Sustainability and ESG pressures are increasingly large considerations for organizations. Businesses must balance the long-term ramifications of putting off environmental improvements with the feasibility of quickly shifting their priorities. In recent years, five major trends have emerged on how organizations factor sustainability into their overall strategy and how this impacts Finance and the Financial Planning and Analysis (FP&A) function.

Topic 1 – Regulatory and Investor Demand

More and more, regulatory bodies and investors are asking organizations to highlight their sustainability strategy. The SEC, for example, is looking to have organizations report how much they are spending on sustainability efforts. Investors (especially younger ones) are looking at organizations through a sustainability lens. They want to see what kind of effort organizations make with regards to their impact on the environment and sustainability. Beyond the typical financial releases, releasing sustainability results has the potential to highlight overall shareholder value.

Topic 2 – Governance and Risk Management

An increasing number of countries are starting to ask organizations for sustainability disclosure and information on the overall impact on the environment. Corporations must be conscious of their specific impact. Beyond reporting to regulatory authorities, they need to monitor internally to see what their impact is in real time. Going down a path of environmental impact ignorance can lead to fines and negative consumer sentiment. When Finance and FP&A report and provide guidance on financial and operational KPIs, they can also provide guidance on current risks and threats presented by the existing course of action as part of the analysis structure. These teams can offer plans to help mitigate risks, which might fall under an overall governance structure for sustainability.

Topic 3 – Profitability and Savings Opportunities

The world is transitioning away from fossil fuels and other energy resources. Having a sustainability plan for the short-, medium-, and long-term as an overall strategy should be part of the finance scope. There will be hurdles initially when it comes to transitioning and costs. But measured longer term with the opportunities available, it makes sense for organizations to be more environmentally friendly. Overall, this consideration can help organizations become green. Finance departments can assess these metrics and KPIs as part of an overall sustainability effort. They can use financials (savings, costs, cash flow outlay) to help justify the need for a sustainability strategy.

Topic 4 – Customers and Stakeholders

Customers, suppliers, and other stakeholders are increasingly conscious of working with organizations based on their commitment to sustainability and their disclosure efforts on this topic. There is a growing base of customers with high sustainability standards for the products they choose. Suppliers are increasingly aligning their efforts to work with vendors with a visible sustainability strategy. Keeping that in mind, finance departments need to assess the impact of either pursuing a transparent sustainability strategy or foregoing one. It is crucial that the department determines what the financial impact of various scenarios within this space might be.

Topic 5 – Better Financial Performance

By having a strong ESG / Sustainability strategy, finance departments can help set their business up for success now as well as the future. This includes creating a culture of environmental and sustainability consciousness which may lead to less waste and reduction in costs. This comes along with deeper insights into the opportunities presented that can be undertaken now and how they impact current shareholder value, compared to the opportunities shareholders maybe presented for longer-term gains.

How SAP Solves the Problem

SAP brings financial, operational, and strategic data and decisions together in its solutions. This starts with its core in SAP S/4HANA Cloud and reporting with SAP Analytics Cloud. Additionally, with its SAP Sustainability Control Tower, SAP customers can access the context of their sustainability efforts and data from across the enterprise and be in a position to record, report, and act on these initiatives.