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Links: Sustainability, Measurement and Software Solutions – Part 1 and Sustainability, Measurement and Software Solutions – Part 2.

The previous two blogs in this series: provided reasons Sustainability, Measurement and Software Solutions – Part 1; and described Sustainability, Measurement and Software Solutions – Part 2, concluding that much of the information that is needed to measure the cost and impact of sustainability investments can often be derived from business software that a business runs.

This third and final blog in the series examines approaches for measuring the cost and impact of sustainability investments in more detail and how software solutions such as Business Suite 7 help a business make easier, faster and better sustainability decisions.

Measuring sustainability cost and impact

One way of measuring the cost and impact of sustainability initiatives is from the perspective of the Triple Bottom Line. Put simply, this requires a business to seek achievement of its objectives in three ways:

  • People e.g. ensuring the business meets the needs of and treats fairly the people who work for them and the community in which it operates. This often extends to the supply chain – see the example in the Sustainability, Measurement and Software Solutions – Part 2 of Nike who significantly improved the working conditions of the people who manufactured their products mainly in the far-east
  • Planet, e.g. minimizing the impact on the environment in terms of waste generated and non-renewable resources consumed. See, for example the sustainability and waste reduction efforts of Interface Inc. in the Sustainability, Measurement and Software Solutions – Part 1
  • Profit, e.g. the need for businesses to generate profits so that they can thrive and therefore continue to employ the people that work for them and support the community in which they live. Generating less waste and using less energy can both reduce costs. Products and services that are viewed as being created in a sustainable way can increase sales.

The impact on profit can be measured by estimating the effect of a sustainability investment on a company balance sheet. Accounting standards such as country specific or “local” Generally Accepted Accounting Principles (GAAP) standards, that are being replaced by the International Financial Reporting Standard (IFRS), are quite mature and provide standard ways of presenting financial information that allows comparisons to be made.

Measuring the impact of People and Planet objectives is harder. Wal-Mart and British Telecom, as mentioned in the Sustainability, Measurement and Software Solutions – Part 1, are two examples of businesses that want to make their businesses more sustainable by using more sustainable suppliers. Businesses like these want to compare one supplier with another and make a judgment on which supplier to use based, in part, on the ability of that supplier to help them best realize their own sustainability goals. This requires suppliers to provide data not just on the cost, quality, level of service, etc. of their products and services they provide, but also data that demonstrates the extent to which they have set and are achieving “People” and “Planet” objectives.

At the corporate level, the Global Reporting Initiative (GRI) provides a reporting framework that is widely adopted by companies, such as SAP, for reporting their sustainability performance. GRI rates companies on the way their sustainability reports are prepared. This provides a good way for a business to publicize its sustainability initiatives and can be used as an indication of the intentions and practices of a business in adopting sustainable business practices.

Companies can also be compared based on their adherence to regulations such as for product safety or environmental, health and safety. There are also a few standards, such as the Greenhouse Gas Protocol, that provide quantitative measures on the greenhouse gases consumed by a business that allow, for example, comparison of the carbon footprint of one business with another.

But the general direction is to assess sustainability at a more granular level. For example, the Greenhouse Gas Protocol is developing standards for calculating the greenhouse gases generated by individual products across the whole supply chain. This will require calculations based on the actual resources and processes used in manufacturing, transport/distribution, and retailing – much of the base data needed is already stored in SAP solutions.

Given the increase in the number of regulations that focus on sustainability, the increased demands for transparency in business practices that have arisen from the world-wide economic problems that started in the last quarter of 2008, and the risks to share prices from sustainability related adverse events such as happened with Mattel and Nike that were described in the Sustainability, Measurement and Software Solutions – Part 2, the author would not be surprised to see the introduction of statutory requirements for sustainability reporting for publicly quoted companies that mirror the statutory requirement for financial reporting that exists now.

To remain competitive, a business will need to provide their business partners, and probably regulators, more information on the sustainability of their business processes and the products/services they create. Much of the data used to calculate this sustainability information will come from data already held within SAP solutions. As a simplified example, if you combine the transportation/shipping movements recorded in SAP solutions with the energy/fuel used by the different types of operations, then you can calculate the carbon footprint associated with those movements.

Business Suite 7 – Operational process support and analytical capabilities combined 

SAP has recently announced both an increased long term strategic focus on sustainability, and Business Suite 7 which embeds analytical capabilities with support for operational processes. SAP also has Environmental Health and Safety solutions that can be used to help ensure compliance with government regulations and Governance, Risk and Compliance solutions for managing risk.

This combination of analytic, regulatory and risk management capabilities in one solution, rather than as separate functionality, should mean that less work is required to understand how a business is performing and so make it easier and faster to make better decisions – including decisions on sustainability investments.

So to sum up, businesses are going to need to become more sustainable to reduce costs, meet competitive pressures, and to comply with regulations. However there are always limited resources available for any investment in sustainability, therefore a business needs to make decisions, or at least prioritize, on where to make those investments to maximize the Triple Bottom Line.

Although intuition is always part of any business decision, it is no substitute for the insight into the impact of a decision that is based on an understanding of how a business is performing and the risks that it faces that is derived from an analysis of data from operational systems.

Standards and regulations have a role to play by making it easier to determine the impact of a decision, and to compare the sustainability practices and performance of one business with another. Eventually there may even be a need for statutory reporting of a business’ sustainability.

Finally a solution, such as Business Suite 7, that combines analytical capabilities and support for operational processes as well as solutions for environmental health and safety, and governance risk and compliance, should result in easier, faster and better decisions on where to make investments on sustainability.

Links: Sustainability, Measurement and Software Solutions – Part 1 and Sustainability, Measurement and Software Solutions – Part 2.

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3 Comments

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  1. Anbazhagan Sam Venkatesan
    Hi David,

    The series is quite a comprehensive and interesting.
    My thoughts in order to join your league!
    With respect to CSR activities there seems to be four types:
    One, that is taken up foreseeing a prospect, similar to bringing up a child;
    Two, taking a corrective action because of an omission in the past and
    Three, an action taken up purely due to non-monetary reasons.
    Fourth, the regular.

    The first type
    1
    Recently I happened to attend a workshop on up-gradation of Industrial Training Institutes (ITI) under the Public-Private Partnership, a scheme promoted and facilitated by the Directorate of Employment & Training, Government of India.
    This is relevant to Indian context. It appears to be applicable to several developing nations too. In some way it may be relevant to developed nations too.

    2
    Government of India have very thoughtfully taken note of the workers in the unorganized sector doing unskilled job who learn the work on the job only. But in the changing economic and social scenario, their contribution also gains significance and that their well being may have to be recognized for sustaining the business.
    It is being considered that skill level of all workers must be raised and those who are entering the work force must be skilled to a reasonable and better level, for the benefit of both, the industry and the individual worker.
    They have come up with a National Skill Development Policy in order to address the issue in a comprehensive manner in the next 13 years and thereafter too. http://labour.gov.in/policy/NationalSkillDevelopmentPolicyMar09.pdf

    Some related reading materials are at the following address too:
    http://www.ilo.org/public/english/region/asro/newdelhi/download/skills_dev_policy.pdf
    http://www.norrag.org/pdf/Paper%2011.pdf

    3
    In response to the call, companies are coming forward to form what is called Institute Management Committee as a legal entity under a suitable national Act and their agenda for action is to improve the functioning of the selected ITIs in their vicinity, with initial fund from the Government. Such actions by a company may be the first type.
    4
    Thinking on the above movement, it appeared to me that if the business process in every company- there are so many of them- is mapped and understood with the linkages to all the stakeholders’ needs and expectations and as in this particular case, the role of training of people outside, it would enable sustainability of the business.
    5
    Hence a CSR proposal, it appears, preferably be, with a visible link in the business process and if BS-7 is enabling such decisions, it would in a good measure better for businesses to adopt BPM.

    The second Type
    A company secures license to operate by incorporating all the activities necessary for the business as well as those required by the licensing authorities. But while commissioning and in due course of time of operation, certain things would take less priority and lead to an action of imposition by the regulatory authority. Actions now taken, whether for environment or for the nearby society, becomes a corrective action. Such actions may be outside the software solution, I wonder.

    The third type
    For example, nearby a factory a church was located. The factory is situated west side and the church in the east side. The wind is eastwards. There was a gradual de-coloration of the building and it became necessary for the factory to restore the color and renovate it every year too. This was done very willingly by the company. This may show that not all measures could be assigned some monetary value; but they still get the nod of the management. There must be room for deviations however much we may rely on software solutions to be more responsive, it appears.

    Sam Anbazhagan

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    1. David Burdett Post author
      Thanks for your comments Sam.

      Your examples nicely demonstrate the different motivations a business can have for adopting “sustainability” initiatives which can vary as much the people who run and manage it.

      They can be a response to a worthwhile government initiative such as the Indian “National Skill Development Policy”; in response to new regulations or laws; for the good of the community – e.g. painting a church every year; or simply to generate more profit.

      Making a decision on a sustainability initiative isn’t fundamentally any different from any other decision a business makes – you need good information on how your business operates so that you can make an informed decision. This means you need to understand your business processes, know how (and how much it costs) to change them and have the resources (people, cash and partners) as well as the tools required to improve them – which can include BPM.

      I think that what you’ve demonstrated in your comments and, hopefully, I’ve demonstrated in the blog series is that decisions around sustainability can’t be ignored as the downside, as well as the upside, can be significant.

      For example, in the US, I think there is a reasonable probability that a factory whose emissions were altering the color of the paint on a nearby church so that it needed painting every year would be subject to a lawsuit 🙂

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      1. Anbazhagan Sam Venkatesan
        Thank you, David.
        I like to share another finding and the source as I am still lingering around thoughtfully!
        *
        When corporations take up CSR activities in connection with subjects which have linkage to a company’s business process the benefit undoubtedly seems to be for both the parties.

        One such subject is SME development.
        We all know the linkage of SMEs to the large companies.
        Some of the renowned companies have taken up development of SMEs as part of their CSR and have reaped rich results it seems. It is very interesting to read their case studies presented by UNIDO.

        There is the case of Deloitte Touche Tohmatsu: Business Equity Initiative, as that of many other companies too.

        There is also the case of a bank implementing ‘lending’, the core process of any bank, with CSR slant and by lending to micro-finance institutions (MFI) in large scale, it has done good to the community as well as to the bank! This is the case by Deutsche Bank: Microcredit Development Fund

        These case studies seem to prove how the CSR activities have had good impact on the shareholder value also.
        The quest by Gretchen Lindquist in another blog still rings in my mind.
        These cases studies may provide an answer I feel.

        Interesting and rich detail  is available at the following source:
        http://www.unido.org/fileadmin/media/documents/pdf/Services_Modules/csr_partnerships_UNIDO_UNDP.pdf
        May like to visit, please?

        Sam Anbazhagan

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