SAP Chief Sustainability Officer Sophia Mendelsohn wants to incentivize companies to be green because it’s profitable, not just because it’s right.
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SAP chief sustainability officer Sophia Mendelsohn has been on the job since September, but her career really goes back to her undergraduate years at Harvard when she studied sustainability. Ever since her first job working in China, she observed the connection between prosperity and sustainability.
“I’ve been in sustainability a minute, before it was cool,” Mendelsohn told TechCrunch. “I started in sustainability back when we called it EHS [environmental health and safety] and then we gave it a go at CSR [corporate social responsibility]. And then, of course, moved on to what we know of modern sustainability today.”
She says that she actually became addicted to sustainability and helping the environment. That was partly because of that first job experience, seeing people paying a high price for upward mobility in the form of extreme pollution.
“I’m talking about hanging out with people who have never seen the sunrise because the pollution is so thick. People who were personally affected with nosebleeds, headaches, fevers from pollution, vomiting from sulfur, air-quality issues at the very factories that were making things to export to the United States,” she said.
But Mendelsohn recognized that if companies were to change, it wasn’t going to be for altruistic reasons; there had to be economic incentives to make people want to change. The workers wanted upward mobility, the companies wanted high profits, investors wanted great returns, and consumers wanted ready access to cheap goods. She knew any sustainability initiative would require incentivizing the companies that were generating the pollutants, while not affecting the investors, consumers or workers too much.
It remains a tough balancing act, one that she has built her career on and is still learning to navigate.
“I was never asking anyone to care. I was asking them to cast beyond the immediate quarter and consider the undervalued externalities, risks and opportunities sitting on their balance sheet,” she said. That is not so much looking at the problem transactionally as her recognizing that you can’t wait around for companies to see the problem purely through a social responsibility lens.
Mendelsohn has taken on several chief sustainability officer roles over the years, including turns at JetBlue and Cognizant, but she sees a financial imperative out there now. “The writing’s on the wall in that we’ve been through multiple iterations of sustainability,” she said. It began as environmental, or nice to have, and transitioned into an energy business case. Now she sees it moving directly into the investor realm with growing concern around transparency, stranded assets, and physical climate risk that could have direct impact on investments.
She believes this marks a turning point. “Fundamentally investors have said to boards of directors, you have physical and transition risks coming at you — physical to your employees and your supply chain — and that will transition to your books,” she said. And this has forced action beyond press release strategies to bringing in consultants to educate boards on how to protect the company from the obvious downside risks of climate change.
She also recognizes that being part of SAP is both part of the problem as a high-tech company, yet one that is also helping manage the supply chain of a majority of companies in those same systems. She is looking for a way to take advantage of all that data sitting in SAP applications to help companies behave in a more sustainable fashion.
“How do you take 87% of the world’s global commerce that runs through the SAP system on a daily basis, and help those customers use their enterprise resource and planning software to transition to these business models that we’ve all expressed on paper?”
To that end, she says one of the things that attracted her to SAP was its own commitment to sustainability. That includes a commitment to being carbon neutral by 2030, a full two decades ahead of the company’s original goals. It also offers tooling like the Sustainability Control Tower to help customers collect data and track progress toward their own sustainability goals.
How has the company been doing? In its 2023 Environmental Performance report, SAP reported it has achieved net-zero carbon emissions across its own operations, which include heating and cooling, corporate car use, and electricity used by its buildings and data centers. It is worth noting that it reached this largely through a combination of purchased renewable energy attribute certificates (EACs), self-generated renewable energy and carbon offsets.
Carbon offsets, while providing a way to balance out pollutants, have a mixed record. Some funnel funds to projects that are transparent and properly monitored. But investigations have revealed that many projects overestimate the amount of carbon they sequester, sometimes by as much as 90%, while others appear to be outright scams.
To its credit, SAP says that it invests only in highly rated projects, though it doesn’t reveal the proportion of its net-zero goal that’s covered by carbon offsets. Total emissions the company offsets through carbon projects and credits is 215,000 metric tons, about evenly divided between offsets bought from third parties and investments made in Livelihoods Carbon Funds.
For now, many companies have little choice since many operations or vendors aren’t prepared to ditch fossil fuels, and SAP customers have a range of businesses located across the world. SAP appears to be heavily reliant on carbon offsets, in part because the majority of its emissions fall under scope 3, which covers pollution produced by the company’s products or services but lies outside the company’s control. In SAP’s case, that includes things like flights employees take to meet customers, or energy customers expend on servers running its software.
Should the carbon offset world evolve, management appears to be incentivized to follow along. Annual carbon emissions targets are part of the company’s formula for determining short-term executive compensation, though that incentive remains a relatively small 6.67% of the total formula.
SAP’s own experience shows how hard it is to walk the line between sustainability and profitability given the tools that are available to them and their customers. While corporations are always going to look out for their own best financial interests, as they realize sustainability is good business, that’s all the better for us and the planet. As Constellation Research analyst Holger Mueller says, it’s going to be a challenge to pull customers and suppliers along with them, especially outside of Europe.
“The biggest challenge for her is to get the non-European customers excited about the topic and buy into more than compliance. We will see how that goes,” he said.
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