Ubi concordia, ibi victoria. Where there is harmony, there is victory. This Latin proverb is particularly relevant to my vision for holistic steering and reporting.
Connecting financial and non-financial metrics is key to comprehensively analyzing all dimensions of a company’s performance and working towards their integration and harmonization. This in turn provides the foundation for better balanced management decisions and drives business success while creating a positive impact on people and the planet.
In the 15th century, Luca Pacioli, an Italian monk, musician, and mathematician, discovered the concept of double-entry bookkeeping, which became the basis of modern accounting. However, over 500 years later, accounting could use an addendum. Today, tracking and reporting must include economic performance along with societal and environmental performance. Moving beyond traditional balance sheets and profit and loss statements provides meaningful and holistic insight into the total value creation of a business entity.
These demands make sustainability a CFO imperative. Globally, business leaders are recognizing that a separate sustainability strategy will no longer suffice. Instead, companies must ensure their entire business strategy is sustainable. Companies that embed sustainability into core business processes consistently outperform their competitors and will only continue to do so in the future. Measuring business sustainability enables companies to gain higher profits which result from greater cost efficiency and revenue growth by addressing economic, social, and environmental considerations in a holistic, integrated manner. The business community sees value in considering environmental, social, and governance (ESG) issues in strategic and operational decision making, but it still needs to execute on this vision. The journey has just begun.
Digital technologies support and accelerate this journey by playing a fundamental role in delivering the visibility and velocity required to inform and drive better business decisions through embedded, validated, real-time data. Visibility into relevant metrics across every line of business equips companies with the insights required to comply with new regulations, safeguard their license to operate, meet increasing stakeholder expectations, cut costs, and recognize opportunities for innovation and business transformation.
The deployment of digital technology solutions also enables the velocity required to execute large-scale transformations, based on holistic steering and reporting. Technology’s ability to quickly and effectively measure and value green and social dimensions will help accelerate the shift towards an inclusive, low-carbon, and circular economy. Moving forward, a digital transformation architecture and roadmap that enables sustainability efforts will become fundamental to every company’s business strategy.
To help our customers power organization-wide sustainability practices in reporting, SAP recently announced a portfolio of new sustainability-specific products, including the SAP Sustainability Control Tower (SCT). The SCT solution will enable companies to report against metrics, such as the Stakeholder Capitalism Metrics, supported by World Economic Forum (WEF) Metrics, Value Balancing Alliance, and more. This solution offers a greater degree of granularity in reporting and a higher level of transparency around ESG performance. End-to-end visibility and real time data provide business leaders with insights to identify levers and options for driving corrective and enhanced action that take financial, social, and environmental valuation into account.
At SAP, we have been measuring our progress holistically and connecting financial and non-financial data since 2012, when we merged our sustainability and annual reports into an integrated report. However, full visibility into the entire value chain and the capability to scale across business networks requires an actionable and standardized methodology.
In 2019, this recognition inspired SAP to become a founding member of the Value Balancing Alliance (VBA) and contribute our experience, along with 20 other like-minded, multinational companies, to shape a “new accounting” system. The alliance aims to develop a standard for measuring, monetizing, and comparing the value of contributions made by businesses to the economy, society, and the environment. Assigning a monetary value or a “social cost” to various categories creates a comparable, inclusive data set that can guide business leaders as they make strategic decisions to impact long-term sustainable change.
The first pilot program took place last year and included 11 companies across 7 industries. At SAP we focused on our complete operations and supply chain, testing specific indicators, and translating non-financial metrics into comparable financial terms. Based on SAP’s 2019 data, we found the negative impact of our GHG emissions was monetized at €182 million, and a positive impact from our global employee training programs was valued at €1.3 billion. Such insights allow us to compare the potential costs and benefits of climate initiatives and training programs. The results of the pilot program provide evidence that the VBA can help companies optimize their value chains, achieve better business outcomes, and enable information sharing that supports large scale systemic change across regions and industries.
As a global community, we have reached a tipping point. The successful businesses of tomorrow, those equipped to navigate the world’s most pressing challenges, will consider financial and non-financial metrics before making critical business decisions. Through the power of digital technologies, we can ensure the visibility and velocity required to effectively expand the scope of corporate reporting and execute sustainable business steering at scale.
With an updated approach to holistic steering and reporting, one that considers ESG metrics alongside traditional financial metrics, business, society, and the planet can all emerge victorious.
Luka Mucic is an executive board member and chief financial officer at SAP.