Environmental, social and governance reporting using SAP profitability and performance management

As sustainability initiatives continue to play a prominent role in many organizational strategies, so does the need to ensure that these initiatives are integrated with financial aims. Beyond targets themselves, a value-informed consumer environment is seeing more businesses talking about “purpose” in their corporate statements. They are also setting out visions that integrate financial aims with social and environmental goals.

On the opposite end, according to Morgan Stanley Capital International (MSCI), companies with higher ESG scores tend to operate more efficiently. They also experience lower costs of capital compared to companies with poor ESG scores.

However, transitioning to more sustainable processes is not trivial or cheap. Business controllers need to carefully assess the impact of the “green revolution” on staff, processes and finance across the enterprise. Many CFOs are wondering how much it costs and what are the risks and rewards associated with it. There is a strong link between finance and sustainability planning.

As many companies begin their sustainability journey, the growing number of accounting standards complicates progress measurement and reporting. For multinationals, navigating diverse regulations across regions adds another layer of complexity.

More sophisticated ESG reporting

Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and the Taskforce on Climate-Related Financial Disclosures (TCDF) are just some of top emerging reporting needs.

These complexities have prompted companies to explore more comprehensive reporting solutions to help streamline the reporting process and provide customers, investors and regulators the transparency, auditability and consistency they need. This step is critical to build trust with all customers and business partners.

In most companies and despite efforts, reporting of ESG factors suffers from considerable shortcomings that undermine its usefulness, resulting in the low trust scores. Evolving regulation, fast-paced business changes, siloing of data, lack of automation and comprehensive and quantifiably useful output are all issues that impact clear reporting.

While ESG reporting is challenging, SAP is no stranger to complex reporting. SAP is the global ERP leader with emphasis on finance and reporting, where, like in ESG, different standards, methodologies and regulations apply.

Building upon this experience and recognizing the necessity to act, SAP has already invested heavily in creating solutions for sustainability reporting. Organizations can leverage these solutions to support all areas of sustainability reporting and planning.

1. SAP Sustainability Control Tower: A recently launched SAP comprehensive solution that contains, among other topics, predefined content for reporting World Economic Forum metrics. SAP Sustainability Control Tower is based on SAP Business Technology Platform (BTP) and leverages SAP Analytics Cloud, SAP Data Warehouse Cloud and (optionally), SAP Profitability and Performance Management.
2. SAP Profitability and Performance Management (PaPM): A gross selling solution in the market for the last 5 years that contains ESG reporting content such as:
   • Corporate Sustainability Management
   • Financing and Investment Sustainability Management
   • Value Chain Sustainability Management
   • Production Quality and Sustainability Management

SAP PPaPM was originally built to handle granular profitability modelling and reporting. Technically, it is a similar exercise to sustainability reporting when we swap currency amounts for carbon emissions. It needs to gather data from transactional systems (especially the general ledger), operational systems and market data then perform complex methodologies to generate the reporting.

SAP PaPM can concentrate finance and sustainability data, allowing companies to identify relationships and make more informed decisions that consider both financial and ESG key performance indicators.

Understanding that there is a strong link between profitability and sustainability, we believe that clients should have perspectives that link one to another.

For early adopters, at the time this article was written, SAP Sustainability Control Tower is a recent solution with a promising roadmap. It also includes SAP Profitability and Performance Management (PaPM) as an optional component.

For more conservative customers, we recommend leveraging PaPM’s comprehensive capabilities to start sustainability reporting as it has more flexibility and use cases beyond ESG that help the business case value.

As SAP Sustainability Control Tower develops, the step already done with SAP PaPM can be used to accelerate the SAP Sustainability Control Tower implementation.