Companies will need to start collecting more sustainability data under proposed SEC rules.

What is sustainability in business? The process, returns, KPIs and everything you need to know

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Sustainability is on a path to become part of daily business operations as challenges such as supply chain disruptions, inflation and the need for resiliency have made the business case more obvious.

At Celonis, we've been chronicling sustainable business and its evolution in the process economy regularly to keep customers informed. To that end, here's a look at everything you need to know about sustainability in business and recent process excellence trends.

What is sustainability in business?

Corporate sustainability encompasses a company's strategy to reduce negative environmental impact from their operations. Sustainability practices are usually gauged by environmental, social and governance (ESG) metrics.

Ensuring a sustainable business, as outlined by Celonis Academy's Sustainability Base Camp and Sustainability Business Bootcamp, has three core areas including sustainability dimensions, the interdependence of environmental, social and economic factors, corporate performance that goes beyond finance (planet, people, profit), and ESG frameworks designed to measure non-financial performance of companies.

Why is sustainability in business important?

Sustainability impacts all business operations belonging to both private and public organizations. Corporations are rethinking their processes and how they function to be more sustainable.

Climate change is increasingly impacting business by making energy, supply chains and operations more volatile. For business, sustainability is being driven by both ethical and financial considerations as well the need for resiliency. There are also regulatory considerations. For instance, the US Securities and Exchange Commission may eventually require climate disclosures.

According to a recent Ernst & Young report, 80% of senior executives are increasing their emphasis on ESG goals. Meanwhile, sustainability is also a key factor in winning customers.

In addition, a survey by IBM Institute of Business Value in collaboration with Celonis and Oxford Economics, 66% of surveyed Chief Supply Chain Officers (CSCOs) said sustainability is a core element of overall business value. More than half (51%) of CSCOs surveyed said they would be willing to sacrifice profit—on average 5% to improve sustainability outcomes.

What sustainability terms do I need to know?

ESG is the acronym often used with sustainability efforts. ESG refers to the following:

  • Environment: A company’s ethics and behavior on environmental sustainability (greenhouse gas emissions, resource use, clean technology, waste) to combat climate change

  • Social: A company’s ethics and treatment regarding people, workers and local communities (employee turnover, gender diversity, health, human rights)

  • Governance: Corporate policies, business practice and governance (tax strategy, corruption, incentive system, ethics, supplier code of conduct)

Other sustainability terms to know include:

Carbon Neutral: Any emissions released are balanced (neutralized) by removing an equivalent amount through purchasing carbon offset credits (avoidance & reduction offsets, e.g., biodiversity conservation, renewable energy projects)

Net Zero: Emissions are reduced and avoided as much as possible within a longer period; unavoidable emissions are then balanced through carbon removal offsets (e.g., carbon capture, reforestation)

Carbon Negative / Climate Positive: Emissions are absorbed more than emitted through carbon removal (technology innovation and investment)

Zero Carbon: No carbon emissions are being produced from a product/service (e.g., renewable energy; systematic innovation)

Science-based Target (SBTi): Best in class standard to set ambitious carbon reduction goals near-term (50% by 2030) and long-term (>90% by 2050)

What are the types of emissions tracked in corporate carbon accounting?

Human activity (e.g., burning fossil fuels, industrial processes or deforestation) is causing Greenhouse Gas Emissions (GHG), which accelerate global warming and impair health.

There is one unit to measure and compare emissions: Carbon Dioxide Equivalents (CO2E) measuring the global warming potential of GHG emissions (e.g., 1 kg of methane (CH4) = 84 kg of CO2E). The general formula to calculate emissions: activity components x emission factor (kg CO2E) = total kg of CO2E.

Business emissions are measured in three scopes, following the global standard named Greenhouse Gas Protocol. These scopes include:

  • Scope 1: Direct emissions from company facilities and vehicles

  • Scope 2: Indirect upstream emissions from purchased electricity, steam, heating and cooling

  • Scope 3: Indirect upstream and downstream emissions from purchased goods and services, capital goods, fuel & energy activities, transportation, waste, business travel, commuting, leased assets; processing & use of sold products, investments)

The majority of corporate emissions fall into the Scope 3 category.

What is the overlap between supply chain and sustainability?

Initially, supply chain and sustainability management efforts were distinct. Given supply chain disruptions and the need for corporations to become more efficient due to inflation, supply chain and sustainability improvements go hand-in-hand.

After all, the goals of supply chain and sustainability are often the same.

For instance, daily pallet and truck utilization not only saves money on fuel and labor, but also CO2E.

The International Transport Forum (ITF) estimates that international trade-related freight transport currently accounts for around 30% of all transport related CO2 emissions from fuel combustion, and more than 7% of global emissions.

More from McKinsey: Webinar: Process Transformation in Supply Chain |These 8 characteristics of resilient supply chains can give your business a competitive advantage

What are the returns on sustainability?

At Celonis, we're focused on the top line, bottom line and green line, which refers to sustainability returns measured in CO2E. Increasingly, sustainability touches every part of the enterprise value chain in businesses and is intertwined with efficiency.

Sustainability plays a role in the supply chain, procurement, production, logistics, inventory management and order management. Simply put, efficiency and sustainability equate to performance. For instance, use cases revolving around manual rework, automation, deliveries and optimized packaging all can drive energy efficiency and cost savings.

Companies are using sustainability management technologies to capture insights into the emissions of purchased goods and services, calculate emissions per process category and further integrate systems and data stores for transparency.

Via partnerships with Ecovadis, IntegrityNext and Planetly as well as a wide range of partners, Celonis is using its Execution Management System (EMS) to connect system data, processes and sustainability metrics to deliver green line value.

The goal is to align sustainability projects with financial returns for a win-win business case with stakeholders.

What processes can drive sustainable wins quickly?

Procurement and order management are two areas where companies can make a dent in sustainability goals quickly. In Procurement, supplier evaluation and collaboration, emissions-based materials selection and inbound shipping emissions reduction are common use cases. Order Management use cases include outbound shipping emissions reductions and returns and cancellations waste.

Procurement sustainable spend reduces social and governance risk and ensures sustainable materials create products with a lower footprint. Order management processes can detect unsustainable practices in shipping and recommend process improvements that drive carbon efficiency.

Logistics and transportation, both inbound and outbound, can offer business use cases to sustainability projects.

How is CO2E calculated in business operations?

Many companies use manual based CO2E calculations based on average distance traveled.

A distance-based quantification approach, which is used in Celonis EMS, is based on ERP data. Calculations are based on starting address, final address, and shipping type from operational data. That data is then connected via API to calculate distance traveled by the shipment and connected to vehicle type and weight of shipment to calculate emissions produced.

Data in ERP systems is valuable for sustainability calculations along with system transactional data and third-party sources. The key point: Data doesn’t have to be perfect to reach sustainability goals. A win in the short term can expand scope of sustainability projects.

How does sustainable business become part of daily operations?

According to Janina Nakladal, Director of Sustainability at Celonis, there are six steps to operationalizing sustainability in companies. Each company will be in a different place in the sustainability journey, but the key message is to get started. These steps are:

Step 1: Think holistically about your data and sustainability. Nakladal said the first phase of operationalizing sustainability is to leverage the data in your systems to create intelligence and action. "You have the data in your systems already but are not using it for sustainability," said Nakladal. Customers are starting to use the Celonis Execution Management technology to connect systems to track sustainability metrics such as carbon emissions.

Step 2: Understand the data gaps. Companies need to know where the data hygiene and quality gaps are. For instance, Nakladal said companies often have gaps in sustainability reporting for procurement activities. Why? Procurement has the highest emissions, but most companies can’t tackle it due to the difficulties in tracking supplier carbon footprints, said Nakladal.

Step 3: Add context. Nakladal said the next phase of the sustainability journey revolves around context. Knowing your emissions are beyond your threshold is one thing. Knowing why emissions are high requires context, deep dives into processes and finding the hidden inefficiencies and their root causes.

Step 4: Performance and sustainability coalesce. There's a link between improving performance and sustainability, said Nakladal. "Sustainability isn't much different to how you do business transformation, risk management and value generation in a company," she said. Returns would include meeting compliance and stakeholder requirements, employee and customer satisfaction and potential revenue growth.

Step 5: Prioritize the big bang, but sustainability is an ongoing and urgent effort. The big bang approach to sustainability gains momentum and sets up ongoing sustainability returns.

Step 6: Sustainability becomes the business. Nakladal likened sustainability to the evolution of digital transformation. Just as digital became part of business so will sustainability.

How are companies integrating sustainability into a broader transformation and continual process improvement program?

Companies such as ABB and ALDI SÜD are examining current processes for efficiency improvements as well as sustainable business.

"ALDI is currently in a large transformation journey, where we are digitizing the entire business and IT landscape, implementing new processes," said Dr. David Heise, an IT Manager in ALDI SÜD's Business Process Management Center of Excellence. "The way we build new processes also needs to be sustainable."

See Webinar: Are Your Processes Keeping You From Filling Your Trucks On Time?

For ABB, the advice for companies embarking on a sustainability journey was simple: Just get started.

Sustainable business is being integrated within numerous processes including procurement and supply chain.

The primary lesson from these customers is that sustainability is a journey that starts with basic reporting requirements and evolves from there.

What is the Science Based Targets initiative?

In 2015, world governments adopted the Paris Agreement at the 21st Conference of the Parties to the UN Framework Convention on Climate Change (COP21). World governments agreed to avoid the worst impact of climate change by limiting global temperature rise to below 2 degrees Celsius with efforts to limit warming to 1.5 degrees Celsius.

The Science Based Targets initiative, or SBTi, was formed shortly after the Paris Agreement to mobilize the private sector to reduce the impact of global warming. Now there are nearly 2,000 companies signed on to SBTi, according to SBTi.

These companies are adopting a framework of Science Based Targets (SBTs) that have near-term and long-term commitments. For instance, a near-term SBT is to set Scope 1, Scope 2 and Scope 3 targets for 2030. A long-term SBT would include a commitment to reduce emissions to a residual level no later than 2050 and mitigate impact from the value change to permanently remove or store carbon.

What regulations are driving sustainability in business?

Two Europe regulations are also likely to drive sustainability in business. The EU's Corporate Sustainability Reporting Directive (CSRD) is expected to be incorporated. The CSRD imposes sustainability reporting for all publicly listed companies and all corporations with more than 250 employees and more than €40 million in revenue or €20 million in total assets.

The CSRD will concern 50,000 EU companies, which will have to integrate sustainability reporting into management reports with a mandatory external audit.

Individual countries within the EU are also expected to have sustainability regulations such as the German Supply Chain Due Diligence Act (GSCA), which takes effect Jan. 1, 2023, for companies that employ more than 3,000 people. Companies that employ more than 1,000 people will need to comply from Jan. 1, 2024.

The GSCA requires companies to disclose ESG risks including workplace safety standards, contamination of soil, water and air and manufacture of mercury-added products to name a few.

Larry Dignan mugshot 2022
Larry Dignan
Editor in Chief

Larry Dignan is Celonis Media’s Editor-in-Chief. He is the former Editor in Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine.

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