current inefficiencies in global supply chains, energy usage, material usage, regulatory compliance and business planning will become intolerable to the point where they will threaten corporate profitability and even survival. Business leaders, therefore, have a major role to play and a vested self-interest in addressing sustainability in a coherent and effective fashion.

Focusing on sustainability makes good business sense. This is borne out by AT Kearney research, which shows that the market rewards sustainable companies; between May and November 2008 a comparison of performance between companies in the Dow Jones Sustainability Index (which includes SAP) and others showed growth of 15% above the average. Elsewhere, IDC reports that manufacturing companies with “well defined sustainability strategies” have 21% higher revenue, 11% lower inventories and 275 basis points higher gross profit than those that don’t. In these leading companies, information replaces physical waste and greater insight leads to better performance on all fronts.

In this quest for sustainable performance, SAP is uniquely positioned to help the world run better. It is not only a recognised exemplar for its own sustainability efforts, but also enables the world’s best companies, its biggest supply-chains and the largest energy creators and consumers.

So, what are some of the ways in which companies can use information systems to run more sustainably?

* Greater demand for consumer products puts additional pressure on existing supply-chains and creates new ones. The need for business networks to be run efficiently, more collaboratively, and with transparency as to their impact on the environment and people will be greater than ever. Information replaces waste and redundancy. The use of software to provide supply chain visibility, real-time event management and greater adaptability will be crucial.

* Business process efficiency will require higher levels of automation as low-cost labour becomes harder to find. This implies higher levels of integration than exist in many companies today.

* Sustainability performance reporting and full disclosure are the “new normal” in a world where consumers also care more about their environmental impact and the labour conditions inherent in the products they consume.

* Pressure on resources and continued geo-political change will contribute to market instability of key materials and energy. Price volatility, already 40% compared with the last decade, will continue to increase. In this world, the ability to analyse massive amounts of data in real-time and to then translate decisions into action with zero lag-time will spell the difference between profit and loss.

* With 50% growth in energy needs by 2050, not only will energy costs themselves be unpredictable, but also those of the derived materials that are energy intensive. Efficient energy management across a multiplicity of business activities will be the key to prioritising and investing in meaningful abatement activities.

* Depending on the tax regimes of the host country there will be different but increasingly onerous requirements to track and report and pay for GHG emissions. This information should be easily derived from underlying business activities and process flows in order to minimise the costs of compliance.

* As the world grows more complex and interdependent, so do the regulations with which businesses need to be compliant. Seldom is an old regulation replaced, instead new ones are just added on. Lack of compliance results in reputational risk, higher cost of capital, stiff fines, and even jail time. While the ability to manage regulatory risk requires visibility into your business and into emerging regulations, today this area of business is characterised by high costs, inefficiencies and blind spots. To ensure better, lower cost, governance and compliance automated GRC systems are vital to getting this aspect of business under control.

* Companies invest significant sums to build brands and reputations. It’s often these assets that sustain them in tough economic times when consumers and customers are looking for the certainty promised by a trusted brand. Today, with over 66% of the world’s population having access to mobile phones and using them to access social networks such as Facebook, Twitter and Mxit, your customers are often aware of your problems before you are. A tweet can bring down a government or a company in today’s wired world. It takes true visibility in the moment to know where your company can improve or react, before the world knows, and this can only come from real-time, integrated information systems.

Sustainability, as a strategic business concept, a set of business practices and appropriate software solutions, has reached a tipping point. It is an ineluctable megatrend that will produce new winners and losers. The characteristics of winning companies include:

* A focus on long-term strategy, not just short-term gains.

* Sustainability as a mainstream business imperative – embedded in all plans and activities.

* Strong corporate governance and transparency.
* Sound risk-management practices.
* A commitment to investment in green innovations.

A sustainable future cannot, must not, be delayed. The time to start down the winning path is now.

Editorial contacts

Sunil Geness
+27 11 235 6000
Corporate Affairs Executive