As part of our ongoing coverage of environmental, social and governance (ESG) trends, this Insights post provides a mid-year update of trends in the ESG accounting space and a look at how SAP solutions for ESG management are continuing to evolve.
Some of the key trends we see include:
- Corporate CFOs have moved into a key role in driving ESG management, accounting and reporting initiatives
- The global ESG regulatory environment continues to mature, including enforceability mandates
- End-to-end collaborative ESG management is expanding to integrate data and goals from vendors, supply chain and customers
- Companies are seeing the value of proactive ESG initiatives as key to business success, going beyond just regulatory compliance
CFO's Taking Lead Role in ESG
As companies first started to grapple with ESG, some organizations opted to create new "sustainability executive" roles to oversee their programs, which had the advantage of putting a high level spotlight on the seriousness of their corporate commitment. However, as ESG requirements become more tangible, with detailed data collection, analysis and reporting moving to the forefront, most companies are now looking to the Office of the CFO as the logical choice for implementation leadership. CFOs, in collaboration with IT departments, have emerged as the default team for transforming ESG from a high level commitment to actual systems and processes for achieving success.
According to a BDO Survey of CFOs, "In a sign of increasing program maturity, 53% of CFOs say they have embedded ESG principles into their core business strategy or are actively working to do so, compared to 33% in 2023. CFOs play a critical role in these efforts: 42% say their involvement in strategic conversations about sustainability will increase over the coming year."
Global Regulatory Environment Maturing and Expanding
Timelines to comply with the European Union’s Corporate Sustainability Reporting Directive (CSRD) are fast approaching as large non-EU-based companies with significant EU operations will need to report on 2025 data starting in January 2026. Not only will CSRD directly impact the ESG reporting requirements of over 50,000 companies; it will also have cascading effects for all entities that do business with these companies. The CSRD requires disclosures based on double materiality — assessing impact and financial materiality — and also requires that companies adopt the European Sustainability Reporting Standards (ESRS). Going forward, third-party assurance also will be required.
The International Sustainability Standards Board (ISSB) has issued its first climate focused regulations, IFRS S1 and IFRS S2, which are built on and consolidate the TCFD recommendations, SASB Standards, CDSB Framework, Integrated Reporting Framework and World Economic Forum metrics to streamline sustainability disclosures.
In addition, the US Securities and Exchange Commission (SEC) issued its proposed regulation on Climate-Related Disclosures and ESG Investing. With a focus on assuring that companies' ESG disclosures provide accurate information, the SEC has also established an Enforcement Task Force to "identify potential violations including material gaps or misstatements in issuers’ disclosure of climate risks".
Enterprise-Wide ESG Management Capabilities Evolving
In parallel with the fleshing out of global compliance requirements, the evolution of software and accounting solutions for gathering, analyzing and reporting ESG data has also kicked into high gear. As an SAP partner for over 28 years with a deep focus on the office of the CFO and financial compliance processes, Bramasol is closely involved with SAP's proactive actions to deliver comprehensive ESG and carbon accounting solutions.
As summarized by Christian Polivka, SAP Director of Sustainability Solution Management, "SAP software touches 90% of day-to-day global commerce. So it's very likely that the data you need is either accessible or already available in your SAP system. SAP Sustainability Control Tower unlocks the inherent power of this data and makes it transparent so you can record, report, and act on your sustainability goals."
With ESG now in the spotlight, various stakeholders are looking for companies to provide more public information on sustainability. Investors want to know your risk exposure to climate change. Customers want products to have a minimal carbon footprint, to be ethically sourced and to be produced without waste.
Ultimately, you need to manage your green line, just like you manage your top and bottom lines. SAP characterizes this journey as the move from averages to actual. The end-to-end SAP systems for ESG are designed to deliver accurate, auditable, and reliable financial and non-financial data, along with the insights from that data that companies need to make specific changes to the way they run their businesses.
The SAP Sustainability Control Tower is a major step forward that enables companies to pull together their entire ESG landscape in a unified picture with end-to-end ESG transparency and enterprise-wide sustainability management. Key elements of the SAP Sustainability Control Tower architecture include:
- Record: Actuals instead of averages - Capturing all ESG factors with out-of-the-box integration across SAP systems for granular data visibility based on actual data.
- Report: Audit-ready sustainability metrics - Providing regulatory compliant sustainability metrics with an open and extensible solution that maps seamlessly to the requirements of multiple ESG standards and reporting mandates.
- Act: Sustainability embedded in business processes - setting actionable targets, monitoring and improving progress, and driving sustainability impacts at scale.
With SAP Sustainability Control Tower, you can integrate seamlessly into live SAP systems like S/4HANA to instantly create audit ready data and connect finance, HR and supply chain structures to provide key sustainability metrics. Right out of the box, you can bring a sustainability data fabric to life, which allows you to efficiently respond to common standards for voluntary and mandatory reporting.
Business and Societal Benefits of ESG Management Are Becoming More Tangible
If we look back at the adoption of ESG management processes by companies around the world, it is clear that new regulations have played a key role in the initial uptake, however companies are also seeing major benefits beyond simply complying with ESG mandates.
By prioritizing ESG and adopting proactive strategies, large enterprises can enhance their reputation, resilience, and value in an increasingly ESG-focused business landscape. Some of the tangible benefits of a robust ESG sustainability program include:
- Top-line Revenue Growth - by attracting customers and partners with more sustainable products and services that meet their growing demand for environmentally responsible corporate offerings.
- Cost Reduction - by achieving lower energy, water and materials cost and avoiding wasteful manufacturing, packaging and shipping practices.
- Employee Commitment and Productivity - by boosting motivation, attracting talent, and enhancing corporate culture around shared commitment to environmental excellence.
- Leveraging Regulatory Compliance - by attracting investment from funds and individuals who view ESG as a core value and by avoiding fines and sanctions.
Summary
In our extensive work with companies on implementing subscription-based Digital Solutions Economy (DSE) business initiatives, the Bramasol team is seeing increasingly more need for quantifying and managing end-to-end sustainability requirements across complex, multi-faceted, bundling, partnering, licensing and delivery scenarios. ESG considerations have become a key aspect of virtually every digital transformation project as we help companies with their journeys toward implementing SAP S/4HANA.
As the full SAP ESG ecosystem has taken shape, companies have access to huge amounts of relevant , integrated data across multiple internal and external operations. Now, the most important aspect is focusing on how you act based on the data and the key insights you have available. You can bring new sustainability practices right into your key business processes and functions at scale.
The Bramasol team agrees with SAP's view that sustainability is a team sport. With your commitment and our technologies, we can create a sustainable world together. The future of the planet depends our success.