The enterprise application software giant, SAP, recently announced a significant step towards environmental sustainability and transparency. The company plans to establish a multi-phased supply chain engagement program by 2024, with the primary objective of significantly reducing greenhouse gas (GHG) emissions across its upstream value chain. A key goal of this initiative is to have each of its top 100 suppliers reporting their company-wide and product-level emissions for key products by 2027.

SAP’s Chief Procurement Officer, Nikolaus Kirner, emphasized the company’s commitment to sustainability, stating, “As a purpose-driven company, we are always looking for ways to improve through our global procurement organization. Sustainable procurement practices have become one of the key enablers in achieving net-zero targets.”

This announcement follows SAP’s commitment last year to achieve net-zero emissions across its value chain by 2030. The company identified strengthening its engagement with key suppliers to commit to net-zero and deliver products and services on a carbon-neutral basis as a crucial focus area to reach its goal.

The significance of this move is underscored by the fact that Scope 3 emissions, which include emissions from purchased goods and services, account for approximately 97% of SAP’s gross value chain emissions footprint. SAP’s CFO and Executive Board member, Dominik Asam, highlighted the importance of reducing these emissions, stating, “Reducing scope 3 emissions is a key factor on the journey to net zero. This is a team effort, and we are happy to collaborate with our business partners on reducing emissions throughout our supply chain.”

In the context of ESG (Environmental, Social, and Governance) ratings, SAP’s initiative is a commendable step. ESG ratings are designed to measure a company’s resilience to long-term, financially relevant ESG risks. They provide a data-driven approach to evaluating companies based on their ESG performance, and they are increasingly being used by investors to make informed investment decisions.

SAP’s move towards transparency in emissions reporting aligns with the principles of ESG ratings, particularly the ‘Environmental’ aspect. By asking its suppliers to report their emissions, SAP is not only promoting transparency but also encouraging its suppliers to take responsibility for their environmental impact. This could potentially lead to a ripple effect, encouraging other businesses to adopt similar practices, thereby contributing to a more sustainable and transparent business environment.

This development is undoubtedly good news. It signifies a growing recognition of the importance of ESG considerations in business operations. It also illustrates how companies can leverage their influence to drive positive change in their supply chains. If more companies follow SAP’s lead, it could significantly enhance the effectiveness and impact of ESG ratings, leading to a more sustainable and accountable corporate world.

The future of ESG ratings could be significantly influenced by such initiatives. As more companies adopt transparent reporting practices and take active steps to reduce their environmental impact, ESG ratings will become an even more critical tool for investors and stakeholders to assess a company’s sustainability performance. This could lead to a future where ESG considerations are not just optional but an integral part of business operations.