Evolving Enterprise Performance Management
Finance for a sustainable future
Expanding Enterprise Performance Management (EPM) to embrace sustainability is a natural evolution—one that appears to be happening fast. For finance organizations, understanding the "what" may not be complicated.
But then comes the "how."
Sustainability is a growing and more urgent priority around the world—culturally, operationally, and as a focus of regulation. As sustainability grows from what used to be a niche concern into a way to move the needle on enterprise value, the work of quantifying it is becoming part of an organization's core plan of action. That means incorporating sustainability into the practice of Enterprise Performance Management
Sustainability has gone from a nice thing your business should do to a fundamental thing to do. And for an enterprise to drive fundamental change—and make it count, literally and figuratively—finance should lead the way.
This is a job for finance.
Is sustainability a finance concern? The logic is clear: Since the CFO is responsible for translating the organizational vision, strategies, and activities into financial terms, it follows that is the leader who should also measure and drive performance on emerging sources of value presented by sustainability. Finance should lead the way in evolving EPM to include sustainability and, when it does, the CFO will likely be better able to guide business decisions that achieve sustainability ambitions. This responsibility aligns with the "four faces of the CFO" - Strategist, Catalyst, Operator, and Steward. Embedding sustainability into EPM is likely to help the CFO carry out each of those roles.
Why folding sustainability into EPM can be difficult
Currently, the idea of doing a comprehensive sustainability report in 30 days is likely untenable for many organizations. There’s just too much to process. Consider only one sample variable: tracking the use of jet fuel. A global company might receive some of its fuel invoices in imperial gallons, or US gallons, or liters—and all that must be reconciled before it even begins to address the different currencies involved. And that’s only one example. Sustainability requires the use of a common language that could cover hundreds or even thousands of data categories.
Fitting a new job into an existing structure
To meet the challenge of integrating sustainability within EPM, it can help to break the problem into its main components—and also to see it along a timeline. This is often a multi-horizon journey in which organizations will likely expand and improve capabilities over time, especially as it relates to tracking and aggregating data, informing and mobilizing initiatives, and understanding and measuring the impact of different sustainability efforts. A systematic approach can not only help tame the large data and technology needs that lie ahead, but also steer the organization toward a true “green balance sheet” that satisfies strategic needs as much as it serves reporting requirements. There appears to be a greater emphasis on accountability and transparency by employees, shareholders, and stakeholders, and EPM can help address those demands. When these components all come together, they can help answer the challenge of internalizing sustainability as a new dimension of business performance. A few key steps to consider include:
Let’s take another example.
What if your organization has set a goal to move to 100 percent renewable energy sources? How does this manifest in your EPM processes for purchasing electricity?
First, you need to understand current energy consumption, identify improvement opportunities, allocate investment to purchase renewable energy, set metrics and key performance indicators, monitor and report on progress, and provide insights to drive ongoing decisions and continuous improvement. Easy, right?
In theory yes, but in reality, no. Data on your organization’s energy consumption is likely trapped in disparate sources. Maybe it’s on a paper invoice. Maybe it’s a transactional entry in an enterprise resourcing planning (ERP) system. And the information you collect may not be complete (or accurate), so you’ll likely need to validate and enrich it. There may be multiple stakeholders—procurement, manufacturing, facilities management—with differing views on how to measure energy consumption and track progress; so you should align those perspectives and win organizational buy-in.
Weighing progress against this sustainability goal isn’t a stand-alone job; you should balance it against other organization objectives—which you likely won’t be able to do if sustainability considerations aren’t embedded in your EPM processes and technologies, from an ERP to purpose-built EPM solutions.
So again, it’s not easy. But likely to be well worth it if all of this helps your organization navigate complexity, unlock decision-making insights, and weigh the compromises that may await you along the sustainability journey.
Sustainability performance management and reporting
The process begins with understanding the requirements and setting up KPIs to monitor and report ESG compliance, aligning on the visions and target goals, planning and executing various initiatives. This process continues reiteratively basis a monitoring and feedback loop.
Previously, a sustainability team might choose the metrics that mattered to it. Now, companies will be required to report on other parties' terms-regulators, investors, customers, and employees. That will generally take a broader view, more resources, and more people.
Sustainability uses many of the same muscles as financial metrics. From the carbon footprint of a single SKU to M&A prospecting and integration, sustainability calls for huge new volumes of data. The data models and attributions it takes may be challenging if working across multiple ERP systems.
It isn’t only platforms that should align. So should teams. The people who know procurement may not know the core ERP. The people who know sustainability may not know the application architecture. Putting the required data into the system may require someone conversant with the ledger. And it all should flow through a reporting team. All of this will likely require new connections and new teamwork. It will generally be up to Finance to turn it all into a clear, single narrative. That team already has many of the required capabilities, so it should be well-positioned to find the balance among new and old roles.
Survive, drive, thrive
Like many finance evolutions, the integration of sustainability into EPM won't happen all at once, and it can be worthwhile to envision the change in stages from the immediate needs-"survive"-through progressive levels that let an organization "drive" meaningful change and eventually "thrive" in a way that's distinct from the competition. The difference here, however, is that fast-moving regulatory changes may put emphasis on the “survive” modality even for organizations with mature approaches.
To deliver effectively on sustainability EPM
To deliver effectively on sustainability EPM in ways that drive planning and value in addition to measuring and reporting, a finance team should take an active role in shaping data access, ERP requirements, and infrastructure. Think about the data journey of a single SKU—including the externalities associated with it, its carbon footprint—multiplied by every SKU and operational program. As in many other settings, having data is just a precursor to determining where it’s housed, who has access to it, and how the company’s systems use it. Finance does this now with data it’s familiar with. It should take just as broad an approach in this new category.
To achieve the above, a few core enablers should be in place:
Processes and policies
Identifying the real operational levers to turn performance decisions into effective operational changes on a day-to-day basis, and providing clarity on ESG-related policies and accounting methodologies can be important in order to evaluate performance and variances in comparable ways. An ESG accounting manual could come in handy here. Do you have one?
Organization readiness
Identify how to organize Finance around sustainability, looking at new roles and responsibilities or updating traditional ones, and focusing on upskilling the Finance organization and their stakeholders in the business.
Data and Technology
Navigate the technology landscape and define an appropriate strategy to integrate sustainability requirements in the finance systems and data landscape, while also bringing sustainability data up to the appropriate quality for decision making. Many of you may be already implementing or considering a new finance system or data implementation – have you considered ESG requirements in your future scope? Proactive thinking now could potentially mitigate a lot of reactive spending later.
Opens in new window
Inside the Finance team, there may be new people, new capabilities and investments, or perhaps even new structures. Looking outward to the larger enterprise, the Finance team may take on new importance as a leader, validator, innovator, and strategist that can bring together the many threads of data, reporting, forecasting, and planning around the common theme of sustainability.
Take the (crystal) ball and run
It's the comprehensive nature of this change that makes it important not only to see the big picture, but to be able to bring change everywhere it's needed in a coordinated way. Embedding sustainability into EPM involves all of performance management- including areas such as risk management, human resources, and others. Being able to address each of those areas is a plus. Being able to address them all as part of a single vision can be a source of advantage.
The change is yet another evolution, but it's not incremental. Sustainability is a new use case for EPM-one that calls for a new lens on performance and a new approach to finance leadership. One challenge is to reconcile the ways in which sustainability may appear to contradict the traditional bottom-line calculus.
Another is to understand the ways in which sustainability contributes to enterprise prosperity. What began as a backward-looking assignment—to track sustainability for the sake of reporting on it—is a future-focused discipline that can help steer the organization, not just account for what it’s done. A newly attuned EPM approach can generate insights that inform decisions, which could ultimately helping to shape the company yet to come.
Of course, these changes to the CFO's role aren't happening in a vacuum. But finance leaders aren't strangers to this kind of change. The wrinkle here is to fold in considerations that may not have felt financial until very recently. There’s a lot of work ahead, but a key decision to make now is whether to do only what you must, or everything you can. Tomorrow’s leading companies will likely choose the latter path, and it could run right through the CFO’s office.
End Notes
1Deloitte LLP, "Insight-Driven Performance: The Future of Enterprise Performance Management," 2022.
2Deloitte, "Sustainability regulation: A catalyst for transformation", accessed January 4, 2024.
