Ever since the Greeks minted the first coins in 610 BC there has been a universal metric to measure the things we value. The price tag.
The finance economy emerged roughly 2700 years ago when civilizations transitioned from a system of bartering to one of monetary worth. The very earliest price tag came in the form of artefacts like knives, carvings and pottery. Soon after, coins with an intrinsic value developed independently in Asia, China, Africa and eventually Europe. Throughout the ages the system has been refined but the principle has remained unchanged to the present day: everything has a dollar value.
This abstract introduction may seem like an unusual preface to a conversation with two global tech firms about sustainability. What do Ancient Greek coins have to do with ESG? And how does the title of this article fit with a narrative about price tags?
In simple terms, the way that we value things is changing and the price we are prepared to pay for them is no longer exclusively linked to their material worth. We can already see evidence that some individuals are prepared to pay more for things that are sustainably produced and businesses are also increasingly motivated to procure goods and services from environmentally responsible vendors.
“The way people think about the environment is quite a bit different than it was several years ago,” said Jon Chorley, Oracle’s chief sustainability officer. “That’s forcing all businesses to take sustainability concerns out of the closet and bring them into the boardroom.”
Dual cost
Beyond what we pay for our goods, the world is waking up to the idea that everything has an environmental impact: every banana that is grown, every car that is manufactured, every house that is built – even, every email that is sent. It is impossible to make or deliver any kind of product or service without it having some implication for the environment somewhere in the value chain.
That impact is now being measured, allowing consumers and enterprises more visibility into the environmental cost as well as the financial cost. This notion of a ‘dual cost’ is only in its infancy and current efforts to accurately record all the impacts are woefully inadequate. Estimates are often used to quantify anything that falls outside of Scope 1, meaning we are some ways from having an accurate environmental cost attached to an individual Snickers bar. However, it seems almost certain that the trend will continue and we will start to see more and more examples of the environmental impact, as well as financial cost, being attached to the things that we buy.
If you’re buying something, obviously you want to know the price. But increasingly, people and businesses will want to know the embedded carbon costs too – Jon Chorley, Oracle
This transition has big implications for buyers, sellers and the planet. It also has a direct consequence for ERPs and finance systems – systems that historically recorded financial data but will soon be required to record and measure environmental data too.
“Ninety percent of transactions in the world touch an ERP. If an ERP is the system of finance, it’s also going to be the good place to have the system of sustainability,” said Jonathan Wright, IBM’s senior managing director for sustainability services and business transformation.
To understand the role that ERPs will likely play in tackling sustainability challenges, it’s important to expand the concept of dual cost. Ever since the first coins were struck centuries ago, we have only needed one metric to evaluate the things we buy because people were only concerned with tangible cost. However, as humanity has matured, we have become more interested in the environmental cost, as well as the material cost.
“If you’re buying something, obviously you want to know the price. But increasingly, people and businesses will want to know the embedded carbon costs too,” said Chorley.
In the same way that food items have carried nutritional data for more than 30 years, environmental data will soon be displayed on everyday consumables and big-ticket items like electronics, cars and houses. As buyers become more socially aware, they will favor products, services and brands that mirror their own environmental values. While enterprises, many of which are already on this journey, will choose to trade and partner with other enterprises that share the same outlook.
“C-suites have made commitments about carbon reduction and they need to know if a transaction has aided or hurt that commitment,” said Chorley. “Then there are the reporting and legal requirements that may influence it. And frankly, if they do this right, it can also lead to a reduction in that dollar cost as well as benefiting the environmental cost.”
As Chorley notes, the benefit to an enterprise is multi-layered. The combination of undisputed science, consumer preferences, competitive pressures and regulation mean sustainability credentials will become a prerequisite for virtually all businesses and those that address the challenges correctly will benefit from multiple dividends. But it’s important to frame sustainability investments in the right way to achieve these benefits. Too often, initiatives are started from a negative position to eliminate or avoid something, whereas the most effective returns come from investments that are aligned to an issue that is imperative to the business model.
“Work out what’s most important to your business, not just from a defensive position, not just by avoiding negatives, but from a positive position,” said Chorley. “What’s driving the growth of your business, how does that intersect with some of these ESG pressures? Maybe it’s about talent, maybe it’s about new market opportunities, maybe it’s about positioning products in a certain way. Aligning ESG investments and activities with these business objectives helps drive the organization into what’s going to be a new set of measures for success.”
And Wright concurred, highlighting the top and bottom line benefit to aligning ESG investments with business goals and noted that there is now empirical evidence to support the ESG business case.
“Our research shows companies that embed sustainability in their technology deployments can see up to 20 percent increase in revenue and profitability and up to 20 percent decreases in costs, because there’s a big correlation between carbon inefficiency and processes,” he said. “There’s also a big opportunity in the battle for talent with 67 percent of people saying they want to work for organizations that focus on sustainability – talent will follow those organizations that are sustainability leaders and have a clear agenda.”
Political or private solution?
At the heart of any big challenge is the ownership dilemma. Who’s responsibility is it? Governments, political organizations and NGOs all have a role to play in the sustainability agenda but ultimately it will be big corporations, driven by consumer demand and competitive pressure that bring the biggest changes to bear.
Few subjects enjoy as much airtime as sustainability but, despite the commitments, we are still significantly short of a coherent global environmental strategy. 2025 is a critical date in the ESG calendar with the Paris Agreement holding 196 countries to account through a legally binding accord that pledges to limit the increase in global temperature to no more than two degrees by that date. Other deadlines exist too: 2030 and 2050 are both indelibly marked on the planet’s timeline but these government-led impositions will not provide all the answers and it will be big business, through a combination of regulation and necessity, that play the lead role in reshaping environmental standards.
Ninety percent of transactions in the world touch an ERP. If an ERP is the system of finance, it’s also going to be the good place to have the system of sustainability – Jonathan Wright, IBM
“I see the biggest opportunity in the way big enterprises use ERPs and technology,” said Wright. “There are some very big transformations taking place around the world and embedding sustainability into those projects can start to make a real difference.”
Chorley agrees and notes that while political and government initiatives have a value, it will be the commercial sector that has both the ability and the motivation to make the biggest impact – not just because they are the predominant cause of climate challenges, but also because their very survival depends on it.
“As much as governments and those kinds of organizations would like to be the leaders on this, it will be the private sector that drives the biggest change,” he said. “It’s those corporations that themselves are at the heart of the problem, but also have the best opportunity to be the cure. If you look at an enterprise, they’re making promises that are material to the valuation of their business and most are committing to a pretty decent way of measuring and tracking their progress.”
However, Wright maintains that initiatives like the annual World Economic Forum convention in Davos and the United Nations Framework Conference Climate (otherwise known as COP) still play a vital role in bringing organizations and leaders together to address the planet’s most challenging problems.
“These types of meetings are actually super important,” he said. “Although it will be big businesses and the globally recognized brands that actually drive the change, no individual, company or country can solve the problem on their own. This is about ecosystems. It’s about partnerships. It’s about collaboration. It’s about pressure through regulation and it’s about action through industry. Davos and COP are incredibly efficient ways of bringing leaders together to collaborate and have meaningful conversations and we are now seeing real action as a result.”
Data quality and bottlenecks
It is evident that countries, companies and individuals have a strong desire to prioritize sustainability. However, there are some hard problems that are preventing, or at least slowing, the transition from intent to action.
One of those challenges is the sheer scale of the issue and an inability to find a good starting point. ESG can seem like an insurmountable challenge but organizations should not think about the whole, and instead should consider how to breakdown ESG challenges into smaller, more manageable pieces.
“You’ve got to break the problem down into bite-sized chunks so the problem feels more manageable,” said Wright. “The E, S and G are all separate issues – it’s not just an acronym – this is the future of how businesses will operate but companies can start by separating the components out and then aligning initiatives to specific business cases.”
And Chorley agrees, saying: “At Oracle we have 50,000 suppliers so trying to get all of them on the same track can be a challenge. So where do you start? If you take your top 100 suppliers and trading partners, the companies that you work with most and are more impactful on our footprint, that can then start to have a real impact.”
Identifying a starting point and divorcing each part of the ESG equation will make the overall picture easier to manage. But, even once an organization has determined where and when to start, there is a further obstacle in the form of data and the availability of accurate and reliable information.
“The data challenge is two fold: firstly extracting the data from your own activities and then the challenge of getting data from your trading partners and other organizations in your supply chain,” said Chorley. “The quality, timeliness and reliability of that data is still open to question.”
Improving information flow and gaining trust in the information is imperative. And ERP vendors and technology companies are making strides to improve how data can be collected, shared and utilized. The biggest barrier to effective reporting for ESG initiatives is the relative immaturity of the processes that are used to record and share ESG data. We have had decades to perfect the way that ERPs collect finance data and organizations like Oracle can close its month-end accounts in a matter of days. However, the flow of ESG data and the connections needed to convert it into meaningful reports is still in its infancy meaning organizations are reporting ESG metrics on spreadsheets and in isolation from the broader activities of the enterprise.
“IBM is building some great innovation with Oracle and we’re investing significantly to get these connectors, to get these APIs, to get these kinds of workflows really defined, because the data is there,” said Wright. “We have just got to get it into the right workflow and then we will see the data really start to make a difference.”
Partnerships will provide the answers
Clearly there isn’t a single (or simple) solution to the complex challenges of tackling climate change. However, what is evident is that partnerships and ecosystems of like-minded organizations that collaborate and co-innovate will provide the solutions the planet needs.
The partnership between Oracle and IBM is just one example of two global tech firms placing sustainability at the heart of their operating models. Oracle may not bang the sustainability drum as loudly as some of its competitors, but as Chorley noted, “We prefer to focus on our responsibilities and help customers than take part in activism. If you look at what we do you will see a responsible player with aggressive goals that we are executing against. What we don’t tend to do as much is public advocacy; we don’t go out and twist the arms of politicians, that’s not in our DNA.”
As much as governments and those kinds of organizations would like to be the leaders on this, it will be the private sector that drives the biggest change.
Companies like Oracle and IBM can put the full weight of their own learnings behind products and service so that their experiences can inform the design choices they release to customers. Oracle operates data centers, manufactures hardware, develops software and invests billions of dollars into research and development. It is a $250bn global enterprise that can bring the lessons of its own sustainability journey to bear for its customers.
“Our experience can inform the kinds of solutions and products that we take to market and we use all of our own solutions to run the Oracle business,” said Chorley. “We are actually a fairly significant manufacturer as well as a software and services company. We use all of the learnings from our own operations to help customers run their operations in the most efficient, profitable and sustainable way. Sometimes ideas come from outside Oracle, from our customers, and we are able to leverage their experiences to improve our solutions. When those two things come together you have a lot of synergy and can turn these challenges into opportunities.”
IBM also brings a long history of experiences to the table which inform and mold the way it supports customers. For more than a century it has shaped the way businesses interact with technology and, as the ESG-era takes flight, IBM can leverage its knowledge, capabilities and partnerships to create meaningful sustainability solutions.
“IBM has such a legacy by doing the right thing for the planet and that heritage is absolutely critical,” said Wright. “Whether you look at the hardware and the innovation that we’re driving through our power and ‘Z’ compute capability; whether we look at our software for supply chains, for optimizing workloads, or whether we’re looking at your products like Invisi which are helping transform the way we do reporting.
“Then you think about our approach to partnerships, like the one we have with Oracle – they become really important to solving these global challenges. We can bring the technology and innovation together and our consulting teams build a sustainability value case in every project we work on. We really are trying to change the way we engage with our clients to put sustainability at the heart of the transformation journey and partnerships are key to achieving that.”
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For a more abstract opinion on enterprise technology and sustainability read “Can ERP save the world“.
