Dave Fellers: A big term, carbon accounting, is taking on more prominence and it relates to the increasingly tangible and disciplined methods for enabling companies to accurately identify, analyze, and report the carbon footprints and impacts throughout their value chains. This is something that’s going to become part of audits, part of disclosures, part of the financial oversight metrics that are going to look at for companies and their performance. In essence, we’re seeing global sustainability initiatives expanded to become both wider-reaching to encompass all their activities and more granular to collect hard data relating to specific factors. That’s really the key thing here, real measurement and repeatable measurement.
Jim Hunt: So, stepping off from that point, Dave, as there’s a need to get more granular to collect hard data, especially in the SAP environment, what are some of the tools and methods that you see emerging?
Dave Fellers: Great question, Jim. As a long-time leading partner with SAP, we are tracking a number of the initiatives within the SAP ecosystem that relate to sustainability and carbon accounting. Just within the last year in September of 2021, SAP announced the availability of their Product Footprint Management solution, which enables companies to calculate their carbon footprints for products, including vendor and supply chain footprints, which is important because a lot of the sustainability rules are looking to companies to not just report on themselves, but to look at their supply chains on the front end and their customer side on the back end. The PFM, the Product Footprint Management solution laid the groundwork for making their organizations and products more sustainable as well as collecting the hard data needed to for disclosures and reporting. And even though regulatory reporting requirements were only beginning to evolve at that time, this SAP initiative enabled companies to start understanding their carbon footprints and to begin accumulating relevant data and developing analysis methods. It parallels some things that have gone on in industries really in some cases for decades, such as in oil and gas, but this is bringing a whole new level of rigor and power into the into the information system side of things.
Jim Hunt: Yeah, as it so often happens, SAP starts to put some pieces in place in relation to their overall ecosystem to help start collecting data. And that sounds like what PFM has done. I know there’s been some big initiatives since then to kind of pull it together. Can you describe how the SAP tools are evolving and expanding?
Dave Fellers: Yes, absolutely. The SAP tools are constantly evolving and expanding. This is a big initiative for SAP to focus on the sustainability area. So the Product Footprint Management solution set is coupled with ongoing evolution in the regulatory environment. And SAP is progressing on this front to create even more comprehensive solutions that pull all the pieces together. So even more recently, just in December, a new tool set called the SAP Sustainability Control Tower was released. The SAP Sustainability Control Tower addresses fragmented financial reporting head on by giving companies tools to extend their top and bottom line optimizations to the “green line” based on the sustainability KPIs. So this is really helping to start pulling together the goals companies will have, the standards that will be set for them, and giving them the tools to help measure and track how they’re doing.
Dave Fellers: So using this data-driven approach, businesses can now embed sustainability throughout their businesses, and gain actionable insights across the value chain to enable transition to low-carbon business processes. Because clearly companies, as they come to learn how they’re doing, are going to need to take action to improve their scoring. With the Sustainability Control Tower approach, users can drill down into strategic areas within the company and across a business network, to make informed decisions based on financial and pre-financial ESG indicators, and optimization can then be made between costs and greenhouse gas emissions. So that’ll be critical for corporations to support the initiatives that governments and regulatory agencies are looking for.
Jim Hunt: It sounds like a really exciting umbrella piece that pulls it all together. But then, you know, as we’ve talked about how the regulatory standards and reporting requirements are still developing, can you talk a little bit about how the Sustainability Control Tower relates to that evolution of new standards?
Dave Fellers: Absolutely. So the standards of course are going to continue to evolve. They’re still developing and there’s a lot still to be done to gain consensus and agreement within countries, across countries and geographies across industries on what can be measured, what goals can be set and what needs to be accomplished to achieve the goals of the world to manage climate issues. So, SAP has to have a tool set and the ability to react, and even provide leadership in this. So, the Sustainability Control Tower relies on the World Economic Forum Stakeholder Capitalism Metrics as a foundation, and that’s one of the bodies that is helping to set the standard. These can be applied by companies to align the reporting of performance against the ESG indicators, to include the nonfinancial disclosures centered around these four pillars, people, planet prosperity, and principles of governance. The Stakeholder Capitalism Metrics promote alignment among the ESG framework of which there were many data points that are comparable between companies, regardless of industry or region. And that’s critical to know that everybody’s onboard, marching the same direction to achieve these critical global goals.
Jim Hunt: You know, Dave, this kind of reminds me of seven to eight years ago when Bramasol and SAP were at the forefront of changes in the revenue recognition and reporting structure where the new standards had been adopted, but the details were evolving and companies really needed to lay the ground to stay ahead of the curve. It seems like we’re kind of in a similar, but even broader situation with sustainability.
Dave Fellers: Yes, absolutely. Jim. It’s a broader impact because you have so much more than just accounting data, which was one of the big issues that we faced a few years ago. These are standards coming out of manufacturing and other sources of creation of data points on what’s impacting the environment. And then you have different kinds of bodies, some which are being developed. As I mentioned earlier, the new standards board is being created to help measure this. Whereas, in the accounting world, some standard boards were established and we were just trying to wrestle with different ways to look at things. Now we’re trying to figure out who are the standards boards, and what will their mandates be and how will they cooperate with each other and, again, with governments and industries across the world.
Dave Fellers: So it’s going to be a very fluid situation for years to come. There obviously will be a lot of pressures on costs of how to manage this, and companies will wrestle with that. So even with the most good-willed intentions of doing everything we can, it will be hard to keep track of what new changes and requirements are coming, how to track it, how to match the goals, how to pay for it, and how to create investment in economic growth as well. Because it’s both a cost side, and also can generate new business opportunities. So there’s a lot of moving parts here and, coming back to Bramasol working with SAP, we have some experience monitoring and watching and being flexible and nimble, while constantly learning to support companies that need this help. Because there’s so much going on, you need to have somebody paying careful attention trying to decipher it all so we can make sense of it.
Jim Hunt: So, given that these new regulations are coming, sustainability is a really important global issue. What should companies be doing now to lay the groundwork, to get ready, to start understanding their environment and, prepare to respond and implement as the regulations evolve,
Dave Fellers: Absolutely. Companies do need to start responding. Now the good news is many companies in several industries have been looking at this, and in some industries, the importance of these kinds of topics is decades old, such as in the oil and gas industry, utilities, things like that. But there’s a whole new rigor and there’s a whole new accountability that’s evolving. So companies need to take a step back and take a serious look at what they need to manage, what they need to track, what they need to look at potentially changing in terms of how they do things to improve the results that they’ll achieve regarding the targets that would mandated on them or set as goals. So, like in any topic, you can never start too early. Companies need to start looking at this.
Dave Fellers: It’s going to have a big impact. And, Jim, you and I talked in the past about how, if you have some poor performance in this area, the impacts of the investment community can hit you hard. So companies already will feel some pain if they’re not on top of these issues. And, to get on top of them, the data will be key. It’s going to create a sound solid foundation for future reporting. You have to be able to capture as much discrete data as you can. You have to identify what kind of discreet data exists and where it comes from. Some of it will be data based on backward-looking baselines to know where you were, and then quantifying the changes the company’s sustainability profiles need to achieve going forward.
Dave Fellers: Again, and that entails an alignment with the different kinds of regulatory governmental industry pressures, or maybe even new financial pressures as investment community makes demands that go above and beyond what’s coming from government or regulatory bodies. One example is the utilities industry. These are issues they deal with all the time. There is huge pressure in that industry already to provide sustainability and green energy solutions. Some of the states in the U.S. That push this such as Californian are known for really pushing utilities to provide much more green energy than they did before, making it a very significant part of their operations. And not just a significant part, but a growing part to replace and eliminate the carbon energy models of the past. So there’s a lot of pressure there, and we’re involved in that for the companies that we work with in the utility industry and others.
Jim Hunt: Well, this has been a great overview, and I know from our past discussions that the whole issue of climate change and sustainability are near and dear to your heart and you take them very seriously, as do I. So I know we’re going to be talking more about this in the future, but I know our listeners got a good overview here. Any, any last words?
Dave Fellers: Yes, Jim. I think, you know this is an important area. This is something that transcends some of the other issues that we, as people on the planet face. We need to do the right thing because we see the growing evidence that our past behaviors are having negative consequences. Companies like SAP, and Bramasol are providing the tool sets to help companies manage and get a handle on this. At Bramasol, we’ve taken pride in being involved, in particular on the accounting and disclosure side of things. When it comes down to it, ultimately there’s a carbon accounting mantra that’s evolving where companies will need to report in reliable, predictable ways that investors and regulatory bodies can trust. Companies like Bramasol, who’ve been involved already will continue to play a key role in supporting ESG and sustainability initiatives
Jim Hunt: Well said. Good wrap up. I look forward to touching base with you on this subject again in the future, both in blogs and podcasts. Thank you very much, Dave. It’s been a great session today.
Dave Fellers: Thank you, Jim. Really appreciate it.