WifOR supports companies to assess and evaluate sustainability performance – including SAP. Thomas Birnmeyer, the company’s former Chief Expert and Senior Director for Global Sustainability, shares in an interview how SAP approaches sustainability measurement, prioritizes key topics, and uses data to support decision-making. Read more here.
Regulatory requirements for sustainability reporting
The Corporate Sustainability Reporting Directive (CSRD) is the European Union’s regulatory framework for corporate sustainability disclosures, which are specified through the European Sustainability Reporting Standards (ESRS). The directive aims to improve the transparency, consistency, and comparability of sustainability information.
Since its adoption, the reporting framework has been revised through the EU Omnibus package. This substantially reduced the number of companies that have to report under the CSRD.
Which companies are required to disclose sustainability information?
The rules that apply to an organization depend on its size, legal structure, and location. As regulations continue to evolve, it is recommended for companies to regularly review how these rules affect them.
Large companies
Large firms are generally subject to CSRD requirements if they meet the following criteria:
- more than 1,000 employees
- and either annual turnover exceeding €50 million or total assets exceeding €25 million
Organizations within scope must disclose material sustainability-related impacts, risks, and opportunities (IROs) in accordance with the ESRS.
Small and medium-sized enterprises (SMEs)
Following the latest regulatory changes, most SMEs are no longer required to report under the CSRD.
This includes:
- non-listed SMEs
- micro-enterprises
- most listed SMEs that were previously expected to report under the original CSRD framework
However, many SMEs continue to receive sustainability-related requests from customers, investors, financial institutions, and large companies within their value chains. Therefore, the ability to provide reliable sustainability information remains an important competitive factor, even as formal reporting requirements have been reduced.
Non-EU companies
The CSRD may also apply to certain non-EU companies if they have significant operations in the European Union. This generally includes companies that:
- generate more than €450 million annual turnover in the EU
- have at least one large EU subsidiary or a qualifying EU branch
USA
The United States has not introduced a comprehensive federal sustainability reporting framework comparable to the CSRD. Instead, sustainability disclosure requirements are based on a combination of federal securities regulations, state-level legislation, and stakeholder expectations. As a result, reporting obligations vary depending on a company’s location, industry, and business activities.
Publicly listed companies
The US follows a principle-based approach to corporate reporting. Public companies disclose information that is material to investors, including sustainability-related risks where relevant. The framework is overseen by the Securities and Exchange Commission (SEC). As a result, sustainability-related information is primarily linked to financial materiality and investor decision-making.
Companies operating in specific states
Beyond federal requirements, several states have introduced their own sustainability-related disclosure obligations.
California has been particularly active in this area. Its Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261) impose additional climate-related reporting requirements on large companies operating in the state.
Therefore, companies operating across multiple jurisdictions often need to comply with federal, state-level, and international sustainability reporting requirements.
Reporting frameworks commonly used in the United States
Alongside regulatory obligations, many organizations use established sustainability reporting frameworks to structure disclosures and improve comparability.
Commonly used standards include:
- The Global Reporting Initiative (GRI) – focusing on an organization’s environmental, social, and economic impacts
- The IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2) – developed by the International Sustainability Standards Board (ISSB), which addresses sustainability-related risks and opportunities relevant to investors
- The Sustainability Accounting Standards Board (SASB) Standards – providing industry-specific guidance on financially material sustainability topics
These frameworks differ in their objectives, target audiences, and approaches to materiality. Many multinational companies combine them in practice. This helps meet the information needs of stakeholders and investors while making sustainability reporting more consistent and comparable across different countries and regions.
Developing a sustainability strategy
A sustainability strategy provides the framework for integrating ESG topics into decision-making. It helps organizations align sustainability objectives with broader business goals and manage sustainability-related risks and opportunities in a structured way.
Prioritize what matters most
Many companies use a Double Materiality Assessment to identify sustainability priorities. Under the ESRS, the assessment helps determine which sustainability topics need to be reported. The process also helps organizations understand where the most significant impacts, risks, and opportunities occur across the value chain and where resources can create the greatest value.
This often requires answering questions such as:
- Which sustainability topics represent the largest risks or opportunities?
- Where in the value chain do the most significant impacts occur?
- Which initiatives should be prioritized when resources are limited?
- How can sustainability performance be incorporated into business decisions?
The insights gained from this process help organizations prioritize action, allocate resources effectively, and integrate sustainability considerations into corporate strategy.
For a detailed explanation, see our article on Materiality Assessment.
KPIs for sustainability measurement
The choice of sustainability metrics reflects an organization’s strategic priorities and decision-making needs. Rather than tracking every available indicator, it is advisable to focus on key performance indicators (KPIs) that help assess risks, opportunities, and impacts across their operations and value chain.
Which KPIs can companies use to measure sustainability?
The most relevant indicators vary by industry, business model, and material sustainability topics. They are typically grouped into three categories: social, environmental, and economic indicators.
Social indicators to measure sustainability
Social KPIs help organizations understand how their activities affect employees, workers in the value chain, and broader society.
Examples include:
- Occupational health and safety performance
- Workforce diversity and inclusion
- Employee training and development
- Fair compensation practices
- Human rights risks within the supply chain
These topics are also becoming increasingly important as companies prepare for sustainability due diligence requirements across global value chains.
Environmental indicators
Environmental KPIs measure an organization’s impact on natural resources and ecosystems.
Examples include:
- Greenhouse gas emissions
- Water use and water pollution
- Waste generation
- Land use
- Biodiversity-related impacts
- Plastic leakage into the ocean
Economic indicators
Economic KPIs help organizations assess the value they create for employees, governments, suppliers, and local economies.
Examples include:
- Gross value added (GVA)
- Employment creation
- Labor compensation
- Tax contributions
- Local economic development
Looking beyond individual KPIs
KPIs provide important insights, but they capture only individual aspects of sustainability. To understand environmental impacts, evaluate investments, or integrate sustainability into strategic decision-making, organizations need additional assessment methods. The most suitable approach depends on an organization’s objectives. Some methods focus on environmental impacts, while others support project evaluation or strategic decision-making. Depending on the question being addressed, different approaches can be applied.
Methods for Sustainability Assessment
Life Cycle Assessment (LCAs)
LCAs measure the environmental impacts of a product or service throughout its lifecycle, from raw material extraction and production to use and end-of-life treatment. LCAs provide insights into environmental hotspots and are widely used to support product design, supply chain management, and environmental reporting. However, conducting a comprehensive LCA can be data-intensive and often requires specialized expertise.
Cost-Benefit Analysis (CBA)
CBA evaluates whether the expected benefits of a project or initiative outweigh its associated costs. The approach supports investment decisions by helping organizations compare alternative courses of action. While useful for evaluating individual projects, CBA can become complex when organizations seek to account for broader environmental and social impacts that are not easily expressed in financial terms.
Impact Measurement & Valuation (IMV)
How can organizations compare and evaluate different types of impact? Sustainability decisions often involve trade-offs between social, environmental, and economic factors. Organizations therefore face the challenge of incorporating a wide range of outcomes into decision-making while weighing them against one another. Since these impacts are measured using different indicators and units, direct comparison is often difficult.
IMV addresses this challenge by translating environmental, social, and economic impacts into a common unit of measurement – typically monetary values. IMV uses scientifically derived value factors are used to reflect the societal significance of different impacts. For example, the same amount of water consumption can have very different consequences depending on regional water availability. In this way, IMV considers not only the magnitude of an impact, but also the societal context in which it occurs. This enables organizations to assess different sustainability impacts consistently and incorporate them into decision-making.
With this approach, organizations can:
- identify hotspots across the value chain
- evaluate trade-offs between environmental, social, and economic impacts
- prioritize initiatives based on evidence
- allocate resources more effectively
- integrate sustainability considerations into business decisions
IMV helps organizations make the actual impacts of their activities visible, reduce risks and negative externalities, and direct resources to where they can create the greatest positive impact.
Best Practice SAP
SAP has been using the Impact Measurement & Valuation for several years. What started as an effort to quantify sustainability impacts across the value chain has evolved into an approach that supports materiality assessments, human rights due diligence, hotspot analyses, and sustainability steering. In this interview, Thomas Birnmeyer, former Chief Expert and Senior Director for Global Sustainability at SAP, talks about the joint project. The interview took place in September 2021.
What were the key needs and challenges you approached WifOR with?
Thomas Birnmeyer: As a member of the Value Balancing Alliance (VBA), we were faced with the question of how to implement the method recommended for evaluating ESG indicators at SAP. We do not have sufficient primary data to calculate upstream effects, meaning the impacts that occur from our suppliers. Therefore, we knew that we would have to rely on industry data and input-output analyses. To fill these data gaps, we come to WifOR as the scientific partner of the VBA. WifOR has since supported us in modeling the impact measurement and evaluation of our supply chain.
What were the milestones of the project?
The first milestone of our project was the scope definition. We determined which of the VBA indicators are meaningful for SAP and how we can expand them – for example, gross value added or training measures. We then collected the internal data that WifOR needs for further processing. The third step was the actual calculation and data modeling. Here, WifOR evaluated the VBA indicators according to the VBA method papers for the supply chain. The final step was the interpretation and presentation of the results.
How has SAP been able to use the results?
Our project is currently still in pilot status. Our aim is not only to meet existing and future regulatory requirements, such as CSRD or due diligence, but also to actively integrate the Impact Valuation results into management processes and decision-making. This is our mid- to long-term goal. However, some of the results have already been applied today. For example, with WifOR’s support, we reorganized the processes for SAP’s internal data collection for impact assessment and improved our calculation methods. As a result, we achieved a higher overall quality of results and reporting, which helped us to demonstrate the added value and importance of Impact Valuation – both internally and externally.
Initial results can be found in our Integrated Report 2020 (see pages 210-216). For example, we determined the greenhouse gas impact coming from SAP’s supply chain. The negative impact of greenhouse gas emissions was quantified at €182 million, which helped us in our decision-making regarding the implementation of our CO2 reduction strategy.
Thomas Birnmeyer
Chief Expert & Senior Director for Global Sustainability at SAP
Our ambition is not only to meet legal requirements, but also to actively integrate the impact valuation results into management processes and decision-making. That is our mid to long-term goal.
What have been the most important learnings since the project began?
Overall, there have been plenty of helpful learnings. One topic where we made a lot of progress is, for instance, the definitions of different VBA indicators. This helped us better understand the methodology behind the assessment of environmental and social impacts. As a result, we understand which parameters are ultimately crucial for measuring impact.
What feedback, both internally and externally, have you received in the course of project and after completing it?
We received a lot of positive feedback around meaningfully supplementing our financial reporting with the non-financial aspects – this was only possible by translating non-financial data into the same “language” as financial data. The impact measurement approach that we implemented with WifOR contributed greatly to this. Internal feedback has also been insightful: our CFO decided to incorporate Impact Valuation step-by-step into management processes and decision-making. The fact that we were able to derive specific measures from the Impact Valuation results to foster change made this project so significant.
Which further steps are you planning for the future?
Over the next few years, we will keep on measuring and evaluating the VBA indicators using the methodology developed with WifOR. Reporting is a requirement, but incorporating these results into decision-making processes is the truly decisive element. Impact Valuation at SAP will be developed to such an extent that the method is gradually used throughout the company and integrated across departments.
