Article

Four transformative ways ERP can drive smarter, sustainable decisions

Dec. 10, 2024 · Authored by Cindy M. Bratel

Environmental, Social and Governance (ESG) criteria have become essential for the success of modern enterprises. ESG evaluates the sustainability and societal impact of businesses. Sustainability credentials have now become a key consideration for investors, consumers and other stakeholders seeking to understand the full scope of a company’s operations and long-term viability. According to MSCI, management of ESG practices can improve risk management and result in outcomes like improved customer attraction, employee retention and enhanced financial performance. There is a growing impact of ESG factors. For instance, increased public awareness of environmental challenges, such as climate change and biodiversity loss has increased the demand for corporate accountability and action.

Regulatory bodies have also begun placing emphasis on sustainability, accompanied by mandatory disclosure requirements and investment mandates, which leads to incentivizing firms to improve their ESG standing. However, the encouraged adoption of ESG practices is not without its challenges of its own. Among these is the inconsistency in reporting frameworks. Different frameworks lead to variability in how companies measure and communicate their ESG performance. Modern enterprise system’s ESG data is another important factor in reporting. Inconsistent, low-quality data also undermines trust in ESG initiatives.

How are businesses leveraging ERP systems to integrate ESG data and enhance their decision-making processes?

Enterprise resource planning (ERP) systems integrate business functions into one unified platform and help organizations streamline operations and decision-making. ERP platforms are now being leveraged by today’s companies for ESG accountability. By integrating ESG data into ERP, businesses can better track sustainability performance and goals and comply with regulations. Hence, the ability to track and combine financial, operational and sustainability data in one platform is transforming how companies approach business decisions, making it more data-driven and transparent. Explore the transformative ways in which integrating ESG with ERP helps businesses:

1. Enable holistic ESG data integration and achieve goals

The key benefit of controlling and tracking ESG data across ERP systems is its ability to unify data across business processes. Typically, data related to sustainability, environmental impact and social responsibility are contained in multiple systems, leading to inconsistencies and incomplete reporting. ERP platforms serve as centralized hubs for data on segments like resource consumption, energy usage, waste generation and greenhouse gas emissions. Environmental data visibility unlocks powerful opportunities for targeted action. For instance, in addition to human capital metrics such as employee headcount and training completion rates, it would be beneficial for organizations to incorporate ESG relevant data, such as employee commute data for Scope 3 emissions reporting and safety metrics in ERP systems, to enhance centralized reporting and management. Alongside the environmental dimension, ESG tracking can enhance a company’s ability to manage its social responsibilities. ERP systems are repositories for a wealth of data related to an organization’s workforce, supply chain and community engagement – all of which are pillars of social impact. The governance pillar of ESG is also well-suited for integration with ERP systems as it deals directly with internal control mechanisms, decision-making and accountability structures that are core functions of ERPs. Governance visibility enables more proactive and effective oversight of business processes. This allows enterprises to address control gaps, identify potential vulnerabilities and strengthen overall decision-making frameworks.