The guide to becoming a sustainable, connected enterprise

But sustainability just like digitalization can be an accelerator. In fact, it’s pretty much synonymous with optimization. So as we make the shift from the automation to the information economy—defined by the use of data and insights for making smarter, more intelligent decisions—there’s never been a better time to embrace both.  Some might see the combination of sustainability and digitalization as double trouble? But they are actually two sides of the same coin—offering the chance for synergy, efficiency savings and double-digit growth.

Professor Henderson from Harvard Business School notes in her online course “Sustainable Business Strategy” that you can’t use business to do good in the world if you’re not doing well financially. Doing well and doing good are intertwined and successful business strategies include both. And this can be true for your business just like any other.

But for both sustainability and digital transformation projects to work properly, everything—systems, data, things, people, partners and processes—needs to be connected. 

At Software AG, we help simplify the connected world. In other words, in breaking down the complexity of a fragmented enterprise. Enabling it to fully leverage the ecosystem around it by making data accessible between third parties. Aligning data to the enterprise strategy for long-term, measurable growth; making it visible for those that should see it, to see; and making it shareable for those that should be acting on it, to act.

We’ve spent a lot of time working out how companies should approach the path to sustainability, what they need to know, what plans they need to have, what metrics they need to capture, what processes they need to change, what goals they need to operationalize and which risks they need to mitigate. The result is what you’re reading today: the guide to becoming a sustainable, connected enterprise.

This guide will take you through the full journey—(1) why change is needed, (2) what needs to happen to support that change and ultimately (3) how it can be done and what tech you need in your toolset—including (4) how our platforms can help.

We hope you find its contents of great practical use. And please reach out if you have any questions or if there is any way we could help you along your journey to sustainability.  

What you need to know

Sustainability is about living within the means of natural systems and ensuring that our lifestyle doesn't harm other people. Modern sustainability is the integration of the environment, people and economy. And the acknowledgement that you cannot have one without the other. Sustainability is more than just CSR (covered later) and looks at the impact on the “three Ps” of people, planet and profit.

The business case for sustainability grows stronger as the velocity of innovation increases and therefore offers opportunities for increased profitability and positive brand impact. In fact, evidence continues to build that suggests neglecting the environmental and social impact will have detrimental effects on long-term business growth and profits. By better managing risk and operating more efficiently, companies can see an uplift in their profitability. 

Since the global pandemic, it’s never been clearer across all the developed economies: digitalization is an enabler. Which makes this an important time for enterprises. As organizations of all sizes double down on digital technology to accelerate growth, now is the time to ensure this is also executed sustainably. Many organizations—especially across Europe—are already finding more sustainable ways of working and leveraging the benefits to help their businesses thrive. 

And it’s already having an impact. Sustainability is becoming a predictive indicator of a company’s performance and is a C-Suite responsibility—starting with the CEO.

Who is driving change 

When it comes to sustainability, everyone is a stakeholder. This includes consumers, customers, employees, private equity investors, bankers, senior executives, politicians, regulators and beyond. However, some are exerting more influence than others.

Deloitte’s Global Climate Check 21 reveals that two forces have emerged as the primary drivers for organizations’ sustainability actions: shareholder pressure and a rise in societal and employee activism. The survey shows that “investor demands became the top motivating factor for these efforts, up five percentage points on the previous year’s survey. Additionally, activism—by people who are calling for change—and ongoing media coverage are ensuring that the matter says top of mind for business leaders and policymakers.”  Investors and customers alike are influencing near-term strategies that impact the bottom line. If they don’t see change quickly, they can take their business (and money) elsewhere. Adding to that pressure to act now are a fiery group of regulators. In fact, according to the same Deloitte survey, “executives named shifting regulatory and political environments as one of the top three sustainability-related issues most impacting their organization.” 

How it has evolved 

There are a number of different change drivers that have contributed to the enterprise’s ongoing adoption of more sustainable models and continue to do so. These have evolved over time—from CSR to Climate Action to Circular Economy to, finally, ESG.

1. Corporate Social Responsibility (CSR) - The term CSR was first referenced in 1953. In his publication named Social Responsibilities of the Businessman, American economist Howard Bowen coined the expression and is often referred as the father of CSR. It took a while to really catch on, though. Back in the mid-90s, community engagement really took off and was suddenly very in to paint a Kindergarten wall or give your employees a certain number of designated “volunteer days.”  While this may be something seeing a revival through Generation Z—the socially conscious generation—CSR as we know it today reaches further than that. It covers ensuring that progress is made toward sustaining business operations that protect the supply chain and contribute to all stakeholder interests, including employees, customers, community members and the environment. `  
2. Climate Action - Following the 1997 Kyoto Protocol, industrialized nations and economies pledged to reduce greenhouse gas emissions by an average of 5% by the period 2008-12, with wide variations on targets for individual countries. Later—after years in the public arena—Climate Action finally showed up on the corporate radar. Climate change is described as a sustained change in global or regional weather patterns. It is mainly caused by greenhouse gas emissions (GHG) and the loss of carbon capture systems in the environment such as trees, oceans, soil, wetlands, etc. GHG emissions are a leading cause of global warming and are made up of three main gases: carbon dioxide, methane and nitrous oxide.  Climate action is what businesses can do to help counteract ongoing climate change. By sector, the food, construction and fashion industries are the largest contributors of GHG emissions representing almost 40%. 
   
3. Circular Economy - Less a driver at the time and a more economic philosophy, the term Circular Economy appeared first in 1988 in "The Economics of Natural Resources." It soon became used to describe an economic system where waste at extraction, production and consumption stages is turned into inputs. The Ellen MacArthur Foundation was instrumental in the diffusion of the concept in Europe and the Americas in the early 2000s. Circular business models move from a "take-make-waste" linear model to a circular model where resources are better managed, products and components are reused and products are designed to be remade using safe and recycled or renewable inputs. 
4. Environment, Social and Governance (ESG) Reporting - ESG pillars were first referred to in the 2006 United Nation's Principles for Responsible Investment (PRI) report. The ESG framework is a powerful and necessary approach to assessing the risks and benefits brought by focusing in on the environment, social and governance/economic issues. What they mean for enterprise operations is covered later on in this paper. But the framework itself has triggered a new, demanding era in enterprise management—the dawn of ESG and Sustainability Reporting. 

ESG reporting refers to the disclosure of data covering the company’s operations across the framework. And it provides a snapshot of the business’s impact in these three areas for investors. There has been a massive surge in ESG reporting in the past few years—with enterprises usually trying  to  comply with a single, or a limited few, regulatory standards or frameworks, such as the Carbon Disclosure Project (CDP), the Global Reporting Initiative (GRI), the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability  Accounting Standards Board (SASB). And many companies are now integrating their ESG reporting into their annual reporting to demonstrate how sustainability is embedded into their business. 

ESG reporting helps investors avoid companies that might pose a greater financial risk due to their environmental performance or other social or governmental practices. No wonder ESG is also fast becoming an umbrella term for investments that seek positive returns and long-term impact on environment, society and the performance of the business. The Deloitte Center for Financial Services expects ESG-mandated assets in the United States to comprise 50% of all professionally managed investments by 2025. 

Key considerations for ESG thrivers

Greenwashing: But be careful! Pressure from external stakeholders can lead to what is termed “greenwashing.” Greenwashing is marketing that portrays an organization’s products, activities or policies as producing positive environmental outcomes when this is not the case. This can undermine trust in the market and can result in the misallocation of capital intended for sustainable investments. For any organization starting down the sustainability path, it’s essential to take the time to become educated and approach sustainability measures from an authentic perspective. Symbolic or misleading gestures aimed at appearing “sustainable” is not the way to go.

Material assessments: In the sustainability world, "materiality assessments" are the backbone of reporting. They help identify an organization’s most "material issues" and determine what should be reported. A materiality assessment is designed to help enterprises identify and understand the relative importance of specific ESG and sustainability topics in their organization. This involves looking at a variety of factors from two perspectives: potential impact on your enterprise and significance to stakeholders.

The international regulatory landscape: While the US 2019 Pacte Law states that social and environmental issues should be considered in a company's business model—they are not assessed. The SEC (Securities Exchange Commission) is—at the time of writing this guide—collecting commentary on making this compulsory for listed companies. Meanwhile, as of April 6, 2022, ESG laws have become mandatory elsewhere: The FCA (Financial Conduct Authority) has stipulated that UK registered companies and LLPs with over 500 employees with an annual turnover of more than £500 million; and all UK Public Interest Entities, are now required to produce a nonfinancial information statement under existing reporting laws. It’s important to note that the impact will not only be on the UK’s 1,300 largest companies and financial institutions, but also thousands of businesses in their supply chains. As regulations shift, it will become more difficult for enterprises to shift unsustainable practices outside company walls.

The European regulatory landscape: The much-publicized Green Deal—which seeks to cut greenhouse emissions by 50% by 2030—has been a huge driver of change in the regulatory market of Europe. In the EU, companies also have ESG compliance obligations and they must do their best to ensure their business qualifies as sustainable for investors on the EU market to notice. The EU Taxonomy Regulation, for example, stipulates six objectives concerning mitigation and accountability. It is the main EU instrument to channel investors’ money toward sustainable activities and achieve the bloc’s climate goals.

Beyond investment regulations: If the European Commission succeeds, a Corporate Sustainability Reporting Directive (CSRD)—to extend the scope of the EU Non-Financial Reporting Directive (NFRD) already in force—will come into force in 2023. If adopted, the CSRD will mark the move toward using mandatory EU sustainability reporting standards, which will include auditing. And it looks likely that the Commission will also be successful in implementing its much-debated Circularity Directive. Proposals include extending eco-design beyond energy-related products, tackling unsustainability in textiles and greater consumer protection, including banning vague environmental claims.

The common thread: In looking at ESG reporting it’s clear risk mitigation is front and center. Enterprises need to mitigate risk to themselves financially and reputationally in terms of (1) noncompliance. They need to mitigate risk to remain attractive to (2) investment. And they must practice sustainability to help boost (3) resilience by shoring up financial resources and streamlining operations.

Perhaps that’s why after a journey that easily dates back to the 50’s, it’s compliance and risk mitigation that have triggered most enterprises to stop what they’re doing and look up. And yet if we look at the business case for sustainability, there are as many veritable “bottom up” reasons for action as there are “top down.” In fact, sustainable enterprises are starting to prove that they can unlock a whole new world of value. 

Unlocking value

McKinsey reported in 2020, "ESG excellence doesn’t just reduce transition risk by helping companies stay ahead of changes in regulation and stakeholder sentiment. Top ESG performers enjoy faster growth and higher valuations than other players in their sectors by a margin of 10 to 20 percent in each case. And strong ESG credentials drive down costs by 5 to 10 percent as these companies focus on operational efficiency and waste reduction.”

In its 2021 Guide to Sustainability, Forrester ² emphasizes the significance of sustainability for opening new markets. It cites a number of world-leading enterprises that are “embedding circular economy principles at the heart of their  business models,” which has allowed them to “gain  traction among consumers because they manage  to maximize lifetime value of products and solutions, recycle waste and minimize energy consumption.” Because these companies have marketing, design, innovation and R&D teams collaborating more closely than ever, it concludes “sustainable firms are able to innovate  and enter adjacent markets.”

Furthermore, according to McKinsey there are five essential ways ESG connects to value creation within an organization:

• Top-line growth – ESG attracts B2B and B2C customers with sustainable products and achieves better access to resources through stronger community and government relations
• Cost reductions – ESG lowers energy consumption and reduces water intake
• Regulatory and legal interventions – ESG achieves greater strategic freedom through deregulation and earns subsidies and government support
• Productivity uplift – ESG boosts employee motivation and attracts talent through greater social credibility
• Investment and asset optimization – ESG enhances investment returns by better allocating capital for the long term and avoids investments that may not pay off because of longer-term environmental issues

So with the case for change presented, what are the practical steps that an organization needs to follow to become a sustainable connected enterprise? 

To transform into a sustainable connected enterprise involves understanding the ESG framework and translating it into action. So what is this framework specifically and how might it be incorporated into day-to-day business? 

The ESG framework

E – Environment

This refers to a company's ability to manage resources and prevent pollution. This criteria includes the energy a company takes in and the waste it discharges, the resources it needs and the consequences for living beings as a result. This could include the weather’s impact on selling seasons, emission regulation impacting supply chain logistics, plastic use and packaging. Environmental sustainability mainly impacts three different areas—climate, oceans and biodiversity.  

S – Social

This refers to a company’s ability to identify and manage its business impact on people—or the steps a company takes to improve its social impact both within its company and greater community where they do business. This ensures that progress is made toward sustaining business operations that protects the supply chain and contributes to all stakeholder interests.  al Research Methods (ADRM), which analyzed five core industries. 

G – Governance

This refers to a company’s ability to establish the policies and leadership structure to ensure sustainability practices are put into place and supported. G is the internal system of practices, controls and procedures a company adopts in order to govern itself, make effective decisions, comply with the law and meet the needs of external stakeholders. Every company, which is itself a legal creation, requires governance.

Governance specifically impacts decision making and risk mitigation within a corporation. This is achieved through sustainability corporate policies and guidelines overseen by the board of directors, managers, shareholders and stakeholders.

Industry-specific insights

With a better understanding of the ESG criteria against which enterprises are measured or measuring themselves, it’s apparent that different industries face different challenges and that their paths to sustainability are each uniquely different. Before moving to the “what” of an enterprise’s sustainability journey, its necessary to understand sector-specific dynamics.  Below is information sourced by the EY Advanced Digital Research Methods (ADRM), which analyzed five core industries. 

Retail

As COVID restrictions ease, retailers are more focused on growth opportunities  the shift in consumer demand and expectations drive. 

The key areas of focus for retailers are:

• Growth—new sustainable strategy/products
• Using new materials
• Investing sustainability projects
• Recycling
• Products with sustainability focus or specific markets—ie. second-hand

Manufacturing 

Manufacturers are focusing most on creating circular business models by finding new sustainable sources of materials, reusing and recycling products and components. 

The key areas of focus for manufacturing are:

• Using new materials to reduce footprint
• Growing top/bottom line with sustainability focus
• Investing in sustainable projects
• Measuring environmental impact
• Capturing progress measurements 

Financial services 

Financial services companies most focus on developing sustainability investments for their clients and investing in the right green projects. 

The key areas of focus for financial services are:

• Sustainability project investment in ESG funds
• Sustainability fund issue—3rd party projects
• Growth—P&L improvement
• Financial impacts—influence on financials 
• Sector policy—promises to act on sustainability topics. 

Energy

The energy industry is mainly focused on renewable energy sources and creating efficiencies in its delivery systems. 

The key areas of focus for energy are: 

• Usage of new sustainable sources
• Improving company performance through sustainability initiatives
• Progress measurement and communication
• Energy efficiency
• Sustainability project investment 
  

Public sector

The public sector main goal is to future-proof societies by implementing circular models. 

The key areas of focus for the public sector are:

• Recycling
• Growing sustainability commitment in society
• Creation of new research centers (for climate & others)
• Reporting Sector support 

Sustainability maturity

Just like digital transformation, the journey to becoming a future-proof sustainable business doesn’t only require an organizational-wide commitment. It also requires a well-executed road map to avoid loss of trust with stakeholders and identify the value it will bring to the enterprise, its customers and its market.

This is evident in Forrester’s sustainability maturity model, which in part makes three clear statements:

1. that organizations not born as sustainable start-ups will have ecological debt to overcome 
2. that the maturity steps can’t be skipped, only accelerated 
3. and that the ultimate goal is to achieve “future-generation-safe.” This is an enterprise that no longer regards sustainability  investments as a cost center, but instead a profit center

CTOs and CDOs will identify with these statements since they apply just as much to a digital transformation as they do to a sustainability transformation. (1) Organizations accrue ecological debt just as they do technical debt during a digital transformation. (2) The need for speed, agility and simplicity to gain a competitive edge applies as much to an organization trying to fulfill its digital agenda as it does to an organization on the path to sustainability. And just like how you can’t go from the compliance to innovation in a sustainability transformation, you can’t expect to offer new data-driven customer experiences without first having integrated your core systems and exposing that data through APIs in your digital transformation. And (3) most enterprises aren’t striving to execute on their digital strategy; they’re striving to become digital to the core—a truly digital enterprise—where every level of business operations is connected and intelligent.   

Becoming a sustainable, connected enterprise

Achieving sustainability is a step-by-step process that—in almost all cases—starts with ensuring compliance and establishing a clear road map and continues with embedding it at the operational level. The next section will go into detail on the 4-step process involved in a sustainability road map and what you need to do to follow it for your organization.  

The 4-step process to developing a sustainability road map

No matter where an enterprise is on its path to sustainability, most businesses are feeling the brunt of new regulations and investor scrutiny.  To move forward, they are all challenged with gathering and analyzing data, keeping up with ever-changing regulations, developing guidelines, goals and KPIs as well as the need to control, track and report on performance. The way to address this is to develop a road map that has compliance built into it from the start.

A sustainability road map is a summary of what your enterprise has done so far, is doing and wants to do in terms of sustainability and how it plans to measure it. Your company’s sustainability vision and strategy informs it. It is ultimately the mechanics or the series of core processes behind executing on your enterprise’s sustainability strategy. Before you develop this road map, you need to complete a 4-step process that asks you to assess, build strategy, operationalize and track and report your sustainability initiatives. Remember: sustainability isn’t separate from a business strategy. It is central to it!

Let’s look at each step.  

1. Assess

This is where an enterprise takes the time to better understand its corporate position vs external needs/regulators/supply chain/customers/consumers/stakeholders. First a company must assess its baseline ESG maturity. By analyzing the existing process landscape, gathering current data, questioning internal stakeholders on sustainability matters and proceeding to the materiality assessment. This enables a company to understand how it really operates, evaluate relevant rules and regulations and identify root causes of noncompliance. In short, it will measure where the enterprise is today—and provide the ability and agility to navigate the frameworks needed to meet sustainability objectives moving forward. 

2. Build Strategy

This is where an enterprise captures its vision and mission as well as the goals that have been established as part of its sustainability strategy.  At this stage an enterprise must build a sustainability strategy: to analyze which activities need to be optimized, which standards must be complied with and which value chain areas are most relevant to the specific law or regulation at hand. It’s critical to map the enterprises’ sustainability vision and mission to ensure it aligns with company values—and set the right goals and KPIs to help you move in the right direction.

3. Operationalize

This involves establishing the organizational foundation to integrate and manage sustainability initiatives. Or in simpler terms—turning your strategy into operation: rolling out new processes based on efficiency, costs and ESG-critical KPIs, thoroughly mapping risks and regulations and automating processes to all relevant stakeholders. The right BPM platform will ensure the enterprises’ sustainability goals align with the goals of the enterprise—and provide the organizational foundation to integrate and manage sustainability initiatives well into the future.

4. Report

The right BPM gives you the power to track and monitor your goals—through reports that collect all risk-related information in one place, dashboards with near real-time information on KPIs and transparency initiatives and the ability to share information and communicate disclosures with regulators at the push of a button. It should provide your enterprise with the robust analytics to monitor process performance, guarantee compliance and turn data into insights and action.

Starting small: sustainability projects that drive change

This guide recommends taking a more holistic approach to sustainability. However, this is not the only place to start. Some organizations may find specific projects where they can have an impact before developing a company-wide sustainability road map. These sub-projects can have an immediate impact and can be a force for change across the organization. Whether the goal is to optimize logistics, reduce waste in the supply chain, introduce more sustainable modes of working, or minimize the carbon used in manufacturing, having a digital backbone in place can help you execute multiple sustainability projects within your enterprise. This might happen across different levels, functions or criteria within the enterprise. But each have one thing in common: to translate the ESG pillars into details operational initiatives. There are three typical scenarios:

1. A scenario that applies to a specific department (finance, sales, customer services) 
2. A scenario across an enterprise targeting a specific change driver (climate action, social responsibility, circularity, ESG and sustainability reporting)  
3. A scenario that happens on a use-case basis (supply chain management, employee satisfaction, carbon footprint)

Here are two examples:   

Change driver focus: Climate Action (application 2) 

Use case basis: Supply Chain management (application 3) 

When looking for a provider to support with the deployment of an enterprise-wide BPM for end-to-end process mapping, enterprises must check how easily this tool can be integrated with other systems, applications and devices. Also (for sustainability purposes) that these solutions are available as cloud-based platforms for a more eco-friendly equivalent to on-prem implementations.

Depending on where your sustainability strategy may focus, different technologies will be best suited to help you reach your goals. Here is a list of how various technologies can support sustainability programs:  

About Software AG

We live in a connected world. The connection of people, technology and processes creates the connected experiences your employees, partners and customers expect. But the digital transformation required to meet those expectations is increasingly complex and more difficult to navigate with constantly changing needs. We can help simplify the truly connected enterprise where systems integrate more seamlessly, technology connects more effectively and processes run effortlessly enabling information and insights to flow more freely. Our platforms create the "digital backbone" that integrates applications, devices, data and clouds; empowers streamlined processes; and connects “things” like sensors, machines and robots—so you can make smarter decisions faster.

Our commitment: Sustainability and responsible action are guiding principles that are at the heart of everything we do at Software AG. This is not new to us. Dr. Peter Schnell, the cofounder of Software AG, laid the foundation for responsible action that lives in our company to this day, with social responsibility firmly anchored in our DNA. We firmly believe that moral principles and economic success belong together.

In order to protect future generations and our planet, we are committed to creating not only economic, but also ecological and social value. We’ve demonstrated our commitment to this by becoming a signatory to the UN Global Compact, which provides a common ethical and practical framework for operationalizing corporate sustainability against universal principles of human rights, labor, environment and anti-corruption.

As part of our sustainability strategy, we have set a target for R&D investment to account for at least 15% of our total revenue. In addition, through our participation in collaborative research projects, we are driving the further development of technologies that make a positive contribution to sustainable development. We have committed that by 2025, 80% of our research projects will be aligned with the United Nations Sustainable Development Goals, ensuring our technology can support broader global sustainability efforts.

Software AG Solutions 

Currently, our main focus at Software AG is to provide software platforms, tools and applications that enable software as part of sustainability. Our technologies are designed to work seamlessly together to give your enterprise a digital backbone with its foundations in sustainable principles. They can also integrate with other solutions your enterprise is running. We help our customers use their resources efficiently and sustainably as well as improve their energy and CO2 footprint. Our software solutions support digital transformation, which enable our customers to operate sustainably and can help to mitigate or even reverse the consequences of climate change.

Work is also underway to assess our corporate carbon footprint and work with our customers to analyze and report on their handprints (over the long term.)  Our software is intrinsically designed to be sustainable, and we in the process of assessing the resources required to bring it to market then bring our customers solutions that—are by default—sustainable in software. 

The importance of sustainability can't be understated. The future of our planet (and your business) depends on it. But there’s a lot of background understanding that must happen before an enterprise can even think about rolling out a sustainable-first strategy. In this guide we’ve looked at the:    

• Why change—understanding the marketplace and stakeholders around the enterprise  
• How change—understanding how the ESG framework and its many pillars affect your enterprise in terms of compliance, risk mitigation, ESG-based goal-setting, supplier management and tracking. How the industry you’re in impacts the changes you’ll be making. And more importantly—how your journey to sustainability maturity must follow your journey to becoming a connected enterprise.
• What change—understanding how to build a sustainability roadmap using the 4-step assess, strategize, operationalize and report process which—due to its impact across all business operations—must be mapped using business process management software. But also understanding, that there are many projects that don’t always start at the top. And that 4-step process can be applied to your sustainability program that includes multiple initiatives across departments, change drivers and specific use cases. These might include streaming analytics for smarter data capture, APIs and integration to expose data from third parties or portfolio management to analyze risk and redundancies.

Our technology creates the digital backbone that integrates applications, devices, data and clouds; empowers streamlined processes; and connects “things” like sensors, machines and robots—so you can make smarter, greener, fairer, better decisions for a sustainable tomorrow. We're here to help you on your path to becoming a sustainable, connected enterprise.  

_{1. Annual APIs and Integration Report 2022: The State of APIs, Integration and Microservices. This is independent research conducted by Vanson Bourne and commissioned by Software AG. It’s intended to be a trends and YOY data comparison tool for addressing the state of the market each year. Vanson Bourne surveyed 1150 senior IT decision makers in US, CA, DE, FR, UK, AUS & NZ, Middle East, Nordics, Korea. Respondents were recruited from all private and public sectors using a rigorous multi-level screening process and work in organizations with 1000+ employees globally.}

_{2 - Guide Your Sustainability Program With The Forrester Sustainability Maturity Model, Forrester Research, Inc., October 27, 2021}