Not only industry, but the entire economy is being called upon more than ever to focus on both the economic and environmental sustainability of its actions. No wonder that corporate social responsibility (CSR) has been replaced by environmental social governance (ESG) as part of corporate strategy, particularly in leading companies. If you take a closer look at the "environmental" in the ESG term, companies have a responsibility to reduce their conventional energy consumption,_{CO2 emissions} per unit of value added, their resource footprint and the proportion of degraded land. So there is a lot to be done. Without digitalization tools and strategies, however, it will be difficult to monitor and reduce emissions - even if you consider that legislators are exerting and will continue to exert pressure through regulation in order to achieve the sustainability targets that have been set, such as climate neutrality by 2045. Further pressure will arise if companies that still fall below the legislative thresholds are forced by their own customers and business partners to disclose their corporate and/or product carbon footprint or to present a climate neutrality strategy.

It is therefore not only corporations that are responsible for ESG reporting obligations. The Corporate Sustainability Reporting Directive (CSRD) adopted by the EU Parliament states that companies with more than 250 employees, a turnover of 40 million euros or a balance sheet total of more than 20 million euros will be subject to CSRD reporting obligations, including_{carbon footprinting}, from the 2024 financial year.

CO2 management with business software

Analysis of information availability: ERP and ME systems have the most relevant data for balancing Scope 1.

© proALPHA

Wherever companies are in the value chain: In order to meet their ESG reporting obligations and achieve sustainability targets, they need to record and process data digitally. However, as things stand today, ecologically oriented functionalities are highly fragmented and poorly integrated into existing IT system landscapes. This often prevents holistic, digital sustainability management.

But what data do companies actually need for accounting and which of this information can business applications already provide? A study conducted by CIBA in collaboration with the FIR at RWTH Aachen University on behalf of ERP expert proALPHA investigated these questions (see box).

Market analysis of CO2 management software

The authors of the study took a close look at 20 different_{CO2 management systems}, including a number of start-ups. Almost all of them advertise automated data import. However, a closer look reveals that the necessary interfaces first need to be developed and that the scope of emissions included is still small. The interfaces of the solutions are mostly user-friendly with visualizations, analyses and reports as well as concrete suggestions for_{CO2 reduction}. They differ in terms of convenience, technology and the expert knowledge behind them. Overall, the majority of_{CO2 measurement} tools offer a full range of services. Differentiation on the market is achieved through the characteristics of the respective functionalities.

ERP systems are ahead

According to the authors of the study, the ERP system beats all other types of business software in terms of data availability because it maps the entire order processing and procurement processes as well as production. Of the 339 pieces of information identified as necessary for the GHG protocol, it provides 141, which corresponds to a rate of 42 percent. The MES (Manufacturing Execution System) also serves as an important source of information, accounting for just under a quarter (78 pieces of information or 23%). Supplier and customer relationship management systems (xRM) contribute around a fifth of the information with 74 (22%), while transportation management and machine and production data acquisition each contribute 5% of the information (16%). If companies combine the ERP system with an MES and machine and production data acquisition, they already have access to around 70 percent of the data required for the GHG protocol. Scope 1 data can be collected almost completely. Most of the relevant data is stored in the ERP and MES system. However, companies need additional IT systems or estimates to balance emissions from processing and fugitive emissions.

Data from accounting

Exemplary measures to increase the availability of information in business applications. Three main fields of action are required for CO2 balancing in the ERP system. The integration of emission factors and the implementation of new data fields is particularly complex.

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ERP data from accounting can also be used to balance Scope 2 data. Companies can also obtain information about purchased products and transportation (Scope 3) in their business management software. However, there is a lack of emission factors that can be used to calculate the_{CO2 pollution} caused by a particular activity in order to complete the balance sheet. Politicians could support companies by making the necessary data, such as emission factors, more easily accessible for simpler sustainability reporting. The Manufacturing-X or Catena-X economic initiatives are suitable vehicles for this.

The availability of information

With the help of an ERP system, it is possible to identify levers within the application systems that companies can use to effectively reduce their emissions. Scope 3 emissions have a significant impact across all industries at 74 percent and even 89 percent in mechanical engineering. Greenhouse gas emissions can be significantly reduced in sales and service, purchasing, materials management and production. Companies can use key figures in the system to identify where their greatest savings potential lies. The existing functions within the core modules of an ERP system such as proALPHA offer many levers for reducing_{CO2 emissions}.

Integration of CO2 management software

For complete GHG monitoring, business software usually needs to be combined with a_{CO2 management tool}. As the ERP systems widely used in SMEs rarely offer a fully integrated solution, it is advisable to add a platform-independent best-of-breed solution to the business software. In this way, companies are quickly able to efficiently balance and effectively reduce emissions. The study shows that companies can significantly reduce the effort involved in_{CO2 balancing} if they use the data already available from ERP systems and other business applications. In addition to increasing efficiency, the use of existing data also enables greater accuracy in balancing. This transparency is the basis for deriving suitable measures to increase sustainability, especially for manufacturing companies.

The author: Michael Finkler is Managing Director Business Development at the proALPHA Group.

© proALPHA

Operational measures to_{reduce CO2} should be supported by business solutions, as business processes today interact strongly with other business applications. Existing functionalities should be expanded for this purpose. In general, companies should increase the availability of information within business applications in order to exploit the potential of ERP and co. for_{carbon accounting}.