What's an enterprise software company doing getting into sustainability? After all, the environmental footprint from software production pales in comparison to resource-intensive industries such as power generation or even running data centers that deliver Web services such as search.
SAP is trying to get ahead of the curve in environmental sustainability strictly for business reasons, according to Peter Graf, who last March was named chief sustainability officer at the Germany-based software heavyweight.
SAP's customers are businesses, which need to comply with regulations, such as reporting greenhouse gas emissions or tracking hazardous substances it may use.
But that's just the beginning. SAP is designing software to manage environmental and social aspects of a business, which can contribute to the bottom line or lower risk, argues Graf. For example, an obvious way to hedge against the volatile price of oil is to use less of it, he says. But that's just one of many natural resources--water, metals, food, energy--that companies can manage more intelligently.
That's where software comes in. Enterprise applications make their mark in business by automating processes such as managing a supply chain. Now, there are tools to manage the natural resources companies use. Last month, SAP released a hosted application called Sustainability Performance Management, a dashboard to track factors such as a company's carbon footprint or water use.
I spoke to Graf about SAP's internal push around sustainability and industry at large.
Q: A lot of companies don't have regulations that force them to lower their carbon footprint or make efficient use of natural resources. So what's the pitch to them for your software?
Graf: The pitch has been evolved through observation after about 100 customer interactions so far. I usually divide people into three categories. The first category are people who ignore the topic as long as they can. They consider having to move when there is a law or a supply chain partner [forces them]. By the way, SAP customers demand information from us so they can continue doing business with us. They want to be sure we have human rights policies, we have an environmental policy--specific requirements. The business case for these people is to comply at the lowest cost and risk.
That's about half the market today. The other part, which is about 45 percent, is who I call the opportunistic guys. They optimize their productivity in terms of resources such as energy, water--any natural resource--because there is price volatility which is dramatic in oil, water, food. That's happening because we are adding 2 billion people who all want their fair access and, since there is only so much that the planet can produce, prices are going up.
The other side of the opportunistic thinking is to think in terms of products. Anything from laundry detergent to electric cars, sustainably produced shoes, anything you can think of. The reason here is that consumers are becoming so much more aware and they are really driving this conversation. They demand accountability, they demand information, they demand that organizations are transparent. And there is a branding aspect to this, which helps attract employees.
The third group are the ones that go about this strategically--I always mention Nike, Coca-Cola, or Nestle. These companies have figured out that if you do not change the way you operate, you're putting your business model at risk. So for SAP, we think we need to change our software because we think it will be harder to sell software systems that don't have sustainability built in them in a comprehensive way. For Nestle, to make very high-quality food they need to have a working planet that's not polluted and there is a reliable supply of natural products. Coca-Cola is very aggressive around water and water protection--the vast majority of the water they use goes into watering sugar cane. Nike, which has a lot of outsourced manufacturing, can't afford to have any irregularities in terms of human rights, because it hurts their brand.
It seems like there's been a higher awareness among consumers about global warming over the past few years. But you're saying that that may not be the biggest motivator for a business to take environmental sustainability seriously.
Graf: Even if a business doesn't necessarily need to be concerned about global warming, [they need to be concerned with the environment]. In principle, a car doesn't need a working planet. Why would a company that produces cars look at [sustainability], apart from the branding issue and the ability to sell a product? Well, [consider] the resources you need to produce that car. Today we put copper cables--and copper prices have really gone through the roof--into the car. Then it comes back, it's crushed, it's melted. And now you have a lot lower-grade steel because there is copper "pollution" in it. The problem is that to retrieve that copper, which gets more and more scarce, the cost is so high.
There's something wrong in the cycle. If you want to produce cars in a hundred years that use copper, you're going to find a way to retrieve that copper. Otherwise we'll be in the landfills not far from today digging out natural resources. Right now, it's a linear chain: we extract stuff from the ground, we go and process it, we consume, and we dispose of it. That's the thing that's concerning people. It needs to be a cycle.
For SAP, we think we need to change our software because we think it will be harder to sell software systems that don't have sustainability built in them in a comprehensive way.
So what's the business case for managing natural resources?
Graf: Right now, it's all about mitigating risk from volatile prices.
So what sort of software have you developed to deal with this?
Graf: Carbon impact is an application that allows an organization to assess and act on information about energy and carbon--how much energy they use globally and what carbon impact comes from that.
That's one of the applications where SAP creates information--just like in an HR system you would have information about attrition, or a financial system would have margin and revenue information. So sustainability is about managing all of this, creating a view where you can look at the entire organization on aspects of social, environmental, and economic impact.
It's about setting targets, it's the monitoring targets, it's about benchmarking against others in the company--plant A versus plant B--and others in your industry, and finally reporting on this information.
Has SAP become more sustainable since you became chief sustainability officer? What have you changed in the process?
Graf: I would absolutely say so. There are a couple of areas. There's a change on the internal side of the house--in other words, what we do ourselves. And there's been a change on the enabler side of the house, which is what we do for our customers.
The most important thing is that we now have a mindset and targets and an understanding of sustainability that is managed and elevated to the strategic level. We used to be tactical in sustainability since 1996.
What's the difference between a strategic and tactical approach to environmental sustainability?
Graf: Tactical is defined as partnering to develop some point solutions, helping people comply with regulations--more the reactive stuff. (SAP bought carbon accounting software company Clear Standards last May.)
When sustainability is part of corporate strategy, you want to have visibility into the business at a level that is much higher than you need to just comply with regulations. You want an ability to manage a performance, report, and predict outcomes. You need to understand the operational elements, extract information, and give people insight and then take action.
I see that many times companies have sustainability going on in the marketing department but not in the operational divisions. As a sustainability officer, I work where value is at a software company, which is the creation of the software. That's really the shift that has happened. I think sustainability officers are best served in this sort of situation. So if you're in a consumer goods company, you should probably have responsibility for product management. If you work in chemicals, you should probably know how energy is used to run your plants.