BPM Enters the Age of Carbon Finance

The tsunami has yet to hit, but companies are already starting to feel the first waves from the tectonic shift in business practices that goes by the name of sustainability management.

Investors are pressing for green initiatives; shareholders filed a record 57 climate-related petitions with U.S. companies this year, according to Ceres, a coalition of investors and green activists.

Customers are paying attention, too. In Britain, companies are sticking carbon footprint labels on their products to help consumers figure environmental impact into their purchasing decisions. Japanese companies are following suit, nudged by an ambitious government program that promotes carbon-count labeling on products ranging from beer to electrical appliances. (The carbon dioxide emitted during manufacture, distribution, and disposal of one bag of Japanese potato chips: 75 grams.)

To achieve this kind of granularity in emissions statements, corporations will have to make carbon accounting and assurance processes pervasive in their supply chains. Gartner Inc. predicts that by 2011 large global enterprises will be requiring their suppliers to prove their green credentials through an audited process.

As green projects and sustainability reporting take hold, companies will be looking to their CFOs to ensure that disclosures are accurate and that initiatives benefit the bottom line as well as the state of the planet. Which means setting strategic goals and tracking progress toward them. Which in turn means pulling together large amounts of data that's scattered around the organization and moving it into an environment where it can be used for planning and analysis.

Sounds like a job for business performance management (BPM) software.

"It's a perfect example of an organization setting a strategic direction as to where they want to go, and then cascading activities down from that," says John Colbert, vice president of research and analysis with professional services firm BPM Partners in Stamford, Conn. Companies have become adept at using BPM systems to crunch non-financial numbers such as sales and customer data. "Over the last 18 to 24 months, we've seen performance management breaking out of the office of finance and getting into the operational side," Colbert notes. Using BPM tools for sustainability initiatives is a natural extension of that trend.

That fact isn't lost on BPM software providers: Infor, SAS Institute, SAP, Cognos, and Oracle have been quick to point out how their products can help companies hone their green initiatives and align them with core business strategies.

SAS introduced its decision-support software platform, SAS for Sustainability Management, in April. The product uses the sustainability reporting framework developed by the Global Reporting Initiative, though SAS also accommodates customer requests for industry-specific standards, according to Alyssa A. Farrell, marketing manager for sustainability solutions.

Sustainability-related data comes in a variety of flavors, both qualitative and quantitative, Farrell notes, and an effective performance management system should be able to handle all of them. "How many kilowatt hours did I use for this facility last Monday? What's the square footage of that facility? With that data, I can do some analysis by square foot of all of my global facilities so that if I have a requirement from a retailer for a product that has a low footprint, I can identify the most efficient facilities to produce it."

While the Global Reporting Initiative framework is currently the dominant standard for greenhouse gas reporting, it's by no means the only one. Infor decided against building any specific standard into its performance management solutions, says Christina McKeon, director of performance management solutions. "While we can work with our customers and we can certainly help them build templates that meet their specific business needs, we can't say 'here is exactly what you need to do sustainability reporting' because right now there's no regulation around it, and there are so many different interested parties," she says.

Colbert hasn't come across any new BPM functionality emerging in the sustainability area, though he has seen "a very nice bundling of existing capabilities." Of course, there's no reason why a company shouldn't leverage the BPM tools it already owns for green initiatives. For example, it might decide to incorporate some sustainability indicators into a balanced scorecard, or build an executive dashboard to monitor key environmental performance metrics.

The key is to leverage BPM to gain visibility into the financial impact of sustainability efforts. "That's one thing that frequently gets overlooked," says McKeon. "If you ask a CFO about sustainability, his or her response is typically going to be 'OK, that sounds great, but how much is it going to cost us? And what do we gain in the long term versus what we lose short-term by doing this?' Too often, green initiatives are treated like philanthropic efforts or the products of corporate "feel-good mentality," she adds.

Colbert shares that point of view. "There's definitely an in-vogue aspect to it, but in addition there are some real fiscally responsible components," he says. After all, consumer goodwill links to brand value, which links to market capitalization. And if, as seems likely, a carbon emissions cap-and-trade system is implemented in the United States (both John McCain and Barack Obama have called for one, as we noted here), "having these systems in place will give you a leg up -- which is going to have a direct impact on your bottom-line performance," Colbert adds.

All of which suggests that "green BPM" is not just a fad, but a critical tool for decision-making in the age of sustainability.