SAP’s Aims for Leading Role as ESG Software Rivalry Intensifies

(Bloomberg) -- SAP SE Chief Executive Officer Christian Klein said the software maker is looking for growth in tools to help businesses track diversity and sustainability, betting that the company's strength in supply-chain and procurement programs gives it an advantage in the burgeoning market.

Investors are increasingly demanding that businesses set goals for ESG -- environmental, social and governance -- issues, but there's debate about how companies should disclose their progress. Early dominance in the sector may give a software maker an influential voice in helping to craft what eventually could become a mandatory reporting criteria, akin to quarterly financial disclosures.

In an interview, Klein said the German company has a head start over rivals like Salesforce.com Inc. and ServiceNow Inc. in providing businesses the technology tools needed to support ESG reporting, a market that may reach $2 billion by 2030.

“You can only act on something when you have the transparency,” he said. “We are using our existing solutions and we are expanding the data model to make ESG transparent.”

SAP sells applications that support operations ranging from supply chain and factory oversight, to travel expenses and human resources management. Compared with a program like Salesforce's customer relationship manager, Klein argued that SAP's systems provide more pertinent data to help companies track diversity in the workforce, eliminate the use of child labor, reduce greenhouse gas emissions and fulfill other ESG commitments.

“Software for sales people, where is the carbon footprint? And what kind of carbon footprint do you create when you are doing pipeline management?” Klein said. “You need the data. And the data sits in SAP systems.”

Salesforce, in turn, touted its ESG product called “Net Zero Cloud,” which the company also uses for its own efforts to lower emissions. Of note, Salesforce has reported on its sustainability progress alongside financial metrics since fiscal year 2012. ServiceNow, which unveiled an ESG reporting tool in October, declined to comment.

At its core, ESG reporting is a data problem. The information needed often sits in various applications around a company. Many of those apps have their own proprietary data formats and operate largely siloed from one another. While some companies may use SAP for the bulk of their software needs, others use a much wider array of tools. That's why businesses have encountered so much trouble in taking the initial step to pull information into a common repository that can then serve as a basis for further action.

The problem gets even more lofty when a company wants to look beyond its own direct operations. Figuring out carbon emissions from a factory, for example, may be as easy as looking at a utility bill. But to get a full view into a corporation's carbon emissions, the business has to evaluate its whole supply chain, which can include hundreds, if not thousands of partners -- some that may be unwilling or unable to quantify their own footprint. For example, as much as 60% of the carbon emissions from automotive production sits outside of the core manufacturer, according to Klein.

SAP is trying to address that challenge in multiple ways. It built an engine to help customers calculate the average overall impact using a standard emissions factor from a provider like EcoAct, alleviating the need to get information from every individual supplier. SAP is also in the process of compiling its own ledger of supplier data that customers could tap into to figure out the environmental impact of their production efforts.

And for the automotive industry, the software company helped launch Catena-X, a consortium of top manufacturers and suppliers like Mercedes-Benz AG and Daimler AG aimed at developing common data standards that could make it easier to track ESG progress across the production chain.

“The standard will be defined in a system which runs the most energy intensive processes. And the most energy intensive processes are supply chain, manufacturing, travel and expense,” Klein said. “This is where clearly SAP has the right to set the standard.”