An annual sustainability study from SAP has revealed that 83% of UK leaders will maintain or increase their investment in sustainability activities by 2026, but a third still lack funding. While it deems the results of the study relatively promising, SAP is worried that UK business leaders are creating barriers to environmental progress of their own making.
The global study, which surveyed just over 4,700 business leaders, including over 300 from the UK, aimed to explore the key motivations and challenges facing organisations looking to reduce environmental impact at scale. It overviewed sustainability as a financial incentive, self-made sustainability barriers and the difficulty in measurements.
It found that environmental action is already having a strong impact on revenue and profit opportunities, according to 31% of UK businesses, and that 37% reported that revenue and profit opportunities were leading motivators for sustainable actions. Some 28% have difficulty proving return on investment making long-term progress harder to prove and sustain.
Because of current inflation, supply chain issues and a rising cost-of-living, UK leaders are finding that sticking to their environmental commitments offsets economic uncertainty. Indeed, 57% of UK leaders are expected to see a positive financial return on their sustainability investment in the next five years.
“Our study shows that it’s time that finance leaders realise that having a solid sustainability action plan makes business sense,” said Renaud Heyd, chief financial officer (CFO) at SAP UKI.
“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.”
And yet, the study revealed that many UK leaders are creating their own barriers by not involving financial leaders in the sustainability actions, which in turn is holding back progress.
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Currently, only 5% of businesses have assigned responsibility for setting direction on sustainability to their organisations’ CFOs. 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%).
As a result, 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.
Another problem SAP found was UK business’ issues with measuring their sustainability actions. Indeed, 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. This causes many leaders to rely on estimates or “gut feel” when disclosing environmental impact.
One-third have no consistent methodology for calculating the environmental impact of their products, as they are struggling to adopt a standardised reporting framework.
“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,” said Stephen Jamieson, global head of circular economy solutions at SAP.
“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,” he said. “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.”
Measurement methods for reporting
They also found that UK businesses use conflicting measurement methods for reporting. Some 89% of leaders are reporting difficulty with gathering or analysing data for regulatory compliance.
Indeed, while leaders are overwhelmingly using direct measurement to track energy emissions (83%), resource availability (82%), freshwater 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%).
Commenting on the research, Edward Manderson, a 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.
“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.”