Introduction to Sustainability

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Before we start, a short introduction about me. I am Geetanjali, working as a sustainability analyst/developer in the SAP Profitability and Performance Management content development and analytics team. I studied Sustainable Resource Management at TU Munich. Prior to my masters, I worked for 4 years in the energy sector. Through this blog post series on sustainability topics, we are trying to inform and engage our readers on the various aspects of sustainability. SAP Profitability and Performance Management has been successful in implementing a variety of sustainability topics. In this first blog, we introduce the readers to some of these topics and paint a broader picture of what the readers can expect in future blog posts in the coming weeks.

“…We’re the first generation to feel the impact of climate change, we’re the last generation that can do something about it. We only get one home. We only get one planet. There is no Plan B…”
~ Barrack Obama

Let us start off with a news segment that was hard to miss this year. Wildfires! The past couple of years has witnessed wildfires in the Amazon, Australia bushfires, in Greece, the US, India and many more.

        Source: Aljazeera                                     Source: The Guardian                    Source: Vox

Every year, we read of the year being the hottest one yet and the climate change phenomenon is the reason behind it. The earth’s global temperature is increasing (Figure 1), leading to natural disasters such as wildfires, floods and heat waves, we have observed this and in the past years. This is largely due to human activities, mostly but not limited to, burning fossil fuels, deforestation, farming livestock releasing substantial amount of greenhouse gases (particularly carbon dioxide, methane, nitrous oxide, fluorinated gas). These gases have the ability to trap the sun’s heat within the atmosphere, eventually leading to global warming effect. If the question is how to prevent or mitigate further disasters, how to reduce greenhouse gas emissions and to better adapt, then sustainability is the resounding answer.

Figure 1: Change in global surface temperature (annual average) as observed and simulated using both human and natural and, just natural only factors (Source: IPCC 6th Assessment Report)

It is surprising that this concept, that is ubiquitous, came about only under 30 years ago. It appeared in 1987 in the famous Brundtland Report produced by several countries for the United Nations. It defined sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

The ongoing path of sustainable development has witnessed landmark events (Figure 2) to reach where it is today.

Figure 2: Timeline of key events in sustainable development (Source: Author elaboration based on research)

In 2000, The Millennium Development Goals were launched to tackle poverty, which were then replaced with the Sustainable Development Goals (SDGs) in 2015 through the 2030 Agenda for Sustainable Development (Figure 3). The 17 SDGs have 169 targets set amongst them that cover all aspects of holistic sustainable development, most of which need to be accomplished by .

Figure 3: Sustainable Development Goals (Source: sdghub)

Another most talked about event of the past few years is the landmark 2015 Paris Agreement which was ratified in 2016. The Paris Agreement was important because, for the first time, majority of the nations came together to work towards limiting global temperature increase to 1.5 degrees Celsius and developed nations promised to enhance their financial support to developing nations to combat climate change. The Paris Agreement also paved way for an enhanced transparency framework for action and support. As of July 2021, 190 states and the EU, have ratified or acceded to the Agreement.

With rising emphasis on sustainable development, businesses continue to re-arrange priorities to include sustainability in their practices. The foundations of sustainability lie on the three pillars namely social, environmental and economic. Lately, a fourth pillar - cultural, has also taken prominence. Corporate Social Responsibility (CSR) has been a familiar concept in the past and has been gradually moving towards corporate sustainability. However, there is a difference between CSR and corporate sustainability. While CSR is a qualitative business approach that takes social, environmental and economic concerns into their values, corporate sustainability is a quantitative business strategy that sets goals and targets in each of the environmental, social and governance (ESG) pillars for long term growth. Currently, lots of corporations are integrating ESG  into their businesses by committing to being carbon neutral, ensuring gender equality and diversity and inclusion in hiring, and following ethical and anti-corruption practices. This contributes towards a sustainable business value.

Sustainability Reporting Frameworks

In recent years, there is a growing trend of sustainability reporting as a result of regulatory pressures on organisations. Sustainability reporting is synonymous with comprehensive reporting covering material topics around corporate sustainability, presented either as a standalone sustainability/ESG report or as part of an integrated report (which combine annual reports, mostly focused on financial data) and ESG reports. According to the Global Reporting Initiative (GRI), sustainability reporting aims to assist organisations to measure, identify, understand, inform and communicate their overall detailed economic, environmental, social and governance performance including financial and non-financial parameters. GRI (Global Reporting Initiative), CDP (Carbon Disclosure Project), TCFD (Task Force on Climate-Related Financial Disclosures), and SASB (Sustainability Accounting Standards Board) are considered the leading sustainability frameworks and widely adopted set of corporate reporting standards. The figure below shows the corporate reporting landscape and other commonly used sustainability frameworks (Figure 4).

Figure 4: The corporate reporting landscape by Corporate Reporting Dialogue (Better Alignment Project) (Source: See References)

Currently, most of the sustainability related practices are voluntary, however new regulations are driving alignment in ESG reporting standards. An increase in mandatory ESG reporting is evident, with regulators generally selecting one voluntary standard to follow or synthesizing the standards into their own definitions. In short, sustainability reporting standards are evolving to consider a whole range of stakeholders’ interests and their actions with much anticipation on harmonizing and standardizing measurement frameworks to encompass the totality of sustainability.

Sustainability Legal Frameworks

New sustainability reporting laws and regulations are emerging all over the world, but at varying rates depending on the region. The CSRD (Corporate Sustainability Reporting Directive), SFDR (Sustainable Finance Disclosure Regulation), and EU Taxonomy in Europe (Figure 5), BRSR (Business Responsibility and Sustainability Reporting) in India, and mandatory TCDF reporting (Task Force on Climate-Related Financial Disclosures) in New Zealand and the UK are just a few examples of the regulations that are requiring company compliance around the world.

Figure 5:The European Commission Action Plan: Financing Sustainable Growth - new EU sustainable finance paradigm

SAP Solutions for Sustainability: SAP Profitability and Performance Management Sustainability Sample Content: Using the advanced potential of SAP S/4HANA, we have designed SAP Profitability and Performance Management to provide instant business insights, including those related to sustainability performance. With our sustainability-related sample content we address the challenges of a large, heterogeneous data environment and relevant sources, as well as reduce the effort for business users required to keep models current with regulatory changes. We currently offer two sample contents related to Sustainability: Value Chain Sustainability Management and Financing and Investment Sustainability Management.

Value Chain Sustainability Management Sample Content: The sample content Value Chain Sustainability Management consists of a comprehensive calculation model to assess all pivotal aspects of Sustainability Management with focus on five specific points (Figure 6).

Figure 6: SAP Profitability and Performance Management Value Chain Sustainability Management overview

Financing and Investment Sustainability Management Sample Content: Over the recent years, climate change has evolved from being an environmental topic with little relevance to the financial sector, to becoming a truly material one.

With SAP Profitability and Performance Management we offer a unique Financing and Investment Sustainability Management  sample content which provides evaluation of company’s economic and ESG performance, assesses business activities’ EU Taxonomy alignment and incorporates ESG factors into traditional financial analysis and investment decision process (Figure 7).

Figure 7: SAP Profitability and Performance Management Financing and Investment Sustainability Management overview

Conclusion

Some of the most significant challenges which we are facing today include climate emergency, nature in crisis, and rising inequalities. Business can and must take the lead in addressing these issues because future business success is contingent on flourishing communities with which to trade and a healthy planet on which to live. This starts with equipping businesses with a shared knowledge of what a sustainable future will look and feel like in practice.  We hope this short blog has provided enough insights into sustainability to interest you in deeper discussions.

Stay tuned for upcoming sustainability posts! We will cover topics like: EU Taxonomy, TCFD recommendations, holistic impact management and measurement and WEF’s Stakeholder Capitalism Framework and discuss their integration into SAP Profitability and Performance Management sustainability sample content.

Please feel free to share your comments and thoughts on this blog post and let us know if there is anything around sustainability you would like to read more about. We are here for you!

“Forward thinking companies that adapt positively to the sustainable business agenda will be at the forefront of resource productivity, reducing waste and of environmental reporting. They and their management teams make things happen ahead of their competitors.”

~ Author: Michael Meacher

 

References

Task Force on Climate-related Financial Disclosures

Sustainable Development Goals

World Economic Forum

Carbon Disclosure Project

Financial Accounting Standards Board

International Financial Reporting Standards

International Organization for Standardization

Climate Disclosure Standards Board

Global Reporting Initiative

International Integrated Reporting Framework

Sustainability Accounting Standards Board

How does the EU Taxonomy fit within the broader sustainable finance framework?

Corporate Reporting Dialogue: Better Alignment Project

European Commission: Strategy for financing the transition to a sustainable economy