Less than three miles south of Stanford University, just below a slope crowned by Coast Live Oaks, sits the American office of the world’s largest business software company. From here, Chief Sustainability Officer Peter Graf directs the sustainability and corporate social responsibility efforts of SAP, which makes sustainability software used by about 1,700 customers worldwide.
He explained to GreenBiz how, after a long career in marketing, he became a sustainability expert, overseeing multiple teams that not only run internal programs at the Waldorf, Germany-based company, but also develop software for other major corporations to track everything from internal energy efficiency programs to sustainability in supply chains. SAP’s software has helped customers reduce carbon emissions by 5.7 million tons, saving $550 million in energy costs.
We browsed the SAP sustainability report, and Graf demonstrated how — thanks to the hundreds of key performance indicators (KPIs) SAP tracks — the data can be sliced and diced in multiple ways. For instance, SAP can see what its greenhouse gas footprint looks like per employee, or by revenue, and review how much corporate cars, business travel, data centers, buildings, and other factors have contributed to that footprint each year.
“Many people ask me, is sustainability only about efficiency?” said Graf. “And the answer is no, it’s partly about efficiency, about doing things right, but it’s also transformational, about doing the right things, and that means doing things fundamentally differently from the past.”
Below is an edited excerpt of our conversation.
GreenBiz: You started the sustainability program here. How did that come about?
Peter Graf: I woke up one morning and I had a hard time motivating myself to do another year of marketing. [I had] two small kids, and I thought, “What would be more exciting, more meaningful to me where I am in life right now?” And the sustainability discussion just kind of took shape.
Sustainability in the most critical way is the ability to make things relevant to the people that are listening to you. Customers need to make a business decision: “Am I going to invest money into software that will help me run more sustainably?”
It’s a purely financially driven conversation. And yes, it includes environmental and social aspects, absolutely, because you can’t ignore them anymore, they’re overlapping.
So that’s one type of conversation. But frankly, when you talk to your own employees, they don’t care how much money SAP saved by becoming more sustainable. We saved $250 million over four years by becoming more sustainable in our own practices, but our employees say, “Yeah, but that’s not why we do this. We do it to protect the environment, to re-energize our communities, to be an example to the world.”
So you see the contradiction. And navigating through that at the beginning of the sustainability journey, that was pretty intense, ‘cause we’ve made a lot of mistakes communicating the wrong things to the wrong people.
GB: It sounds like it’s one message down and one message up.
Graf: And then there’s the message on the side, which is even harder. Now you’re talking to middle management; they’ve got their hands full, they’re under stress and have limited resources, and you come and you want to give them another KPI or you want to ask them to do something that they see is in contradiction to what they’re trying to do and what they’re paid for.
So it’s a job where you’re in a continuous state of unhappiness because you know all the things that should be done in addition to the things that have already been achieved, and it’s a lot about engaging people on different levels.
GB: I’m curious how you got the CEO and other upper management on board with making sustainability a big part of SAP.
Graf: The conversation we had with the SAP executive board was around three aspects, and I always like to call them out as fear, greed, and aspiration. That’s a very impolite way of saying risk, profitability, and reengagement.
The board understood that just like they can’t sell an enterprise system that isn’t fit for a globalized world or for the Internet, they will not be able to sell an enterprise that’s not fit for sustainability in the future. So it was a pure fear — call it risk — conversation: This is a trend that is going to happen no matter what; we just don’t know how intensely and when it will actually hit full steam. Look at resource consumption, population growth, the new middle class, energy prices; it’s going to happen for sure. So let’s go be ahead of the wave and ride it, rather than run after the wave and play catch up.
Number two, we said, “We already know that there are small companies out there who take slices of what we call sustainability,” let’s say energy management or compliance or carbon management, whatever it was, “and they make money off of that. So they already proved the market; we need to play.”
We haven’t even looked at our own operations and whether we can save some money by doing things more intelligently. That was number two, so greed, money.
Now the last point is the aspiration or the employee engagement. If you look at our publicly available sustainability report you will see that in 2009 we had somewhat of a dip in our employee engagement scores. SAP traditionally had extremely high scores, above 80 percent, and in 2009 it dropped to below 70 percent. And that was a time of crisis, because our management rightfully thinks highly engaged employees produce better business results.
So we redefined what we stand for and we coined this sentence of “We help the world run better.” And that created a bigger meaning, a vision for the company. And that engagement was very successful. We’re almost back to 80 percent scores.
GB: As a leader in sustainability software, how have you seen the market transform?
Graf: We see companies interested in pretty much five big areas. The first is energy and environmental resource management.
When the price goes up predictably you can do something about it. But when it’s so unpredictable, like it has been and it will continue to be for all different types of resources, how do you plan for a margin? It’s crazy as a business.
McKinsey published a study a couple of years ago [showing] that in the late ‘90s the volatility of prices for commodities was 40-percent lower than it is today.
The second area is sustainable supply chains and products. When you go further down the value chain, when you get closer to the consumer it’s all about sustainable products. We’ve just empowered Dannon and created with them a system where Dannon can every month carbon footprint 35,000 different products with the push of a button, [and find out] how much carbon and energy is embedded in this yogurt, and how much is in the lid, the container, the transportation, the cooling, and so forth.
And they do this in order to optimize their supply chain, not necessarily to label the product. Because if you look at the supply chain through a carbon lens you see inefficiencies you would never see if you only looked at price.
GB: Can you give me an example?
Graf: A very famous company in the beverage business — they produce orange juice and they analyzed their orange juice, and they found that 52 percent of the carbon embedded in orange juice is from …?
Graf: Yeah. They thought transportation, cooling, distribution, packaging, whatever. No, fertilizer. So they asked, “How do you use fertilizers?” The farmers go, “Well, the more the merrier.”
“Yeah, not a good idea. I can help you become more profitable.” So they start optimizing the consumption of fertilizer. So the farmers become more profitable and they can sell them the oranges cheaper.
Now if this company had just asked the farmers about the price of a ton of oranges they would have not found this. That’s what I’m saying, you can use carbon and energy as a proxy for business process efficiency.
[The third area is] operational risk management. Operational risk in comparison to energy management is like selling life insurance in comparison to aspirin. You have a headache because your energy prices aren’t predictable and you know you will need energy tomorrow and the day after, so you do something about it immediately.
What we’ve done is we have taken safety and put it into the hands of employees. So you can download on the app store a little incident management application that helps you create a safety culture in the company.
You take a picture and you can upload the picture from your phone and you say, “I’ve observed something that might be risky or might be dangerous.” I have an entire organization carrying this thing around, and they report things all over the place. And then all this information is consolidated; so you see a map, you see all the incidents that are reported, and you can build in your risk mitigation strategies ahead of time, and in this way you’re elevating the entire company.
So operational risk is something that went from a pure compliance, let’s most effectively report an incident to the authorities, to how can I create a culture for risk and the future is to use big data mechanisms to do preemptive measures, to do predictive operational risk management. Where you use all different types of sensory data to find the patterns that usually happen before something goes wrong, and then apply specific mitigation concepts.
The next one is sustainable workforces, and that’s something that applies specifically to companies who don’t have big production lines, who are pretty much dependent on the brain trusts of their people; banks, insurances, high-tech companies, all those guys. And every company wants to make sure that their workforce is sustainable, meaning it’s a diverse workforce with the right skills, where you have the workforce planning done for new markets, where you have taken care of the gray 2K problem of the Baby Boomers getting out and a lot of experience leaving the organization.
Then finally the reporting and analytics is what you see right here, right? That’s how this thing looks like once you have managed your 400 KPIs and you’ve bubbled them up and aggregated them. And we do this actually not just here and then; we actually report our sustainability performance on a quarterly basis. I don’t know if you have ever seen that, but we do quarterly update in our report for the things that we think are most relevant from a quarterly reporting perspective. So you get a quarterly report on carbon and on things like women in management, retention rates, all those things, and we publish it on a quarterly basis at the day when we do our financials.
GB: How big is the sustainability department at SAP?
Graf: Any number you want between 20, 1,000, and 50,000. There is a group of people who work for me directly; that’s the core team. They own the strategy, they own the reporting, they own the inner workings of this whole movement.
But when we started sustainability I insisted that we’re not creating one big group that’s beside all the other groups. Because that gives all the other groups an excuse to not do anything. I was very adamant that we create little sustainability departments in every line of business; in sales, in solution management, in development, in communications and marketing and so forth. There’s 11 or so teams in other departments. Also individuals who are assigned to deal with sustainability as individuals. [It’s] around 1,000 if you count all these people.
Now what I’m trying to do is to grow this from that 1,000 to the 60,000 people in the company, because what I essentially need to do is take everyone on a journey. So if you’re developing supply chain solutions, you need to be engaged in a way that when you develop that software you think about optimizing them only for time and cost, but also for energy use, fuel use, emissions, those kinds of things.
You can think of it like the Internet today; we don’t have an Internet department at SAP. The Internet is everywhere.
Liz Enochs is managing editor at GreenBiz Group.
This article first appeared at GreenBiz.com and is republished here with its permission.