Hot right now? Six key points to build ESG into your ERP

Most readers will need little persuading that sustainability is a hot topic for business leaders. This heat comes from a number of factors, including: the risk of fines and reputational damage from non-compliance with sustainability regulation; falling revenues if customers’ growing environmental and ethical expectations are not met; and restricted access to capital as funding becomes increasingly driven by ESG factors. 

The flip side – and a big one at that – is that sustainability, as Al Gore puts it, represents the ‘single largest investment opportunity in history’.

This heady combination of pull and push factors has put sustainability right at the heart of commercial decision making. And given the role that ERP systems now play in supporting such decisions, it’s clear that if your systems don’t incorporate factors to support the ESG agenda, you may have a problem.

Yet while that argument is simple and hopefully, persuasive, the practicalities of addressing it can be challenging and often beg the question: where do I start? So, in response, here are six key points to consider:

1 / Don’t go it alone 

Selecting and implementing enterprise software is both costly and time consuming. Add in the fact that sustainability is likely to reach into and impact every facet of your organisation and the clear message is that you will need to involve and gain support from multiple business functions, from operations to IT. This may indeed extend further to investors and even portfolio companies. Consider that each stakeholder will have their own specific requirements and agendas, which will need bespoke attention. Also, remember that even after implementation, your new system will be ineffective unless stakeholders are bought-in, supportive and actually use it. So, get them on board early.

2 / Do build a business case 

The good news here is that financial decision makers will be more open than ever to approving a new system that better measures, monitors and manages sustainability. But putting together a thorough business case which properly reflects the size of the task and scope of the benefits – from preserving assets, minimising risk, improving operational efficiency and boosting reputation – can be tricky, especially if it extends to taking non-financials into account. But don’t think you have to reinvent the wheel, there are good examples out there, even in complex areas such as how to monetise stakeholder value. While it may be tempting to go for obvious, short-run financial benefits, helping the CFO to see the big, long-term picture will be worth the effort. 

3 / Don’t get distracted by shiny things

Don’t be dazzled by the latest tech capabilities on offer in the market, no matter how great they look and even if they come with immersive demos or a chance to spin-up your own prototypes. These can quickly lose momentum and are rarely operationalised unless they are tailored for your specific challenges and directly address the real business needs within your organisation. And, although this may sound like heresy to disciples of shiny things, do you need to buy new out of the box? Consider what the organisation already has in place – can it be extended, upgraded, improved or added to, rather than replaced? That applies to data as well; if you want to monitor diversity, for example, make sure you’ve linked up your existing HR monitoring systems because they may already be able to provide a lot of what you need. 

4 / Do start at the very beginning 

That means getting to grips with the business problem that you’re trying to solve in the context of your specific organisation. If you don’t start with the right one at the outset, you’re unlikely to get the right solution at the end. And start asking questions about data right from the beginning. Which data objects are the most important and relevant to the business? Are they available and in the same form right across your organisation or will you be in danger of comparing apples with pears? In the context of an organisation that needs to monitor the sustainability of its supply chain, from internal processes to hundreds of external companies, there may be significant work to do to be able to collect and compare the data effectively. But given that your new system or upgrade may likely have a shelf life of 15 years, the effort will be worthwhile. 

5 / Don’t forget it’s a marathon (as well as a sprint!) 

Those familiar with continuous improvement programmes will know that a sharp sprint to get things done must be accompanied by an everlasting acceptance that there will always be room for improvement in the future. That duality is also true here. Yes, do ask what is the first, second and third priority? And what will get the biggest impact in the shortest timeframe? But one eye must always be on the big picture. Implementing new software isn’t a one-time deal that acts as a panacea to solve all ESG problems. In a perpetually dynamic business environment, the day that technology is simply maintained is exactly when it starts to diverge from the business needs and begins to lose its value. Instead, it needs to be considered as a long-term journey with a focus on continuous improvement and investment so that it remains relevant. And key to that is governance, particularly around data. Keeping that data clean, reliable and consistent makes sure that your system will continue performing.

6 / Do choose wisely

As a general rule, I don’t usually defer to superstar singer Rita Ora for advice on sustainability but her words, ‘You know you’re only in it cuz it’s hot right now, hot right now…’ perfectly describe certain aspects of the current market for ESG technology solutions. The good news is that some new players with great experience and insight are entering the market. But others are rebadging existing systems to tap into the ESG boom and are not all fit for purpose. So, what is the best approach? Dive deep into complex use cases to understand the robustness of the tool and reveal any potential challenges further down the line. Accept that no system is perfect but, broadly speaking, choose one based on best fit and future potential.

 

Outlook: taking a cooler view 

As someone who’s been in this space long before it became visible, let alone ‘hot right now’, I do wonder if some of the problems described above can be traced back to the days when sustainability was seen as something separate: a ‘nice to have’, a cost, a small discrete department. While, intellectually, most have moved on, there’s a danger that some of those old perceptions and silos remain. ERP systems have the potential to be the perfect antidote, bringing information together across the business to help inform decisions, create transparency, promote accountability and unlock the solution to sustainable business ahead. Ultimately ERP systems form the backbone of an organisation and all the data within it. The integrity and accuracy of that data is fundamental to overlay state-of-the-art analytical techniques to reveal inefficiencies, opportunities for improvement and inform decision making. Because after all, the whole objective of ESG is for organisations to reduce harmful impact and in an increasing number of cases, achieve the holy grail of making a positive difference to society and our planet.  

The good news is that some new players with great experience and insight are entering the market

 

Matthew is a partner at EY, leading its climate change and sustainability practice across the UK&I.  All views are his own.

 

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