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As world leaders and CEOs converged on the village of Davos in the Swiss Alps this week for the annual World Economic Forum, there was talk of the global economy and how best to rebuild after the worst recession in at least a generation; of globalization and trade; and of Haiti and how to help. Davos attendees also spoke about climate change; hanging over them is the ghost of the Copenhagen conference and what it did not achieve.
But to me, making businesses sustainable is as important a topic as rebuilding banks and the global financial systems. By sustainability I am not speaking of corporate philanthropy. I define sustainability as increasing short- and long-term profitability by holistically managing social, environmental, and economic risks and opportunities.
For a CEO today, managing sustainability performance is no longer voluntary. Not if you want your business to be competitive. Not only do 80% of Fortune Global 250 companies disclose their sustainability performance, but a growing number of companies in every industry are using sustainable business practices to improve operating margins and attract customers. In addition, each year investors are pouring $5 trillion into socially responsible investment funds.
Technology, in the form of business processes, has the power to drive global transformations. It has progressed far from mere record keeping: It is the key to worldwide, irreversible, and fundamental change.
The first major transformation advanced by business software applications was globalization. Technologies supported by the client-server model of networked and distributed computing, for instance, allowed companies to close their books on a global scale and consolidate data quickly. Companies could manufacture products in one market and sell them in another without having to locate offices in either. In time, it became all but impossible to compete without taking advantage of globalization and the ability to automate processes on a global scale. The same is true for the business transformations brought about by the Internet.
Sustainability, another major transformation fueled by business applications, has just started. It is already bringing new business models, new winners and losers, and completely new ways of operating. But most CEOs are only just now waking up to this reality—and most struggle in their implementation of a sustainability strategy. As with globalization and the Internet, incorporating sustainability into business strategy and using business applications to drive the transformation are essential for companies to be competitive.
Reducing a company's carbon footprint is a high priority for most companies. In the future, "low footprint" companies will enjoy better brand reputation. There will be other practical advantages as well, such as lowering the cost of compliance with regulation and ensuring low-cost operations in the face of higher energy prices.
A recent study conducted by a leading beverage company examined the carbon footprint of orange juice production, from orchard to glass. The survey revealed that the biggest element affecting the total carbon footprint of the juice wasn't distribution, cooling, or packaging, but fertilizer. Fertilizer production and application accounted for 58% of the greenhouse gas emissions in the product's life cycle. The company found that if it helped farmers use fertilizer more responsibly, it could reduce both its product carbon footprint and its production costs.
As the beverage example illustrates, companies need to study sustainability issues closely and act on the findings—aligning their overall organizational objectives with sustainability goals. For instance, an apparel manufacturer with a supply-chain strategy focused on cost reduction might find after analysis that it needed to give more attention to labor conditions or the toxicity of source materials.
The first question I am asking the CEOs I meet at Davos is simple: How are you using sustainability as a driver to improve your internal operations? And, then: How are you becoming more competitive through more sustainable products and services? In many customer interactions, we have discovered that carbon emissions are a great proxy for inefficiencies and wasteful business processes. Therefore, reducing carbon emissions is an important contributor to corporate financial well-being—as well as reducing human impact on climate change.
At SAP (SAP), we expect that if we don't start building sustainability management into our software, we won't be able to sell our software to a large part of the market in the future. (Just as today no customer would buy enterprise software that didn't support multiple currencies, local legal requirements, and the Internet.) This is true for all industries and must be addressed because new compliance measures and supply-chain weaknesses will continue to challenge companies. So, too, will balancing resource productivity and the need to gain competitive advantage with more sustainable products.
We have real and tangible forces that are driving the need for sustainability. The beauty of the challenge is that business applications can help us solve the problems we face. What we should expect in the future is for sustainability to rise to the same level as other key management issues—and to benefit as much from the use of technology to automate the strategy-to-execution process and drive greater operational and financial performance.
I believe we stand at the cusp of a great opportunity, what some will call an inflection point in business practice. As we embark on rebuilding and growing our economies, we can also create sustainable organizations that drive growth and achieve more sustainable business practices. In my eyes this is the way to securing a prosperous future for ourselves and the generations to come.