Sustainability Data Isn’t Perfect, but Its Benefits Will Be
We know that data is crucial to making your business more profitable. That includes integrating data on environmental sustainability into financial performance management. But given its late invitation to the party, sustainability data is tougher to find and manage.
That’s okay. It doesn’t have to be perfect to make a meaningful difference.
This Zen view is borne out by a recent SAP Insights survey that revealed a group of companies we call the Nows, who recognize that environmental sustainability has already become material to their business performance. These companies have been collecting more data about environmental impacts – and acting on it – for much longer than anyone else. Most importantly, they’re using that data to look for business value, and they’re finding it: they report higher revenues and anticipate greater profits than other companies do.
The Nows, along with the other respondents to the survey, are challenged by sustainability data. Overall, respondents say it isn’t as good as they would like it to be. They lack confidence that their data is complete and correct, worry that it’s not fresh, and wish it were more transparent and accessible.
But here’s a difference: compared to other respondents, the Nows cite fewer reasons for being dissatisfied. They are also more successful at using data to determine their sustainability investments and to measure the outcomes and impact.
This suggests that when deciding to invest in sustainability, your data only has to be good enough to motivate you to act. “You don’t have perfect data in the rest of your business, either,” observes Ian Catley, director at Turnkey Group, whose software provides real-time data collection and analytics that help companies more effectively manage their environmental, social, and governance (ESG) efforts and associated risks. “Don’t expect to be perfect on day one. Just get started.”
Making business operations sustainable
Respondents to the SAP Insights survey say their top barrier to using their sustainability-related data is linking it to improvements in operations. But barriers can be overcome. All respondents seem to be addressing the operational challenge by developing internal metrics for sustainability that take advantage of data that is relevant to their business and environmental objectives. However, the Nows have done so to a greater extent, possibly because their leaders are more focused on sustainability than those at other respondents’ companies.
All a company needs to begin, then, is finding the right data in enough quantity and reasonable quality to start spotting actionable trends and to choose one reasonable starting point – for example, reducing energy use.
Even basic data from your company’s utility bills lets you compare electricity use across locations, project future consumption, and reduce it by adopting the best practices of your most energy-efficient sites. More complete data will help you see and manage how much of your energy comes from fossil fuels versus renewable sources so that you can further shrink your carbon footprint.
In the process, you will develop KPIs for energy consumption and use them to create more value – say, by identifying ways to make power-hungry processes more efficient. Thus, data drives both sustainability and business performance.
Navigating a crowded landscape of standards
Catley points out that KPIs for energy and water use, waste production and disposal, and materials consumption will be relevant to companies in every field. As with other performance data, how you use it to make decisions will vary according to industry and company, and it will change over time. An agribusiness could determine that it should optimize fuel use in its planting and harvesting equipment first because that will have the biggest impact on emissions and save the most money compared to addressing electricity consumption in its office buildings. A law firm with no fleet of industrial vehicles could decide it will gain the most by retrofitting its headquarters with solar panels.
When it comes to finding external guidance about what data to collect and how to report it, the choices are practically endless. And that’s the problem. Broadly accepted industry standards for sustainability are still evolving, and regulations differ across the globe. As a result, frameworks developed by a plethora of industry and nonprofit organizations for collecting and reporting data are useful only to the point that they help companies understand the data they have (or need) and communicate it to stakeholders.
What matters, says Catley, is having a system for gathering, collecting, consolidating, and reporting your data, whether you choose one framework, several, or none. “With data intelligence and analytics tools, you can slice and dice it whatever way you want.”
To be useful for decision-making, data also needs to be consistent, comparable, and reliable, adds Neil Stewart, director of corporate outreach at the Value Reporting Foundation, an international nonprofit working on creating a globally accepted sustainability reporting system through both Sustainability Accounting Standards Board standards and the International Integrated Reporting Framework.
Sustainability is not unmapped territory
Companies are used to leveraging data to constantly tweak and refine their operations for better performance. The Nows’ better outcomes and anticipation of higher profits suggest that using data to shape their sustainable business strategy is a variation on that familiar theme: even a little data is enough, as long as it’s good enough to see the results from making even small changes.
Pursuing sustainability is similar enough to other performance improvement initiatives that, as Stewart notes, companies often use the same tools, processes, controls, and even the same people. “It’s about overlaying financial data approaches on – and bringing the discipline and rigor of financial data and processes to – sustainability data and processes.”
The Value Reporting Foundation has found that one of the things investors now look for in disclosures is a company’s willingness to start taking action on ESG issues. That’s because they believe that, as Stewart puts it, “Starting small, locally, or incrementally still moves the needle.” He also predicts that the more data companies collect on sustainability, the more they will agree on definitions and metrics, which in turn will help them make meaningful decisions about what to measure and report.
Catley suggests that telling customers, investors, and other stakeholders that you’re gathering and acting on sustainability data is a key part of the process, especially given the Nows’ experience of realizing tangible benefits. As with other potentially material changes to the way you manage your business, Catley says, “The way you let people know that you’re trying to improve is to set ambitious but achievable goals, track your progress toward those goals, and if you’re doing well, shout it.”
The SAP Insights survey found that the Nows are more likely than other respondents to highlight their environmental progress, not only in corporate sustainability reports and on their websites but also in integrated reports to shareholders (which capture the impact of environmental actions on long-term value creation) and in their marketing materials and press releases. This suggests that the Nows’ experience using sustainability data makes them more confident in its relevance to key stakeholders such as investors and customers.
How to start with sustainability data
If your company is just getting started with sustainability data gathering and reporting, the first step is to establish where you are now and what your stakeholders want to see, Catley says. There’s no way to tackle every sustainability issue at once, so figure out one area that is material to your company in which to make measurable progress.
If you’re a manufacturer, maybe you will decide to reduce the greenhouse gas emissions that result from shipping your products. Determine what data you would need to understand your emissions and measure progress toward your goals, such as fuel use, costs, and carbon footprint of different modes of transportation.
Once you’ve gathered enough data to establish your current state and compare it meaningfully to potential alternatives, you can begin to develop a strategy. For example, look at where your customers are located and what they order and when, and ask yourself what mode of transportation offers the best combination of price and environmental impact. You also might be able to identify customers who are willing to accept shipping that’s slightly slower but significantly greener or to create new markets by promoting your goal of carbon-neutral delivery.
Ideas like these could generate new value, whether through cost savings, growth, or both. When your conclusions point you in a positive direction, create a pilot project and monitor its results. If they seem promising, scale up from there. Then repeat the entire process in another area in which you think you can improve.
A path to a more sustainable business, paved with data
The Nows’ experiences suggest that more attention to data creates better results. Committing to concrete KPIs like reducing your energy bills by X% each year or becoming carbon-neutral by 2030 helps define the data you need to meet those sustainability goals and also keeps you focused on how to apply that data in ways that contribute materially to business results.
This process is circular, not linear. The Nows are a good example: Instead of waiting for perfect sustainability data, they act on the data they have. The more they do, the more data they gather, which helps them to both improve the quality of their data and drive even more useful and relevant actions over time.
As early movers that act despite having some insecurity about their data, the Nows are establishing the rules for their industries about the data that matters to sustainability and how best to collect it. As early adopters often do, the Nows are bearing the burden of building the proverbial plane as they fly it, but they also get to create customer expectations about sustainability and value. That positions them to meet those expectations sooner. And, as the survey results show, their ability to act faster is helping them become more profitable and successful.
In other words, the lesson offered by the Nows when it comes to sustainability data is that data doesn’t have to be perfect to deliver great benefits for both the planet and the balance sheet.