Digitalization as an ESG Success Factor

With the Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standard (ESRS), a uniform framework for the reporting of environmental, social and governance (ESG) indicators has been adopted. Companies' examination of the impacts, risks and opportunities of their own business model is intended to create transparency and the basis for sustainable action. Only with a tried-and-tested methodological approach will it be possible to define the relevant key figures, provide data and establish active sustainability management.

Digitalization plays a crucial role in the integration of ESG principles into companies' business strategies: This allows data to be efficiently collected, analyzed and used to measure, monitor and improve ESG performance.

ESG reporting

The desired transparency in the measurement and monitoring of targets is achieved through a high number of data points to be reported from all areas of the company in accordance with regulatory requirements. Only with the right software can the data be recorded and processed in sufficient detail to support those responsible in their management activities. It enables access to high-quality and standardized data with little effort. The SAP Sustainability Control Tower (SCT) offers the necessary processes and functionalities such as data validation, dashboards and print-ready reports.

With its clearly structured interface, the SCT is aimed directly at the specialist department: individual dashboards enable measures and targets to be tracked with plan/actual comparisons. The drill-down option allows access to detailed ESG KPIs. In addition to the standard ESRS KPIs supplied, specific control parameters can also be defined. The result is a sustainability report that meets the standard. The seamless integration of the required data sources and the SAP Analytics Cloud for detailed analyses and embedding ESG KPIs in corporate planning round off the overall package.

Data Management

A clear data management process for ESG reporting ensures that the data is provided in the required quality:

Successful data management combines clear organizational rules with technical integration. The definition of roles and responsibilities forms the basis for this. The clear definition of reporting cycles, identification of data sources and definition of key figures are the prerequisites for establishing a "single point of truth" for ESG data. The availability of quality-checked, harmonized data forms the basis for the necessary plausibility checks, data analyses and the establishment of an efficient control system.

Carbon Accounting

Greenhouse gas emissions, which form the basis for determining the corporate carbon footprint (CCF) according to ESRS, are among the most complex key figures. A distinction is made between emissions caused directly by the company (Scope 1), purchased indirect emissions (Scope 2) and emissions from the upstream and downstream value chain (Scope 3). These include, for example, purchased materials, transportation logistics and business travel. It is important to adhere to a suitable calculation method such as the Greenhouse Gas Protocol (GHG). In addition, the product carbon footprint (PCF) is becoming increasingly important in order to meet customer requirements and further regulations. With Sustainability Footprint Management (SFM), SAP offers a comprehensive and future-proof solution that makes it possible to determine the CCF and PCF at the level of energy consumption data, material movements and time confirmations using recognized emissions databases. Integration into the SAP ERP system ensures that the relevant data is obtained, while energy flow models ensure that consumption is allocated to the processes that caused it. Dashboards and drill-down functions enable a detailed analysis of the generation of emissions.

Operational processes

Active sustainability management means using the findings from ESG reporting to optimize corporate processes. These can be, for example, potential for reducing emissions, which can contribute to operational cost reductions. 

This includes the use of SFM data (emissions) in SAP S/4 to improve ESG performance: for example, in the supplier selection process, for transport optimization or the integration of EU taxonomy-relevant information in financial accounting. The mapping of new business models such as equipment-as-a-service or pay-per-use scenarios must be reconsidered from a sustainability perspective and offer competitive opportunities for companies.

ESG architecture

The optimal design of sustainability management requires a holistic ESG solution design. This is the only way to ensure the interaction of all processes and systems, from ESG reporting to operational accounting and vice versa. A GAP analysis is used to check the existing processes and systems for their expandability. The definition of a catalog of requirements supports the selection of software components. A company-specific ESG digitization roadmap is created on this basis. In preparation for the implementation project, it is advisable to set up prototypes using quick starter packages.

Conclusion

The integration of ESG principles into a company's business strategy requires a holistic approach that considers digital transformation and sustainability aspects simultaneously. Sound advice on strategy and digitalization supports companies in successfully mastering this challenge, gaining long-term competitive advantages and at the same time making a positive contribution to society and the environment.

Successful implementation requires a methodical approach that structures the company-specific "Road to ESG Reporting" and accompanies it with appropriate project management and the necessary quality assurance:

• Creating ESG awareness
• Stakeholder engagement
• Determination of the relevant data points on the basis of double materiality
• Target definition, derivation of measures, definition of control parameters
• Conception of data management
• Development of the ESG architecture and the digitalization roadmap
• Carrying out the IT implementation
• Enablement for ongoing sustainability management