Not so long ago, measuring and managing your enterprise’s carbon footprint was a top priority. Federal energy policy was imminent. The U.S. House of Representatives passed a climate and energy bill in June 2009, and some variation of a carbon tax or cap-and-trade legislation was expected. Corporations and institutions not normally regulated for their energy use and emissions were beginning to take notice and act.
Fast forward to 2011. The Senate failed to pass a companion climate and energy bill and essentially all of Congress’ climate and energy legislation has stalled. No new legislation is expected for several years, reducing the urgency enterprises once felt around carbon. Even though carbon emissions are still important to understand and reduce, for most entities, they are no longer the primary focus.
The global recession, high gas prices, and geopolitical threats to energy security have demanded a shift of attention from carbon to energy policy. US enterprises, in an effort to save money and reduce risk, are focusing more and more on energy use and efficiency. But they are looking beyond just energy. Enterprises are tracking water use (including type and quality), solid waste, recycling, air and water emissions, and material use (such as hazardous, rapidly renewable, conflict free). This widening of focus is rooted in a desire for improved brand reputation, competitive differentiation, risk mitigation, and stakeholder relations.
The conversation has also expanded beyond the enterprise’s internal operations. All of these resource inputs and waste outputs are starting to be measured and managed both upstream (within the supply chain) and downstream (in product use and disposition). Large corporate buyers like Wal-Mart and Procter & Gamble have added new environmental and social requirements to their supplier scorecards. To date, there is less activity downstream, but legislation like Europe’s WEEE directive have induced some forward-thinking companies to perform life cycle analysis (LCA) and better understand their product use and end-of-life impacts.
Since commercial and institutional focus has shifted and broadened scope, Enterprise Sustainability Management (ESM) software solutions have followed suit. Relatively new entrants to this market looking to take advantage of the change in buyer requirements include vendors historically focused on energy management, asset management, and or product life-cycle management. Established vendors in enterprise management or environmental compliance, as well as young startups already in the ESM market, have all added functionality to enhance their offerings. This expanded focus of buyers and solution providers alike is depicted in Figure 1.
Figure 1: Scope of Sustainable Enterprise Information Systems
Concurrent with the shift of focus from carbon to broader resource use, there has also been a shift from high level reporting to needing more operational-level capabilities to manage data on a day-to-day basis. This trend is a result of customers progressing along their sustainability management journey, from asking “Where are we, and what are our impacts?” to “Now that we know our impacts, how can we prioritize and reduce them?” Vendors have anticipated this and now offer capabilities to operationally manage energy use, mitigation projects, environmental compliance, value chain impacts, and more.
We have created an Information Reference Architecture in order to visually describe these current expanded scopes of ESM solutions and buyer needs (see Figure 2). Specifically, we have identified 3 dimensions that ESM solutions operate on: operational focus (e.g. level 1 – total enterprise, level 2 – specific operational division), resource (e.g. energy, water), and scope (internal, upstream, downstream). Additionally, within each intersection of these 3 dimensions are a handful of specific software capabilities (not shown in the diagram).
Figure 2: AltaTerra Information Reference Architecture for the Sustainable Enterprise
Enterprises are all at different stages of their unique sustainability journeys and are taking action for a variety of reasons – saving money, brand reputation, competitive differentiation, risk mitigation, etc. – even if no federal energy and climate legislation exists. The actions they are taking are largely focused on measuring and reducing energy use (and related carbon emissions), but also include measuring and reducing water and material use, and air, water and solid waste produced. Enterprises are also beginning to figure out how to measure and manage the impacts outside of their own walls – upstream with suppliers and downstream with customers and products.
This shift in the U.S. in prioritizing energy efficiency and management has tremendous implications for enterprise software, hardware and service providers as well as the economy and environment overall. It is clear that ESM solutions are fulfilling a need for a new type of system of record in enterprises and will only increase in importance in the future. The market growth in this space will be a boost for green jobs and the economy. Enterprise-wide efforts to reduce resource use and waste along their value chains will not only save money, but will also help reduce the negative impacts of pending climate change.
Jackie Pitera is a senior analyst at AltaTerra Research and co-author of the recently released report, “Enterprise Sustainability Management Solutions: Reference Architecture and Buyer’s Guide.”