Truly Sustainable Businesses Gain a Competitive Advantage
Feature by Heather Davies
Ahead of the UN Climate Change Conference COP28 in Dubai, UAE, SAP Insights has released the results of its Wave 3 sustainability study. The research reveals key insights for businesses scaling their environmental efforts and builds on survey findings from 2021 and 2022.
While Wave 1 served to benchmark companies on their sustainability journey, Wave 2 identified a maturing approach to embedding sustainability across business processes. Results from this latest study show truly sustainable businesses – those that have established sustainability as part of business strategy and operational decision-making – achieve a genuine competitive advantage. In addition, more respondents than ever see a stronger positive relationship between sustainability and competitiveness with 72% believing sustainability contributes towards their competitive differentiation.
“We see in the research how many companies are shifting to view sustainability no longer as a regulatory compliance tactic, but becoming more of a strategy to actually build business value,” Sarah Dziuk, SAP Insights Head of Research, said.
The study includes results from 4,750 respondents across 21 nations and 29 industries. Eighty-five percent of responses came from midmarket businesses (under US$1 billion annual turnover) and 15% from large enterprises (over US$1 billion turnover per year).
Making More Leaders Accountable
A key finding in Wave 3 was that businesses making the connection between sustainability and competitiveness make more leadership roles accountable for sustainability. This allows for a broader span of control and more accountability. The most competitive companies tend to have more than one top action taker such as a chief sustainability officer and an environment or sustainability manager.
“Our experience suggests that success is more likely when executives empower [their] organizations to engage proactively and strategically hold them responsible for creating measurable impact. Only then will companies be able to maximize the value at stake from their sustainability initiatives.”
McKinsey
Improving Data Quality
Becoming an intelligent, sustainable enterprise requires regular, reliable, and accessible data. With the majority of emissions sitting within a company’s supply chain, shareability across business networks is also essential for meaningful decision-making. Unfortunately, many companies still rely on estimates and assumptions, many of which they gather manually.
Highly sustainable organizations have a solid focus on the quality of their sustainability data. Quality data comes from primary sources that track actual emissions, waste, and other elements. Unsurprisingly, this leads to more satisfaction with the data. The companies with the most substantial connection between sustainability and competitiveness report the highest level of satisfaction with overall data quality – 47% compared to just 10% of other organizations.
Reliable data is more useful in determining strategy. Forty-one percent of respondents indicate strong data usage to inform decision-making. They also integrate data into more business processes and operations such as procurement, product labeling, selecting M&A opportunities, and recruitment.
“The way we report on environmental data needs to quite quickly go through the same journey that accountancy went on many years ago.”
S.Oleum, a Brazilian agroforestry business that generates a third of its revenue from carbon credits, has implemented several SAP software solutions to help track and manage its environmental, social, and governance (ESG) data. Having a robust core system in place serves as a basis for all other processes and decision-making, as well as provides the accountability, transparency, and confidence it needs.
Quality data is the cornerstone of Catena-X, a program that allows the standardized exchange of carbon emissions data in the automotive industry using interoperability standards established by the WBSCD Partnership for Carbon Transparency (PACT). This lets businesses share product carbon information, promoting transparency throughout the supply chain, accelerating their journey to net zero, and making them more competitive in the process.
Sustainability as a Business Strategy
The top 25% of businesses reporting the strongest impact from sustainability reported that they treat sustainability as any other strategic pillar, on a par with IT for example. This has resulted in a much higher use of metrics for decision-making, increased investment, higher data satisfaction, and higher confidence of a return on investment in a one-to-three year period.
It has also led to positive business impacts including growth and improved profitability, increased efficiency, better quality products and services, and reduced costs, suggesting a truly sustainable business is more robust and resilient.
With clearer business imperatives, companies make investment decisions to drive business value. They invest in sustainability initiatives and can set realistic expectations of a positive financial return on investment in a shorter time frame, putting sustainability on a comparable timeline with other investments.
Linking Sustainability to Competitiveness
Companies are motivated to take action on sustainability when they see it as a genuine opportunity for differentiation and revenue growth. This leads them to make more people responsible for delivering on sustainability strategies and renders the barriers typically encountered earlier in a company’s sustainability journey, such as funding and concerns over ROI, less material.
It is interesting to note that in the UAE, where sustainability has been promoted at a country level as being as crucial for differentiation, a high proportion of companies (nearly 74%) are planning to increase their investment in environmental issues over the next three years.
The commitment to investment and lack of skepticism around sustainability in the UAE leads businesses there to report a significantly higher than average level of satisfaction with data – 36% are completely satisfied compared to 23% in the rest of the global results. More of these businesses, therefore, use reporting for decision-making, which is viewed more materially and results in decisions being taken more quickly. A positive relationship between sustainability and competitiveness is the culmination of these favorable indicators, allowing them to outshine their competitors in their sector.
Conclusion
The Wave 3 study results are clear: reacting to sustainability initiatives and demands isn’t adequate to gain a competitive advantage. Companies must invest in and treat sustainability as a key business strategy to unlock opportunities. In doing so, they will set a virtuous circle in motion where investment in accountability and better quality data drives more strategic decision-making and further investment. This benefits the company as a whole, making it more efficient, profitable, and robust in the face of the changing climate.
