This summer, temperatures soared across the globe, with NASA reporting the hottest summer recorded since scientists began regularly documenting global temperatures in 1880. Collectively, June, July, and August were 0.41 degrees Fahrenheit hotter worldwide than in any other summer. This sweltering heat had severe, rippling consequences. Oceans warmed, threatening vital ecosystems. Lakes continued shrinking at alarming rates. And wildfires in Canada cast a massive plume of smoke across North America.
There is no doubt: the dire predictions of climate scientists are becoming our reality. However, these troubling events have spurred action from business leaders and government officials. While 2023 was an unnerving precursor of unmitigated climate change, the year also continued a trend of organizations prioritizing sustainability initiatives.
Looking back at 2023, there is certainly work to be done as businesses begin—or continue—their journey toward sustainable, net-zero operations. And while we’re witnessing the effects of climate change, this year did offer some positive, hopeful developments.
Here are some of the key environmental, social, and governance (ESG) trends in 2023 that impacted the SAP ecosystem.
Inflation Impacting ESG Priorities
One of the biggest global financial developments coming out of the pandemic was rampant inflation, which peaked in the United States at 9.1% last June. While inflation steadily decreased in 2023, it still has not subsided to pre-pandemic rates. Last month, the inflation rate was 3.1%, a far cry from the peak last summer. However, in times of sustained inflation, interest rates and the cost of goods remain elevated. To combat these unfavorable shifts, businesses have chosen to limit innovative practices and delay incorporating new workflows—including those related to ESG priorities—as they focus on weathering the current economic climate.
Sustainability efforts cost enterprises money. The United Nations Conference on Trade and Development estimated costs to meet sustainable development goals will fall between $5.4 trillion and $6.4 trillion on an annual basis. These innovative practices require new workflows, software, resources, and employees to ensure success. It is no small ask for organizations to acquire and implement such components in times of economic hardship. While ESG practices and workflows are vital, they are often sidelined as enterprises close ranks and focus on maintaining profitable operations during times of high inflation.
We saw this dynamic play out to a degree in 2023. While inflation is decreasing, paving the way for organizations to prioritize ESG practices, many enterprises still spent the year focused on maintaining legacy operations and mitigating the effects of inflation. As the economy improves, ASUG expects many organizations to turn their attention to sustainability practices in 2024, especially as SAP continues enabling the tracking of vital ESG data with software solutions.
Ingrained ESG Practices
The ultimate endgame of any sustainability program is ensuring that sustainability will play a crucial and central part of an organization’s operations and workflows. That process begins at the reporting stage. The only way a company can understand how it is performing—from any level, financial to sustainability—is by tracking data.
In recent years, SAP has prioritized the ESG reporting capabilities of its software. During the SAP Sapphire & ASUG Annual Conference in May, the company doubled down on this focus, unveiling new solutions aimed at helping its customers manage, track, and report metrics vital to sustainable operations. This was similar to the message SAP brought to Sapphire in 2022, when the company first unveiled its suite of sustainability reporting solutions, including SAP Sustainability Control Tower.
This year, SAP debuted three new solutions that were pitched as tools to help customers monitor sustainable operations and meet regulatory and compliance demands. SAP Sustainability Footprint Manager enables customers to manage Scope 1, 2, and 3 emissions across their product and supply chain operations. SAP Sustainability Data Exchange enables companies to decarbonize supply chains, empowering them to share standardized sustainability data. Finally, the new SAP “green ledger” system for carbon accounting is now included in RISE and GROW offerings. New capabilities, such as generative AI, will periodically enhance the impact of the green ledger’s combined financial and environmental data, which will integrate with SAP’s cloud ERP to provide natively integrated financial and environmental decision-making.
SAP appears committed to this focus. In October, SAP announced that its RISE with SAP “premium plus” packages will include SAP Sustainability Footprint Management and SAP Sustainability Control Tower, allowing customers to harness these sustainability solutions within their cloud transformation journeys. Looking ahead to next year, ensuring ease of adoption for sustainability-focused technology will be a key test for SAP, as the company seeks to enable all customers to independently manage ESG reporting and improve the sustainability of their business operations.
As John Kerry, U.S. Special Presidential Envoy for Climate, noted during an address at this year’s SAP Sapphire & ASUG Annual Conference, “You can’t manage what you don’t measure.”
In other words, transactional carbon accounting will play a key role in ensuring the success of businesses’ sustainability initiatives. “Rigorous accounting and transparency are absolutely essential,” Kerry said. “We need trust in the system. And we need to ensure that all of our actions have the highest environmental integrity. Rigorous accounting and strong environmental integrity will be the key to the success of the energy transition accelerator that we’re creating with our partners.”
Shifting Regulatory and Compliance Expectations
In 2023, American regulators moved forward with new, sustainability-focused initiatives, as new regulations focused on business data disclosures and frameworks for combating climate change.
The U.S. Security and Exchange Commission (SEC) is moving forward with climate-related disclosures, requiring public companies to report climate risks to investors in registration statements and periodic reports. According to the SEC, these disclosures will include “material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics.”
Specifically, the rule change requires companies to measure and report on Scope 1 and 2 emissions. Scope 3 emissions reporting is likely not far behind. However, it is important to remember that 2024 is an election year in America. While the Biden administration campaigned on sustainability and climate change—and has taken steps to move forward with these initiatives—other presidential candidates will take different approaches to the issue.
2024 and Beyond
Despite these shifts, it's safe to say that ESG operations will continue to play a vital role in moving organizations forward. Public perception of climate change is slowly moving in favor of sustainable operations. For example, Pew Research Group found that 48% of Americans ages 18 to 29 supported phasing out the use of oil, coal, and natural gas.
SAP is obviously committed to ensuring ESG data monitoring is a crucial part of its customers’ operations as they implement sustainable practices and move to meet regulatory demands. As we look to 2024, ASUG expects sustainability solutions to grow, change, and become ingrained within SAP’s efforts to help its customers’ businesses run better.