UK organisations are “overwhelmingly motivated” to take environmental action but face deep organisational accountability and KPI selection and tracking issues. That’s according to a global study of 7,000+ business leaders, including over 400 from the UK, conducted by SAP and shared on October 14 -- as the company hosted a panel discussion that emphasised just how much of a challenge improved sustainability practices like reducing raw material usage/taking a "circular economy" approach remain to most organisations.
More than a third of UK leaders (35%) today struggle to align their eco-commitments with their overall business strategy, while the same number (35%) are uncertain on how to effectively embed sustainability into business processes and its tracking into IT systems, the SAP survey found. It came as pressure from investors and regulators mounts on businesses to improve both their sustainability performance and their public tracking of efforts to that end; from cutting carbon emissions (Scopes 1-3) to minimising fresh water use.
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Investors are increasing their demands on companies to report their Environmental, Social and Governance (ESG) efforts more robustly. (Just this week Chevron added new details about its approach to emissions targets, under sustained shareholder pressure -- e.g. introducing a portfolio carbon intensity "PCI" metric that represents the carbon intensity across the full value chain associated with bringing products to market -- and noting in a revised sustainability report that "at this year’s Annual Meeting of Stockholders, the level of support for climate-related proposals indicated investors’ expectations for additional information and action.
Some $347 billion of capital flowed into ESG-focussed investment funds in 2020, with a further $490 billion raised via sustainability-linked bonds. A surge of ESG related regulation meanwhile – including 730 revisions across some 500 policy instruments over the past three years all point to a tipping point for companies.
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Yet as a panel discussion convened by SAP highlighted today (October 14), there are real issues still where the "rubber meets the road" -- ranging from who the sustainability lead reports to, via stark data disparities between materials upstream and downstream that make it harder to build a "circular economy" and beyond.
Yet to SAP's UK&I MD Michiel Verhoeven, there's a huge opportunity here for companies that can move fast: consumer demand for sustainable products and traceable supply chains has been growing ever clearer. And s he put it, pointing to a £36 billion addressable market for green products by 2025, he said: "We have an obligation [on climate change], there's more scrutiny than ever -- and there's also a huge opportunity."
Wouter van Tol, Head of Governance, Community Affairs, and Sustainability at DS Smith – the FTSE 100 packaging company -- noted that for many companies, knowing how to build their sustainability function and whom sustainability leads should report to remained a challenge. He said: "The sustainability function can be an uneasy one – where does it sit in the organisation? No organisation has found the perfect spot."
Noting that the buck ultimately stops with the CEO and board, he added: "The sustainability function should ideally make itself superfluous as soon as possible [by embedding sustainability practices across business lines.] I think keep the group small and make them Changemakers that allow the rest of the company to change."
DS Smith now recycles more materials than it produces but still requires some virgin fibres, he added. The company is targetting 100% recycled or reused packaging by 2030. One of the biggest challenges is ensuring downstream traceability mapping of all its packaging and establishing "universal standards" for the term "recyclable".
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To fellow panelist Dr Michael Groves, founder of Topoloytics -- a data aggregation and analytics business that aims to make the world’s waste visible, verifiable and valuable -- when it comes to the circular economy " our view is you won't get a scaled approach to maximising utility unless you get a systemic view of what happens to material once it’s left production facilities. We’re trying to build a systemic view of that downstream system to drive it back into production systems [by which you can get] significant cost savings."
Topolytics has been working with SAP on a "COP26 Waste Insights Project" which has seen it unify and analyse data from partners including DS Smith, BrewDog and Coca-Cola European Partners. As Groves explained: "We’ve deliberately focussed on the end of the pipe. We’ve got raw materials coming into a business, fairly well defined; a good level of accuracy in the data environment. But once that goes into the waste system, the way they define what that is and measure it is a completely different data environment. We’re trying to connect those two."
Peter Hopkinson, Professor of Circular Economy, Exeter Business School, struck a note of hard-headed pragmatism; emphasising that businesses need to see a reward from sustainability efforts. As he put it: "The linear economy has been hugely successful and effective. We’re up against a huge challenge. You have to offer a great deal to the consumer; appeals to altruism only get you so far. If you can make a great product at a lower TCO then you have a chance of shifting the dial. And we see some of this happening [including through] a business model where you can earn more by selling less: the future of transport is probably going to have to be Mobility-as-a-Service. You can’t get to net zero through EVs in the current ownership model."
SAP, meanwhile, believes the fact that its applications touch 77% of global transaction revenue and 88% of global supply chains mean it is set to have a powerful role in helping improve sustainability reporting, emphasising its ability to bring "data from across SAP and non-SAP into a single environment to provide advanced analytics on a wide range of ESG measures" and "generate automated, regular management and stakeholder reports on emissions with embedded advanced analytics and a clear audit trail."
(It's up against a growing ecosystem of nimble startups aiming to provide integrated dashboards for emissions data and other sustainability metrics, using APIs to plug into various ERP and other enterprise IT systems.)
Companies napping on their sustainability challenges meanwhile need to wake up; there's already huge demand for ESG talent and regulators will be nipping at their heels faster than many realise.