The survey findings make clear that respondents see sustainability as a tool for improving performance in the broadest possible sense: increasing revenues, improving efficiency, and reducing risk.
And they’re putting that tool to use at the business process level, where it’s becoming a mechanism for gaining market advantage.
The question then becomes how to elevate sustainability to a strategic input for making decisions at the highest levels of the company. There are two related areas in which business leaders can start: changing their mindsets about the value of sustainability and using sustainability metrics to manage their companies.
Treat sustainability metrics equally with financials. If CEOs have performance dashboards, the gauges are likely mostly, if not entirely, tuned to financial goals and metrics – because that’s what the company and its stakeholders have been trained to understand as determining success and failure. But stakeholders are increasingly demanding that business leaders include sustainability goals and metrics when they evaluate performance.
The survey results show that sustainability has become a tool for improving performance deep within the belly of the company – at the process level. But for this work to be fully successful, executives at the top of the company need to recognize sustainability’s value for steering it.
Connect sustainability with financial materiality. Previous research by SAP Insights suggests that most companies don’t yet see sustainability as financially material to their companies. Yet all the ways that our survey respondents tell us they’re using sustainability to improve performance at the process level suggests that that view is changing. We think data makes the difference: in our previous research, we found that companies with more data about the environmental effects of their businesses are more likely to expect that operating sustainably will increase long-term revenues and profits.
Create an integrated balance sheet. If sustainability is to have equal stature with financials as a management tool, business leaders need to understand the environmental and societal effects of the company with the same degree of precision with which they understand their finances.
Admittedly, this hasn’t been easy. There are so many arcanely named organizations working on competing sustainability measurement standards that they’ve practically cornered the market on acronyms. And many of these standards are still works in progress.
But this shouldn’t be an excuse for inaction. For companies doing business in the European Union, new sustainability accounting regulations will soon hit harder than a slab of breakaway Arctic ice. Starting in 2024, the EU is going to mandate double materiality analysis for 55,000 businesses in Europe and millions more globally with an EU footprint.
According to the EU, companies must “report about how sustainability issues affect their business and about their own impact on people and the environment,” in addition to reporting on issues and events that are typically considered material to financial results, such as the purchase of a competing company or the costs of a new factory. In other words, the EU has recognized that stakeholders need to know how a company affects people and the planet and how both affect a company to fully understand its financial health.
For example, it’s important to know how much a company emits in pollutants or is complicit in human rights violations in its supply chain because it could end up violating regulations, which would trigger fines and require investments for remediation. Similarly, it’s important to know how rising seas or more extreme weather might affect production costs.
Fortunately, you don’t need definitive measurement standards or perfect data to get started. The previous SAP Insights survey found that the largest percentage of respondents developed their sustainability metrics in-house.
Merge digital transformation with sustainability efforts. We rarely see digital transformation and sustainability treated as symbiotic goals. But as we said earlier, the first step toward integrating sustainability into business governance is through measurement, which requires data that increasingly comes from digital processes.
Meanwhile, if (as our survey suggests), business leaders want to use sustainability as a tool for improving business performance, digital is to rethinking processes what flour is to pancakes.
Digital technologies are the only inputs into a business today that have continued to drop dramatically in cost while increasing exponentially in power. That kind of power and savings are needed if sustainability efforts are going to satisfy investors, 81% of whom say they aren’t willing to give up more than one percentage point of their returns in the pursuit of environmental, social, and governance (ESG) goals (even though they also insist they care about these), according to a PwC survey.