By Marius Wessels
The importance of environmental social and governance (ESG) is, today, continuing to gain great traction in industries across the world as businesses now recognize their responsibility to operate sustainably.
At the same time, Enterprise Resource Planning (ERP) vendors are accordingly emerging as key players in promoting and supporting ESG initiatives through their integration of the concept’s principles into their resource planning solutions.
In essence, with the growing automation trend in many companies, there equally is a growing demand to incorporate ESG principles and functionalities in their ERP systems.
And with this development, ERP vendors are not only aligning themselves with these global sustainability goals but also addressing the growing demand from businesses and consumers to be responsible and accountable for their practices.
For starters, ESG denotes the practice of assessing organizational business practices and performance on sustainability and ethical standards. It acts as a measure of business risks and opportunities within environmental, social, and governance aspects.
Its environmental aspect involves evaluating a company’s impact on the environment, such as its carbon emissions, waste management, and resource consumption.
The social aspect focuses on a company’s relationships with its employees, customers, suppliers, and the communities it operates in, while governance assesses a company’s leadership, transparency, and adherence to ethical business practices.
When the whole concept is integrated into ERPs, numerous benefits are created for the company or business operations. These include reducing costs for the company, improving its financial consolidations, streamlining business processes, improving customer satisfaction and widening its competitive edge.
Among the key reasons why ESG has become a top priority for ERP vendors is the growing recognition of the risks that are associated with unsustainable business practices.
Environmental issues, including climate change hazards, and natural disasters are a constant threat to the long term viability of a company’s businesses. Further to these, social issues, including labor rights, diversity, and community impact, have a direct influence on a company’s reputation and its market positioning.
As a result, businesses are constantly under increasing pressure to adopt sustainable practices and demonstrate responsibility to both regulatory bodies and the consumers who are growing conscious of these trends.
Under this lens, ERP vendors play the key role of enabling businesses to measure, monitor, and manage their ESG performance. This is achieved by integrating ESG metrics into their ERP systems, and with this move, the ERP vendors enable the organization to track and report on its key sustainability indicators.
These may include the company’s energy consumption, its waste reduction and management, its sustainable use of resources as well as the social impact that the company presents.
The integration of the ESG into the company’s ERPs not only helps them to enhance their ESG performance but also comply with the reporting standards, its engagements with the stakeholders and its ability to make informed decisions that are data-driven, and hence improve their sustainability efforts.
ESG integration into ERPs also enables businesses to make and take more holistic approaches to sustainability management. Incorporating the requisite ESG metrics and data in ERP systems ensures that companies are able to track and manage their carbon footprints, social initiatives, and governance practices in a much more centralized and structured manner. The result is that the company gets a comprehensive understanding of its sustainability, ethical and governance performance.
In addition, through integrating ESG into ERP systems – which are themselves powerful tools for data management and analysis – organizations have the ability to gather and analyze all information related to its ESG performance alongside its other operational and financial data.
This provides the businesses top hierarchy and decision-makers with a more comprehensive outlook of the organization’s performance, a factor that enables data-driven decision-making that puts into consideration the ESG factors as well as the business’s normal workings.
With ESG integration, the organization is able to identify and manage its ESG-related risks much more effectively and comprehensively. This is achieved by tracking the ESG metrics within the ERP system, and in turn the organizations proactively monitoring and mitigating any risks that may be associated with environmental impact, labour practices, supply chain vulnerabilities, and other governance snags. Ultimately, this improves overall compliance with the pertinent regulations and industry standards.
Again, when an ERP software comes with ESG integration, there is significant improvement in a company’s transparency and reporting capabilities. It allows the organization to generate comprehensive reports and disclosures on their ESG performance. These are increasingly becoming important for investors, regulators, and other stakeholders. With the ESG data, the company is able to provide transparent, accurate, standardized, and reliable information to demonstrate its commitment to sustainability and other requirements.
Through this, the ERP vendors demonstrate that they, likewise, are committed to sustainability and ethical practices so that they can, in turn, have their prospective business partners and customers trusting in them.
And with that, through responsible procurement, waste reduction strategies, employee well-being initiatives, and transparent governance structures, ERP vendors are epitomizing the positive impacts that can be achieved when ESG principles are incorporated as an integral part of ERPs in a business’ operations.
(Marius Wessels is the Manager for Professional Services at SYSPRO Africa).
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