The annual Sustainability Report produced by enterprise software firm SAP appears to reveal that 8 in 10 (83%) UK leaders will maintain or increase their investment in sustainability action by 2026. Yet, despite these intentions, UK businesses continue to create their own barriers to environmental progress, say the report’s authors.
The global study of over 4700 business leaders, including over 300 from the UK, is the third edition of SAP’s annual Sustainability Study exploring the key motivations and challenges facing organisations looking to reduce environmental impact at scale.
It seems to find that while 31% of UK businesses say environmental action is already having a strong impact on revenue and profit opportunities, just 12% have assigned accountability for this work to the Chief Financial Officer (CFO). While almost one-in-three (28%) have difficulty proving return on investment, making long-term progress harder to prove and sustain.
Sustainability as a financial incentive, not burden
In the past, measures to safeguard the planet may have been seen as just a moral or ethical obligation but the business mindset is evolving and today, UK businesses are increasingly seeing the long-term financial benefits. In fact, almost two-in-five (37%) report that revenue and profit opportunities are a leading motivator for sustainability action.
Against a backdrop of inflation, supply chain issues and a rising cost-of-living, UK leaders are steadfast in their environmental commitments as they view sustainability action as a means to offset economic uncertainty. Now, over half (57%) of UK leaders expect to see a positive financial return on their sustainability investments within the next five years.
Commenting on the research, Renaud Heyd, Chief Financial Officer, SAP UKI said: “Our study shows that it’s time that finance leaders realise that having a solid sustainability action plan makes business sense. It is imperative to attract funding from investors who need to make their portfolio greener, and to get a competitive advantage as customers demand sustainable products throughout the supply chain. As taking steps to improve the planet becomes more than just an ethical question, and UK leaders see long-term material gains, CFOs have the authority and expertise to champion the environmental roadmap.”
Building their own sustainability barriers
Yet, despite the link between environmental action and long-term revenue generation, SAP’s research shows that UK businesses are not involving finance leaders in taking sustainability actions and this is holding back progress.
Currently, just 5% of businesses have assigned responsibility for setting the strategic direction on sustainability action to their organisations CFO. Instead, it falls to an array of other leaders, including the Board of Directors (25%), CEOs (21%), Chief Sustainability Officers (15%) and Chief Operating Officers (10%). The study suggests this approach isn’t working to translate the economic value of sustainability progress across the business. As many as 38% of UK businesses cite funding issues as one of the top five barriers to taking sustainability action, while 20% cannot get the support from senior stakeholders to take concerted action.
Falling into the measurement trap
Matters are made worse for UK businesses who continue to find that measurement is a stumbling block to progress, and ultimately economic returns.
Just 37% can track scope 1 emissions (greenhouse gas emissions produced directly) to a ‘strong degree’, while 10% are not able to track scope 3 emissions (those produced indirectly across the supply chain) at all – causing many leaders to rely on estimates or ‘gut feel’ when disclosing environmental impact. UK leaders are also struggling to adopt a standardised reporting framework, with over one third having no consistent methodology for calculating the environmental impact of their products.
This is being further exacerbated by the use of conflicting measurement methods for reporting. While leaders are overwhelmingly using direct measurement to track energy emissions (83%), resource availability (82%), fresh water availability (75%), solid waste (74%) and materials use (73%), they rely upon guesswork and estimates for air pollution (83%), nature loss (78%), supply chain impact (69%) and water pollution (60%). This is leading to almost nine in 10 (89%) reporting difficulty with gathering or analysing data for regulatory compliance, at a time when UK leaders are already having to navigate an assortment of changing regulations, taxes and levies associated with carbon footprint.
Stephen Jamieson, Global Head of Circular Economy Solutions, SAP said: “In a climate where stricter regulations are now requiring businesses to disclose environmental impact, leaders who cannot accurately report this data risk allegations of greenwashing, and fines and reputational damage. Focusing on implementing a standardised reporting framework will ensure businesses are substantiating their green credentials, getting measurement right, and setting in motion steps that will directly lead to long-term impact. Organisations can use this data to redesign products, reuse materials, reduce waste and regenerate natural systems across the supply chain – in effect, powering the circular economy.
“Our portfolio means we are well-equipped to support businesses and ensure they are in the best possible position to navigate these challenges in the years ahead. This will allow leaders to unlock further investment, reap the financial rewards of taking sustainability action, comply with changing regulatory requirements, and reach net zero in the future.”
Commenting on the research, Edward Manderson, Lecturer in Environmental Economics at the University of Manchester, said: “The connection between sustainability action and financial performance will play a critical role in shaping environmental progress in the future. Over the last few years, academic literature has shown that firms benefit financially from sustainability measures, and SAP’s research demonstrates that this is indeed a reality for businesses who are looking to recover fast from the pandemic environment. As this research shows, business strategy and sustainability action are now so intertwined that there is simply no excuse for organisations if they fail to address shortcomings in their environmental performance and enact meaningful change.”