Hi everyone, welcome to GreenMonk TV. My guest on the show today is Peter Graff. Peter is SAP's Chief Sustainability Officer. Peter, welcome back to the show. Thank you. Peter, we talked about the previous two parts of the announcement you made a couple of weeks ago. We'd like to talk now about the environmental health and safety management solution that you guys have announced. Why would anyone want an environmental health and safety management solution? First of all, we look at sustainability broader than just environmental aspects. And as I said before, sustainability is all about driving profitability in the long and the short term by holistically managing economic, environmental and social aspects. So what EHS management actually does is it combines economic and social questions. So it helps companies to be more efficient, effective, more profitable by driving social sustainability. Now let me dive a little bit deeper. First, these solutions are not new. What's new is they have been brought together into one solution, that is product safety and stewardship, people health and safety, as well as environmental compliance. Because there's one target customer, which is the EHS manager in an organization who usually buys the solution. That's number one. They also have been extended, so there's easier integration into the SAP suite. There is compliance for new regulation, most specific reach and ROSP, you know, very important regulation that's coming out that companies will have to comply with in the short run. So these products have been created and they drive sustainability from a social element. Let me help you understand what I mean by that. People health and safety is one of the dimensions of the EHS management solution is very much around managing the well-being of your employees, drive greater productivity
2:03because you're reducing the risk that your employees are exposed to. You're reducing the time they miss at work because they're getting sick. It has to do with managing exposure to hazardous waste, for example. It's about incident management, you know, reporting around those. It's about managing the, as I said before, the health of them so that they go and take the safety trainings, they go and take the health checks, all those kind of things. So that's what the solution does. It's very timely because between 2008 and 2010, the overall worldwide investment in those type of challenges is going all the way up to 80 billion dollars and it's actually double the amount that people invested in 2008 in these type of areas, mostly driven by proliferating local, regional, and global regulation. The solution around... So because it's regulation-led, it's not going to be affected by the financial crisis? Right, and absolutely correct. Many people say, "Why is this interesting now? I need to focus on economics." And the point is that regulation comes whether you like it or not. The scarcity of raw material, wood, oil, water, and all these other things will get more, will have much more of an impact on the price of those commodities. We've seen a little bit of a glimpse of that last year with the oil price. Others will come. And finally, there's a great risk to the brand, but there's also an upside from a revenue perspective. That risk of the brand is mostly driven by the awareness by people who ask for businesses to take more accountability and the social media is actually driving a lot of that alignment with the internet as a tool to spread the news good or bad very quickly. Businesses can't control their brands anymore like they did in the past. So they're exposed. They need to manage that really, really tight. So you don't even need to believe in global warming
4:06or in the fact that wealth is a little bit unfairly distributed in this planet. You will just be forced by business fundamentals to take care of these things, no matter if there's a downturn or not. And that's validated from the research we get from our customers. So let's go back to the, we talked about product safety as the next topic. Sure. In the US in 2007, we had 231 product recalls in the children's products area alone. In 2008, it's about 800. So in 2007, 45 million toys units got recalled. And the damage to the brands of those companies is huge. You can look at their stock prices plummet even without a financial crisis. So what product health and safety allows you to do is to make sure that you comply with all regulation in terms of, you know, what is allowed to be in these products and whatnot and to drive that across your entire business process from the design of the product through the sourcing of the product. So you make sure you're not inheriting anything bad from your supply chain, all the way to the production distribution and taking back the product and recycling. There's a lot of new legislation that limits the way how products can look like today. And the regulation there also is very strong. And the third piece is environmental compliance of EH&S. Just to give you an idea how big the challenge is, if you're running a plant, and we got that information from one of our customers in Europe, today they're forced to report out water, air, and waste status around 50,000 different points in a single plant. So 50,000 measure points that need to be reported out, highly regulated. And if you go into nuclear power plants, for example, it's even more crazy. So there's a lot of work to be done that needs to be managed. You need to have your incident management, you need to be able to clarify with regulators, you know, what actions you have taken afterwards. It's a big challenge that needs
6:10to be managed by organizations. The way we do that is to allow customers to add capability to their business and other products. It doesn't have to be SAP to manage those processes by including environmental and social aspects of running the business. Okay. And is this directed at any particular verticals or does it cross? I mean, if I'm a utilities manager, is this relevant to me? If I'm a pharma manager, it is obviously because you've talked about reach. Yes. Are there any specific verticals like that? Yes. A lot of the regulation is on a vertical basis. So if you're running a hydro power plant and you need to now make sure the fish from the lake can get around the turbines into the river, there's different type of regulation as compared to now being an airline. And in 2012, even airlines need to have carbon credits when they fly into or within the European Union. So regulation usually happens by industry. There are other industries who have been regulated for a long time, like the chemical industry, oil and gas is a lot of regulation. But more and more industries are added. Reach is a very significant one specifically for chemicals. We mentioned that before because now for every product that is shipped into the European Union, you need to have a detailed list of which chemicals are in this product. And that now goes beyond just the chemical world into other areas and other industries. So there's a big avalanche of requirements that are now hitting businesses around the world. So sustainability now is a lot more than just marketing. Sustainability is more addressing regulation, addressing health and safety, addressing sales, all these kind of things. Yeah. So let's face it. I mean, a business intrinsically is not motivated by being green or philanthropic. There's very few of them. Most of the businesses are trying to improve their profitability. If you look at the Dow Jones Sustainability Index, A.T. Kearney published great research in February this year. They've looked at the businesses in the Dow Jones Sustainability Index and how their stock valuation
8:13fared between May and November, including the financial downturn. And the result is, compared to the Dow Jones, the companies in the Dow Jones Sustainability Index were 15 percent, had a 15 percent higher market cap through that time. So the market values that. And there also seems to be a correlation of the success of those businesses that look not only at the short term profitability, but have a long term strategy for profitability. That's what we're trying to help businesses with. Reduce the cost of regulation, because regulation comes whether you like it or not. Get your, increase your resource productivity, because that makes you less vulnerable to the price, you know, price changes that will happen as things become more scarce. Fundamentally reduce the risk to your brand by managing not only yourself, but also your supply chain according to the things that the public cares about. If there's an accident in the coal mine, you read about it in the news, right? And if there's a, if there's child labor in your supply chain, you know, customers punish you. And finally, it's about understanding that it's not only protecting your brand, it's also can enrich your brand. There are companies like Born Free that produce little baby bottles. They researched the market, they found bisphenol A is a chemical released into the milk when you heat the bottle that causes brain damage with babies. They produce the first bisphenol free bottle. You can pretty much charge whatever you want for that, because people are very aware that this is an issue they don't want to run into. So it's also, there's also an upside. So in spite of not being a regulation there at the time they discovered this, they made a big, you know, big marketing campaign out of it. And they created a unique position for them. There's more to that in many industries that people are looking at, how can I increase competitiveness by playing the situation as it is right now. Sure. Great. Peter, thanks a minute for coming on the show. Thank you. Great. We should, we should have, and I'm sorry, I talked a lot because I'm getting too
10:18excited about this. Okay, that's great. We didn't touch on SPM. What's SPM? Sustainability performance management, like the big umbrella on top of that. Oh, okay. And we didn't, we didn't, we didn't touch on the, you know, this is all AHS, so. No, let's do a bit about SPM and work that in. Sustainability, what do you call it? Sustainability performance management. So that means, how can you, now business is usually, you know, has got many, many things running. They do, they have a production, they look at carbon there, they've got like a, you know, they've got, they're supply chain, they've got different elements and how does it all come together? Okay. And how can you drive a strategy around sustainability? Does SAP have any support there? And it's really strategy management, risk management and performance management, all for sustainability coming together, helping people drive the strategy and make the right decisions on the highest level of the business. Okay, okay, great. So, Peter, can you talk about your sustainability performance management solution? Right. Sustainability performance management really brings all the different aspects of sustainability together, economic, environmental and social sustainability. And the way how that it's done, how that is done is by being able to centrally manage the risk and the strategy that you're executing and bringing the information from across your business together in one way that the CSO or the CEO or the, you know, the C-suite can actually make informed decisions around sustainability. It's mostly driven by the need for and the requests from the market and the customers for people to take accountability as a business and to report about that. And you should look at sustainability reporting almost like an extension of financial reporting. You want to be auditable. You don't want to mess around with that stuff. You want to have your assertions, you know, in your report. And in order to be able to drive your strategy and to report out in an auditable fashion, that's why you
12:19need sustainability performance management. We're delivering that today on the basis of our business objects products, which are greatly suited to gather information from across the business, no matter in which system it sits, bring it together, map it to the strategy, visualize progress, and then actually drive the reporting out of that. Okay, you talked about financial accounting and it's an interesting question because it's very easy to look at the financials of two separate or three separate companies and cross compare them. But with sustainability reporting, it's very much more difficult to look at sustainability reports of different companies and cross compare them. Will the sustainability, will SAP's SPM, sustainability performance management product, allow much clearer cross comparisons of companies? Well, first of all, we need to acknowledge that, you know, GRI made great, you know, made great progress in helping to standardize how people are actually reporting on that. And kudos to them, they've done an amazing job. There's still quite a lot of leeway, as we discovered ourselves, bringing the first, you know, report out. I do think that software solutions can actually help the standardization and accelerate that. And we're obviously, you know, working with those organizations, both because we're reporting ourselves, but also in understanding, okay, how can we actually make it easier for businesses and making those things more comparable. The, you know, people today are reaching comparability, comparability by saying, okay, let's compare ourselves to people in the same industry. And then let's look at, you know, carbon footprint, for example, per revenue dollar or carbon footprint per employee or carbon footprint per square foot plant. So, there's still many different ways. As a matter of fact, as I said, we're at the beginning of this, I think we're all learning. And the punchline is that the solutions we bring need to be flexible enough to incorporate these learnings. And SAP has been pushing the flexibility of its own solutions for quite a while. So we do believe we are well positioned in this area. Superb. Great. Peter, thanks for coming on the show. Thank you.