Entry by Kimberly Knickle

One of the issues I'd like to better understand is sustainability intelligence --  what it means from a manufacturing perspective and how manufacturers can achieve sustainability intelligence.   I'm not expecting this to be a well defined software market at this point, but instead, it's a business need. 

As I'm preparing my research, my first step is to define my expectations.   To start with, I expect to have company-wide sustainability intelligence.  That's easier said than done, as many companies can agree, especially for those with complex supply chains, a diverse set of products, and numerous production facilities.  This includes implementing a data gathering process, data quality checks, and data consolidation, from many facilities, business units, and functions within a company.   The first step in applying sustainability intelligence is to begin comparing facility against facility, perhaps product against product, state by state, or even this year's performance against last.  

But I'm also expecting much more than sustainability visibility, such as using a snapshot of the current performance (ie a sustainability report in the most basic sense) to set goals, measure performance against those goals, benchmark against other industry peers, and even evaluate investments and projects that are designed to support the improvements.  

Bringing Environmental Sustainability and Financial Performance Together - Integrated Reporting

I've never been a huge fan of environmental sustainability discussions focusing exclusively on carbon, partly because I've always expected manufacturers to incorporate a financial component.    As a result, I expect sustainability intelligence to definitely have a financial understanding built into the evaluation.   My thinking matches well with a growing initiative around integrated reporting - in which a company combines its financial and non-financial reports into a single report with varying degrees of integration.

Recently, I spoke to Bob Eccles, Professor of Management Practice at Harvard Business School, and member of the Steering Committee of the International Integrated Reporting Committee (www.integratedreporting.org).  

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Early Progress from Companies and Countries

Bob pointed to companies practicing integrated reporting in the United States - Southwest Airlines, American Electric Power, and United Technologies Corporation, and outside the United States - Philips in the Netherlands, BASF in Germany, Novo Nordisk in Denmark, and Natura in Brazil. South Africa is a good example of integrated reporting in action, where the country recently mandated integrated reporting by all companies listed on the Johannesburg Stock Exchange. 

Although he provided examples of companies (and countries) adopting and encouraging integrated reporting, it remains a fairly uncommon practice for a number of reasons, including uncertainty around exactly what to report and how to put a process in place to create and audit an integrated report.  There are other issues that include concerns over transparency and a lack of executive support or interest.  But the motivation for integrated reporting, in the absence of regulation or mandates, still comes down to sustainability leadership, brand, and reputation in most cases. 

I asked Bob if he is seeing any adoption patterns by country or industry, and we talked about the fact that it's still too early to tell.  And we also discussed the positive impact that would result from a major industry group (in manufacturing) supporting the initiative, though we haven't yet seen that.  For those that would like to learn more about Bob's research and work on integrated reporting, you can refer to his online book The Landscape of Integrated Reporting: Reflections and Next Steps.

Acknowledging the Role of IT

I'm encouraged by the fact that much of Bob's work on integrated reporting acknowledges the role of IT.   He's working with a number of IT vendors (software and service providers) to make that connection even stronger, including SAP and Enviance.  It's easy for me to understand why he has a connection with SAP and Enviance.  Both vendors have good reason to see the value in integrated reporting, with SAP's strength in the ERP and financial side of the business and Enviance's "environmental ERP" approach and its CEO's background in law. 

I expect that once companies create the integrated report, they can confidently state that sustainability is a component of good business (more on this topic of green business as good business in my next blog). 

But that's the point behind an integrated report – manufacturers need to make the connection between sustainability and financial performance in order to have sustainability intelligence.

Incorporating IT into the process of creating an integrated report is going to make the process much more reliable and easier in the long run, perhaps through a cloud-based platform to accelerate the transition, documented workflows and data connections, or even greater access to information throughout the company via a centrallized repository.  Ultimately, it's IT-enabled sustainability intelligence that's going to support smarter decision making and enable better performance  - financially and environmentally.  

Keywords

sustainability, intelligence, financial reporting, sustainability performance management