Continuing our efforts to assess progress in 2022 and look ahead to the opportunities and strategy in place for 2023 across members’ key areas of interest, ASUG recently spoke to John W. Martin, National Practice Lead, Sustainability, SAP North America, about the big picture of sustainability at present, where SAP and its customers are in terms of their sustainability journeys, and what’s next.
The following is an edited version of the entire interview.
Question: In your view, what were the highlights and the significant milestones for SAP and its sustainability strategy and technologies in 2022?
Answer: From a strategic standpoint, SAP exhibited our commitment to sustainability as both an exemplar with our own sustainability performance and an enabler of our customers, with solutions allowing companies to truly embed sustainability into their business processes and systems running it. Our commitment to sustainability has never been stronger; this is evidenced in the market and all the way up to the board level, with a near-constant reiteration of SAP’s efforts and innovations around sustainability-related data and processes. Besides sustainability being a core value and focus for SAP, we are also doing this in response to the market’s expectations. SAP has internalized those expectations from various stakeholder groups, including consumers, shareholders, investors, and even existing and potential employees, who increasingly expect their employer to be a sustainable actor in all aspects of their business. All of those expectations translate into businesses looking at sustainability as something that they must look at from a business performance standpoint as well as from the perspective that it’s the right thing to do, which it is.
Another important stakeholder group I still need to mention is traditional regulators. If you think of consumers, customers, investors, shareholders, employees, and other stakeholder groups for sustainability, their expectations are driving the inclusion of sustainability topics into legislation and regulations instead of the other way around, which is often the case. Traditionally, they're at the front end, forcing companies to consider what they must do to ensure they can exhibit compliance with a regulation, a permit condition, or a new law or legislation. That's still important, of course. Companies must look at that to show compliance with regulations, permits, and laws, so they can maintain a license to operate. Regardless of industry or sector, problems can happen with your business continuity if you're not compliant with regulatory, legislative, and permit obligations.
Another key point we’ve embraced and worked diligently to communicate to companies in 2022 is that sustainability can and does affect all aspects of your business, through our messaging of “embedding sustainability into your business DNA...” This connects to the technology piece because all of these business processes are enabled and managed with technology. We’re becoming more and more versant in helping businesses understand what this means to them: in your supply chain, in your manufacturing, in your sales, in your procurement, and even in your compliance and financial reporting.
Q: Since you mentioned it, how about the technology side?
A: In late 2021, SAP released a series of new native cloud built-for-purpose sustainability solutions, which are joined by literally a few dozen other SAP products, all focused on unlocking the sustainability aspect or attributes along the entire business value chain. My perspective then is that 2022 has been a transformational year in showing what SAP technology addresses those areas we discussed. Especially where we’ve launched new built-for-purpose solutions such as SAP Sustainability Control Tower (SCT), SAP Product Footprint Management (PFM), and SAP Responsible Design and Production (RDP), we’ve really kept our promise to “embed sustainability into your business DNA.” We’ve worked to integrate these solutions and processes with other key business processes across the SAP platform and beyond to provide customers unique visibility and transparency into their sustainability performance, answer these expectations mentioned earlier, and provide a foundation for continual sustainability improvement. SAP is working to integrate sustainability across all business processes, even outside our customers’ traditional managed purview.
In 2023, I hope customers will embrace the SAP approach for sustainability, embedding it along your business value chain, which means you need comprehensive and seamless integration. But comprehension and complexity are different things. I’d suggest our approach, rather uniquely so, is comprehensive in terms of embedding sustainability from the bottom up. It’s not complex. It’s simply meeting businesses where they’re at: at a process level, at all the touchpoints where sustainability is or should be infused in your business.
The fact that we have dozens of products in this area is surprising to most, but our strategy is to be comprehensive, not complex. We meet organizations where they’re at with their sustainability journey, capitalizing where possible on those processes already managed in or adjacent to SAP. In the second half of this year, we found an analogy to explain that comprehensive strategy, using simple accounting processes known to most; we use the analogy of a general ledger, and the fact that a general ledger is a summary of information about a company’s financials. It doesn’t maintain the details itself; instead, it uses sub-ledgers to maintain those details and feed them into the summary view of a GL.
If you look at emissions only, carbon is arguably the largest focus in sustainability because we must preserve the world to live on before we can hope to improve social equality and inclusion or make improvements toward circularity. They’re all interdependent, of course, but climate action is paramount. And in climate action, you’re predominantly looking at your carbon impact as a business and, therefore, looking at your emissions across the whole value chain. Traditionally, a top-down approach to calculating emissions has been acceptable, but the market realized and articulated in 2022 that a top-down approach can be between 10 to 40 times off. Not percent: 10 to 40 times off. With countries, states, and other jurisdictions beginning to levy fees and taxes based on those emissions, a 10 to 40 times off factor isn't going to remain effective and acceptable.
More importantly, if you want to improve something, you should accurately measure it. And if we're 10 to 40 times off and trying to stop a 1.5-centigrade increase in global temperatures, well, 10 to 40 times off isn't going to get us there either. SAP has instead doubled down on a bottom-up approach for a more accurate and integrated view of climate/emissions impacts directly from their sources. Companies must move from averages to actuals, and SAP being able to help companies do that is a strategy I support.
Q: In the 2022 ASUG Pulse of the SAP Customer study results, sustainability was one of the top five customer focus points for this year. What do you make of that?
A: I believe it reflects the recognition of the importance we’ve discussed above, but it goes beyond just doing it out of obligation, so in 2023 I hope that SAP can better articulate how sustainability is also “good for business” from a financial standpoint. You will be a more optimized, intelligent, and profitable organization if you embrace these concepts and use them as business performance indicators rather than simply answering inquiries in your sustainability reporting. Certainly, most companies have people inside their organizations who realize that point, and I’m convinced there’s maturity there in many sectors and industries. There are just so many point-solutions and siloed teams focusing on the seemingly disparate areas that it’s not always apparent how it all fits together, but when done right, and transparency and interdependencies are realized, it is also readily realized that “sustainable business is just good business.”
Q: How would you assess North American customer awareness and adoption of sustainability in this past year?
A: Specific to North America, there's still a total commitment from most companies and customers we work with, regardless of industry, on realizing sustainability is important and therefore embracing sustainability. What might sound contradictory is, going back to what we talked about earlier about regulators, there's been ebb and flow in the U.S. on whether some areas of sustainability will be regulated or not. In the SEC proposal, for example, if it's approved, next year going forward, public companies will have to include climate information in their financial disclosures. That announcement caused a clamor for more information about how SAP could help companies get a handle on the information and data necessary to show compliance with the SEC’s proposed guidelines.
For SAP, this was easy, as we’ve had solutions in place to help with scope-1, scope-2, and even scope-3 emissions for over 20 years. We are also working to integrate these mature tenured products with new sustainability-focused ones like SCT. Whether driven by regulation/legislation or customer demand, companies are beginning to realize they have to address these expectations, even voluntary ones, that can no longer be ignored.
Comparing the findings from the last few Conferences of the Parties (COP) to the United Nations Framework Convention on Climate (UNFCC), the COP26 output in 2021 was an acknowledgment that “We have this problem, and we think we have a path to ensure the 1.5C initiative, to prevent global warming of more than 1.5℃ above pre-industrial levels.” Unfortunately, the narrative of COP27 was, “We now can say with certainty the 1.5C initiative is unachievable.” In 2023, part of the narrative, instead of meeting that initiative, we need to ask how we can do better. How can we reverse the clock? How can we step-change? There is an increasingly accepted acknowledgement that we need to materially change how we conduct ourselves, both at a personal and a business level. That’s the manifestation of COP27: there needs to be a material change in how we conduct ourselves at an individual level and then compound that at a corporate level. It’s not that trouble is coming. We’re already in trouble.
And you must have accuracy about your performance to know what you can improve, not just for your stakeholder groups but for yourself. This top-down approach to sustainability metrics, from carbon to circularity to social responsibility, doesn’t work. You need to get more accurate. At some point, you have to acknowledge that SAP is uniquely positioned to help in this respect. 80-90% of all transactions on Earth touch an SAP system at some point; that’s mind-numbingly impactful. If those underlying systems organically embed sustainability into that business process, so business decisions are made on the attributes of sustainability performance, profitability, availability, cost, and performance, then that’s the only way we’re going to change the world of business and embed sustainability in business DNA.
Q: Where are SAP customers, generally, along their sustainability journeys right now, and what are the major challenges they encounter?
A: Regardless of the stated commitments from companies, approximately only 15% of companies are correctly measuring their emissions and carbon impact. People understand that this is important, and they’re embracing it in ever-maturing ways, like setting science-based targets or setting carbon neutrality and net-zero goals. Another example is the recognition and adoption of dual materiality impacts and KPIs by businesses, exemplifying the complexity and interdependency of these topics between all pillars of sustainability.
With carbon, scope-3 emissions weren’t looked at all a few years ago, and they’re still largely voluntary in terms of reporting. But recently, we’ve realized that, for almost every industry in the world, scope-3 emissions make up the majority of your climate impact as a business. Your carbon impact comes mostly from your supply chain, but we weren’t even tracking that a few years back.
Increasing our understanding of and focus on scope-3 emissions is a commonly agreed-upon first step, given the priority of climate/environment as a focus area. The challenge of 2023 is figuring out how to start gaining insight and transparency into those areas we’ve barely scratched on the surface.
Q: SAP Sustainability Control Tower was launched at the end of 2021. Tell me about the recent progress for that product and for SAP Cloud for Sustainable Enterprises.
A: Sustainability Control Tower has enjoyed tremendous maturation and growth as a product this year. In its latest release, we’ve answered our promise of the solution allowing customers to map their own ambitions and targets to regionally and globally recognized metric taxonomies, those standard sets and frameworks out in the market like GRI, EU Taxonomy, CDP, and TCFD, for example. SCT offers customers the ability to “standardize” what that abyss of over 600 different frameworks and taxonomies means for them. With SCT, companies can harmonize all of that with what it means to align their own ambitions and performance to globally recognized KPIs and metrics. That’s one of the biggest value propositions for SCT, and in our latest release, we've doubled down with the Sustainability Metrics Catalog, an ever-increasing catalog of prioritized KPIs. And the tool allows you to map that to various taxonomy sets, whether standard sets or frameworks. In our tool, you'll be able to align to the one metric on scope-1 greenhouse gas, for instance, or emissions; you're able to align that to GRI to TCFD, to World Economic Forum to CDP to UN sustainable development goals. The tool allows customers a platform to make sense of the madness. They can use SCT to tie their ambitions, targets, and goals to those metrics and use it as one auditable platform where they gather the data needed to answer those KPIs.
The second key value proposition is SCT, the single platform that gives you the three A's: the always-needed auditability and assurance of underlying data around these requirements, and the attestation-level, street-level data. Regardless of where you're getting the data that's feeding SCT—from SAP, non-SAP systems, even from data sources outside of your business—you can use SCT as your single platform from an auditability, assurance, and attestation perspective as well. You can show the audit trail of where you're getting that data, regardless of what sustainability metric you're tying it to.
It also allows you the ability to embed sustainability in underlying business processes. When customers use SAP, we're tying into Product Footprint Management, your corporate emissions management, or your supply chain. We’re tying into your business travel and your supplier network, so you can understand social responsibility aspects. It involves many things around all three pillars of sustainability: circularity, climate, and social responsibility.
In terms of Cloud for Sustainable Enterprises, we’ve increased the ability to help customers embed sustainability across their entire business value chain. With dozens of potential solutions with touchpoints into underlying business processes that we may already manage in SAP, we're using Cloud for Sustainable Enterprises to meet customers where they're at, capitalize on their existing investment in SAP, and determine what else they can do inside SAP to embed sustainability at those underlying business levels, at a process level. We’re also tying sustainability data into SCT, so you can have visibility, steering, and reporting on that. As importantly, you're also integrating that sustainable information into those underlying business processes so that you have it as a lens for continual improvement from a business and sustainability performance standpoint.
If you're tying in aspects of the carbon impact of your product or the packaging of your product, and you're able to see that in the R&D phase of your product design or your package design, wouldn't it be great to be able to improve the sustainability of your products by being able to see where you have hotspots that need improvement, right? Packaging design, recyclable content in your packaging, the design of your product to be more recyclable or even regenerative as in automotive, so that you can return that part and it can be reconditioned to be reused again instead of putting it in a landfill. We tie some of these sustainability metrics into the SAP Integrated Business Planning tool so that, in addition to the traditionally recognized attributes you use in planning, like availability and cost, you can look at sustainability attributes to make planning decisions. If you weigh the cost, availability, and carbon impact of all the raw materials for a product that you manufacture, you, at a planning level, can make decisions to become a more sustainable business, have more sustainable products, and help the world be more sustainable as a result. That’s just one example of embedding sustainability in your business, contributing to sustainability, and being a more sustainable business.
Q: What are you most proud of from 2022, and what are you most looking forward to in 2023?
A: SAP showed in 2022 that we were serious about our commitment to sustainability. We showed that in many ways: with our investment and commitment at a product level, marketing level, and leadership level. In 2023, I expect that we’ll gain traction with customers and partners to start pushing this plane down the runway so that we can do what we all want to do and improve sustainable performance at a global level. We’re still gaining market share with these new solutions. I anticipate, in 2023, that SCT will be adopted more widely, and we’ll see how SAP can help the world run better and improve people’s lives.