Providing value through embedding white-label carbon management in Compliance, ESG and Risk management software
Micha Schildmann, Mark Etzel
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June 18, 2024
Executive Summary
1) Regulation such as CSRD, EU Supply Chain Law and the German Supply Chain law increase the urgency and need for compliant reporting among global enterprises and their suppliers
2) Executives look to their existing ESG, Compliance and risk management software providers (ECR) for a carbon solution. These providers are challenged to meet the time-sensitive demand for sophisticated carbon accounting technology
3) The quantitative and complex nature of carbon management diverges from ECR providers’ core capabilities. This requires them to invest in building up new expertise and technology instead of focusing on their key value in compliant reporting
4) White-label carbon management enables ECR providers to plug this missing piece into their compliance suite. A white-label solution reduces development costs and complexity, while being the fastest way to meeting customers’ compliance needs.
Introduction
In today's rapidly evolving business landscape, the fusion of sustainability imperatives, corporate responsibility, and regulatory compliance has ushered in a new era of conscientious business practices. Software companies pioneering the realm of ESG (Environmental, Social, and Governance) software, risk management, and compliance solutions (collectively ECR management), play a key role (1) in guiding organizations towards a future that balances profit with ethical and ecological considerations. This article explores the transformative potential of enhancing existing suite ECR management solutions with sophisticated and scalable white-label carbon management software.
What sets carbon management apart is its quantitative nature. While most ECR management solutions are based around qualitative assessments, carbon management requires a data-driven approach where a robust methodology and advanced analytics are at the center. These capabilities are already crucial to facilitate compliant reporting, but even more so for advanced use cases such developing and tracking reduction measures. However, there is a vast gap between ambition and reality, an SAP insights survey (2) found that 86% of organizations still use spreadsheets to measure emissions data. While the former has the highest priority for the vast majority of companies now, the latter will be crucial for companies to compete in a soon to be sustainable economy.
The journey towards a more sustainable future is marked by the collaborative efforts of stakeholders across industries. Partnering with white-label carbon management providers like forward earth allows ECR management providers to continue focusing on their areas of expertise while offering their customers a seamlessly integrated state-of-the-art carbon management solution.
The carbon management challenge in the context of broader ESG, compliance and risk management
Challenges for users
Carbon management is just one part of a much broader risk management and compliance challenge which today’s finance, risk management or quality control functions need to solve. For most practitioners, the first priority is compliance with regulation and laws, for obvious reasons. Recently passed legislation such as CSRD (3), EU Supply Chain law, and the German Lieferkettengesetz have made the compliance domain exponentially more complex and broad, increasing the risk for companies to unwillingly violate laws. Current ECR management software is trying to enable their customers to manage aforementioned risk across this broad domain which is also in line with the expectations of their customers.
According to workiva’s Global 2022 ESG Survey (4) however, more than 70% of executives surveyed lack confidence in their organizations’ own ESG reporting and while progress is needed across all facets of ESG, tackling the ‘E’ is a major focus for organizations.
One particular challenge is the fact that most ESG, supply chain and compliance management solutions do not provide their own carbon management solution, or only very basic ones. This may work for companies with simple emissions profiles such as professional services, but is inadequate for many others, particularly in the industrial sector.
A BCG study (5) found that 81% of respondents fail to include all Scope 1 and 2 emissions and estimate an average of 30 to 40% error rate in their results.
Accordingly, many companies are facing the choice of introducing a second tool to create and manage the carbon data that is needed in their ESG reporting.But managing compliance topics across multiple tools can create many challenges for companies. First, as they create and monitor relevant data in siloed tools, they will not be able to get an holistic overview across all topics, and will be at the risk of missing critical issues or dependencies. Second, prioritizing improvements is more difficult if companies cannot compare individual improvements on the same dataset. Furthermore, there are operational risks, as the transfer of data across systems is a common source of errors. Last but not least, having multiple systems for a similar domain significantly increases the cost which is especially important in times where margins are squeezed and the economic outlook is dim.
Summarizing, most users will be looking at their current compliance/risk or ESG management solution to also provide the required carbon data but are unlikely to have all their needs met.
Challenges for ESG, Compliance and Risk Management software providers in providing carbon management capabilities
As ECR software providers have the goal to provide holistic solutions to their customers, they need to provide carbon management capabilities as well. This mirrors the expectation of their customers to manage all these aspects in one solution as outlined in the previous chapter. Furthermore, providing carbon management solutions is clearly of commercial relevance for ECR software providers, as it increases delivered value to the customer and thus revenue as well as customer stickiness. To provide carbon management to their customers, they have three options: having their customers rely on a separate standalone solution, developing a solution in-house, or leveraging a white label solution.
Separate standalone solutions can refer to carbon management software by other providers, support from consultancies or all too often own excel-based calculation models. All of these have distinct advantages and disadvantages in regards to their standalone usage which this article will not go into. What they all have in common in the context of broader ESG management is that it will cause extra effort and pose a business risk. Customers waste time manually transferring data between applications and might consider looking for alternatives elsewhere while ECR providers may see themselves forced to develop and maintain a number of integrations to retain them. Furthermore, partnering with a stand-alone solution will not or only marginally improve annual contract value (ACV) and customer stickiness.
Developing carbon management in-house is possible but rarely a viable approach for companies without preexisting carbon accounting expertise or the ability to acquire and integrate an established player. ESG solutions and carbon management solutions differ significantly making it hard to leverage existing expertise and tools. Accordingly, significant investments are needed to build out carbon capabilities, which can diminish focus on the core value proposition in a phase of intensifying competition.
An additional challenge is that companies that take carbon accounting seriously soon have expectations that go beyond ESG reporting such as wanting to measure the footprint of individual products and define reduction strategies. Companies may find themselves having to make tough decisions between losing focus or underserving their most ambitious clients.
Saif Hameed, Founder & CEO of Altruistic, describes in his Podcast (6) the dilemma that many ERC providers face. SMEs and enterprises with simple environmental profiles currently prefer holistic ESG-solutions which also provide carbon accounting as these are more efficient in their implementation and maintenance. Enterprises which are seeking deep insights into their emissions would benefit more from solutions which are specialized in carbon. These companies are commonly larger ones which require insights into their scope 3 (7).
Due to the high demand for carbon accounting solutions from SMEs and larger enterprises, it is essential for ERC-providers to implement carbon accounting solutions. At the same time, their larger enterprise customers will require more sophisticated and complex carbon management solutions. Building these will require significant investments into expertise and technological capabilities. While these investments carry significant risk, ERC-providers which will be able to provide these, will be able to build a significant competitive advantage in the very profitable segment for larger enterprises. A white-label carbon management solution is a compelling option: she can enable this competitive advantage and thus additional revenues without the significant investments. The next section will explore this option in detail.
Benefits of integrating white-label carbon management into ESG, compliance and risk management software
2.1 Benefits for software providers
Fortunately, there is a straightforward way to address these key challenges all at once and improve ACV and customer stickiness. The choice of embedding a white-label carbon management solution into the platform has several strategic advantages for ECR management providers. Key benefits include:
Instant Carbon Expertise: Integrating a carbon management solution into the offering provides immediate access to a sophisticated carbon solution and a team of experts behind it. This eliminates the need to not only develop complex models and algorithms from scratch but also acquire a deep understanding of emission calculations, reduction strategies, and data analysis which customers will require.
Consistency: By tailoring a white-label solution to the branding and interface, it aligns seamlessly with the platform's look and feel. This integration fosters user familiarity, ensuring a consistent experience across compliance, risk management, and carbon management functionalities.
High Quality Results: Roughly estimating one’s carbon footprint may be easy and may have been sufficient a few years ago. However, if results generated carbon management solutions are to be used for reporting that stands up to scrutiny and allow for strategic decision making, they need to be reliable and detailed. This inherently requires quantitative precision, data-driven approaches. Developing in-house puts the responsibility to meet that standard to the ECR management provider, while leveraging a white label solution is a less risky choice.
Operational Efficiency: Constructing a compliance solution often involves interpreting and addressing ever-changing complex regulation and guidelines. This has significant technical implications which need to be managed on a continuous basis, e.g., change of methodology, recalculation policies, versioning of results, auditability of these. Integrating a carbon management solution streamlines the development of a quantitative system, saving time and resources while enhancing the value ECR management software provides.
By integrating a carbon management solution into the platform, providers bridge the gap between qualitative compliance solutions and the quantitative precision required for effective carbon management. This strategic decision enriches offerings and equips customers with a holistic approach to sustainability that encompasses both regulatory adherence and data-driven environmental responsibility.
2.2 Benefits for the End-User
The decision to integrate a carbon management solution into an ECR platform offers key advantages to end-users, particularly when compared to standalone carbon management solutions. Key benefits include:
Simplified User Experience: The seamless integration of a carbon management solution into the existing platform eliminates the need for users to navigate multiple interfaces. This cohesive user experience fosters engagement by offering a one-stop destination for both compliance and carbon management needs. These benefits even extend to unified reporting as well as easier auditability.
Comprehensive Sustainability Insights: An integrated platform provides users with a holistic view of their sustainability efforts. They can seamlessly access both compliance-related qualitative information and quantitative carbon data, empowering them to make informed decisions that encompass a broader spectrum of their environmental impact. For instance, compliance data can be linked to relevant carbon emissions, enabling users to identify areas where compliance actions intersect with carbon reduction strategies.
Holistic Carbon Management: Ambitious carbon management goes beyond the minimum requirements of ESG reporting. Once companies have covered the basics, they will often want to identify hotspots, model and track reduction measures, calculate the footprint of their products, and more. Conversely, dedicated carbon management solutions have the right features for all these tasks.
Cost and Time Efficiency: Utilizing an integrated solution streamlines operations, minimizing the need to manage and maintain separate systems for compliance and carbon management. This integration not only saves valuable time but also reduces costs associated with software acquisition, system maintenance, training, and data handling.
By embracing an integrated approach, end-users are positioned to reap the benefits of streamlined operations, enhanced data insights, and optimized sustainability practices. This allows them to align their activities with their sustainability goals and at the same time contributes to efficiency gains, cost reductions, and improved decision-making.
Empowering Sustainable Transformation Through Integration
The integration of an embedded carbon management software within an ECR management platform catalyzes a profound shift towards sustainable business practices. By offering users a unified platform that encompasses ESG insights, risk management, compliance adherence, and advanced carbon management, software providers foster a culture of transparency, informed responsible decision-making and innovation.
Please reach out to us at contact@forward-earth.com in case you are interested in understanding more about embedded carbon management software.
Sources
1 https://www.strategyand.pwc.com/de/en/functions/sustainability-strategy/esg-software-market.html
4 https://www.workiva.com/resources/global-survey-reports-esg
5 https://web-assets.bcg.com/86/d8/0532a17246b888265292f56ef998/gamma-ai-emissions-211011.pdf
6 https://www.linkedin.com/pulse/esg-all-in-one-vs-carbon-specific-platforms-finding-optimal/
7 https://www.climateimpact.com/news-insights/news/climate-impact-partners-annual-report-reveals-climate-commitment-issues-among-fortune-global-500-companies/
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