Which Next-Generation Business Infrastructure Will Support Decarbonized Management? | Insights

The movement toward decarbonization has been accelerating worldwide and has become an important management agenda for companies.

In this Insight, we have organized decarbonization trends and an approach to achieving decarbonization into four steps: "1. Visualization," "2. Modeling," "3. Strategy," and "4. Execution and Monitoring." We will explain the key points for reducing greenhouse gas (GHG) emissions using the strategic approach to achieving decarbonization and the business infrastructure to support it. We hope that this Insight will be of use to corporate personnel working towards decarbonization (especially those in the corporate planning department, sustainability promotion department, and systems department).

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1. Global Trends in Decarbonization

The movement towards decarbonization is accelerating worldwide. The 27th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 27) was held in Egypt in 2022, with leaders from approximately 100 countries in attendance. The session reaffirmed the importance of the Paris Agreement's 1.5°C target (the goal of limiting the rise in global average temperature to well below 2°C, and as far as possible to 1.5°C). Other examples of strengthening international efforts to achieve decarbonization include calling on Contracting Parties that have not set GHG reduction targets integration with the 1.5°C target to reconsider and strengthen their targets.

198 signatory countries and other parties attended COP28 in 2023, including former Prime Minister Fumio Kishida of Japan, to evaluate the global efforts towards the 1.5℃ target. The reports recognized the need to peak GHG emissions by 2025, reduce emissions by 43% by 2030, and by 60% by 2035.

COP29 in Azerbaijan in 2024 focused on the construction of a new framework for ‘climate finance,’ including financial support for countries and regions vulnerable to the effects of climate change. It was decided that developed countries would set a financial support target of $300 billion per year for developing countries by 2035.

Decarbonization efforts are a global trend and is evident in the places we live. While each country's status of action to decarbonization varies all countries are working on multiple scenarios and policies. It will be essential to develop new mechanisms to achieve these goals, such as innovations for measuring and curbing GHG emissions and GHG emissions trading. Specifically, as part of efforts to achieve the SDGs, consumer awareness of decarbonization is increasing in business and in consumption, with many people shifting to lead sustainable and prosperous lives and developing and using products that consider decarbonization.

We are beginning to see ESG investment proactively integrated into business investments and decarbonization considerations in capital procurement. Investors evaluate a company's value when making investment decisions, and to do so correctly, it is important to consider both financial and non-financial information that affects the company's value. The move by investors to pursue ESG investment suggests that social trends are calling for decarbonization, and that investments that consider decarbonization are the ones with a bright future.

Stakeholders such as governments, investors, business partners, and consumers are calling on companies to take steps toward decarbonization in their business activities, and not doing so is becoming a management risk. Decarbonizing management that takes stakeholders into consideration requires companies to consider their negative impact on the environment and incorporate it into their management, such as by calculating GHG emissions within their own company and across the entire value chain.

For the above reasons, there is a growing social demand to consider decarbonization as a global trend. It can be said that we are now in a situation were conducting business activities with decarbonization in mind has become essential from the perspective of various stakeholders, including investors.

2. Future Outlook

As mentioned above, as the global trend toward decarbonization grows stronger, Japan has set a goal of becoming carbon neutral by 2050 (reducing greenhouse gas emissions to essentially zero through absorption and collection). Technological innovation to achieve this goal is progressing in industry, including the use of hydrogen energy and the spread of electric vehicles. Other examples include expanding the use of renewable energy sources such as solar and wind power, introducing GHG collection, use and storage (CCUS) technology, and introducing energy-efficient home appliances. However, it is important to achieve decarbonization while balancing innovation and economic growth. Measures by local governments and regions across the country, such as joint purchases of solar power generation equipment by cities, towns, and villages, and raising awareness of decarbonization through environmental study sessions, will become important infrastructure for supporting decarbonization throughout Japan.

Japanese companies will also need to manage their businesses with a greater awareness of decarbonization. Requests for Japanese companies to disclose decarbonization information are becoming more sophisticated and mandatory every year. For example, there is now demand for disclosures of product-by-product carbon footprints (CFP: an indicator that shows the total amount of GHG emissions throughout the life cycle of a product, from production to disposal). Complying with these demands for disclosures requires data collaboration with all parts of the supply chain.

In terms of international institutional development, the International Sustainability Standards Board (ISSB), an organization that constructs unified international benchmarks to address the proliferation of climate change standards, is currently considering the "IFRS Sustainability Disclosure Standards." The Sustainability Standards Board of Japan (SSBJ) is leading the development of a Japanese version of disclosure standards related to decarbonization. In addition to complying with Japanese regulations, companies exporting to Europe will also be required to comply with European regulations (CSRD, CSDDD, DPP, CBAM, etc.).

GHG and Companies will face stricter environmental regulations as international climate change measures become stronger. To comply with these regulations, companies will be required to develop long-term strategies for achieving decarbonization. Decarbonization not only helps companies address environmental issues, but is also expected to bring benefits such as reducing management risks, cutting costs, and creating new business opportunities. Decarbonization will make it possible to create a sustainable society and achieve stable long-term growth. It will become an even more important management agenda for companies in the future.
Integrated efforts involving policies, local communities, and companies are necessary to achieve a decarbonized society, and we must keep a close eye on global trends.

Looking to the future, it is expected that the major trend toward decarbonization will require greater consideration in various areas, such as business and daily life, as the effects of climate change become more apparent around the world.

3. Corporate Activities Necessary for Decarbonized Management

As we have seen so far, when we interpret the global trends, decarbonization is likely to accelerate and will have a major impact on corporate activities. Specific cost-related impacts on corporate activities that may arise from not considering decarbonization include "market financing costs,” "investment costs to comply with regulations,” and "hiring costs of motivated employees.” Each of these factors will affect management. Properly executing decarbonized management and appealing to stakeholders such as investors and employees will become an even more important corporate strategy, and the impact is expected to be greater on larger companies due to the scale of their corporate activities.

The two main approaches that companies use to achieve decarbonized management are: 1) a simple PDCA cycle approach that identifies the amount of GHG emissions from business activities according to their causes, implements measures to reduce them, verifies the results, and then moves on to different reduction approaches; and (2) ongoing activities to absorb and fix GHGs generated outside of their business activities (forest planting, utilizing GHG absorption processes in agriculture, etc.) while seeking to offset these with business activities. It is key to explain these activities to stakeholders in a simple and easy-to-understand fashion.

To effectively implement these two approaches, it is important to proceed as follows: "1. Visualization," "2. Modeling," "3. Strategy," and "4. Execution and Monitoring" (Figure 1).

Step 1, "Visualization," visualizes the source and amount of GHG emissions generated by your company. At this stage, the most important thing is to gather the required information to move on to "Modeling" in step 2, and to do it quickly and easily. Spending too much time and money on this process will delay the early savings from this activity and the positive outcomes for your company that will come with reductions.

Step 2, "Modeling," structures the relationship between your company's business activities and GHG emissions. The characteristics of each company's business activities become evident in this step. For example, in the food processing industry, there would be GHG emissions from the energy used in the manufacturing process and from food residue and waste. In the electric power industry, the majority of GHG emissions are from burning fuel, while in the IT services industry, the majority of GHG emissions are created by human activity. Understanding your company's characteristics and linking them to business activities will allow you to gather basic information and consider effective strategies.

In Step 3, " Strategy," companies consider what steps they can take to have a positive effect on their business activities. As mentioned above, the main decarbonization strategies are to either (1) reduce GHG emissions of your own company or (2) absorb and fix GHG emissions from others. It would be effective to clarify the causal relationship with the competitiveness of the core business and take an approach that includes branding to maximize corporate value.

In Step 4, "Execution and Monitoring," companies monitor whether their strategy is producing the expected results, publish the results to the public, and consider next steps. It will be important to respond by flexibly changing strategies as necessary.

Figure 1. Four steps to achieving decarbonized management and their key point

4. Decarbonized Management and Business Infrastructure

Decarbonization remains an important management theme, and many companies have already taken steps by collecting and publishing their emissions data as part of their sustainability activities. However, as far as I know, most companies do not have a system yet, and the necessary data is compiled manually from each department by the sustainability promotion department or the corporate planning department and published once a year. In addition, "1. Visualization" and "2. Modeling" have been implemented to a certain extent, but "3. Strategy" has only limited implementation and "4. Execution and Monitoring," especially the "monitoring" part, is just compiling numbers. There are few cases in which the complete PDCA cycle is used to ensure the company's strategic advantage.

Decarbonization will increasingly become a significant priority on the management agenda for companies in the future, and it will become necessary to incorporate sustainable decarbonization activities into corporate strategies, rather than simply making it an annual activity. The business infrastructure that supports these activities will change. In this chapter, we will consider the future vision of business infrastructure (systems) for achieving decarbonized management.

First we will define the business infrastructure. One is the ERP system that manages people, goods, and money (accounting, purchasing, sales, etc. , which are utilized in any corporate activity), and the other is the business system that reinforces competitive advantages in those activities. In which category should the infrastructure system for achieving decarbonization be positioned? From the perspective of "1. Visualization" and understanding and monitoring the impact on management (costs, etc.), it would be better to have that function in or in conjunction with the ERP system. From the perspective of Execution and Monitoring, it would be better to place that function in the business system.

The reason is that ERP systems contain data related to corporate activities (people, goods, and money etc.) and have a high affinity with linking GHG emissions emitted as a result of corporate activities to existing information (for example, linking it to accounting information to capture the correlation with cost impact). Entering sustainability information into the enterprise information system (entering invoices etc.) will also be useful for analyzing the overall correlation with the actual data. If business activities can be modeled, then there is a high possibility that GHG emissions and the effects of reductions can be seen in real time. However, business-related systems are intended to ensure the competitive advantage of a business, and incorporating mechanisms for executing GHG reduction strategies would be optimal for ensuring a competitive advantage. Treating decarbonization as a management agenda and running a PDCA cycle to maintain awareness of the overall process will be an important addition to the company's business infrastructure, and it will be important to assign functions in a balanced manner according to the properties of the system, etc.

Many system vendors have recognized this situation and are attempting to seize dominance in the next business infrastructure. However, most of these systems are specialized in "Visualization," and there are no systems that embody the idea of incorporating GHG data into an ERP system. In December 2024, SAP (a major business infrastructure company) released a new service called "SAP® Green Ledger"^*1. The details will be described later, but the idea is to link and visualize ERP system information (accounting) to GHG emissions information (carbon) and make them visible for future deployment to achieve true decarbonized management. The fact that SAP, who holds the market leader in packaged software for business infrastructure for large enterprises, has begun such an initiative is an indicator that the world is moving towards the future envisioned by this Insight.

ABeam Consulting has begun offering support for building digital platforms that integrate the management of financial and non-financial data for collection and disclosures of sustainability data, in coordination with ERP systems (SAP, etc.). In January 2025, we entered a strategic business alliance with boost Sustainability Cloud, an integrated SX platform that automates collection and aggregation of sustainability data and allows real-time monitoring based on international standards. The platform has a strong track record and is used by about 2,000 companies in over 80 countries (186,000 locations or more as of November 2024). We look forward to continuing to offer clients multifaceted implementation support, including the integrated construction of systems that match the unique characteristics of their businesses.

Reference: Press release, “ABeam Consulting in Strategic Business Alliance with booost technologies” (Japanese)

Many companies are exploring ways to achieve decarbonized management. Those that work towards decarbonization in the medium to long term, over the next decade will maintain their competitive advantage. It will be necessary for them to prepare swiftly, consistently, and sustainably through "1. Visualization," "2. Modeling," "3. Strategy," and "4. Execution and Monitoring." Business infrastructure updates do not come frequently, so it will be a good idea to take advantage of the timing of system updates to prepare the entire business infrastructure for decarbonized management-ready features and consider incorporating the functions of SAP® Green Ledger or booost Sustainability Cloud.
One option may be to utilize a consulting firm such as ours, which provides comprehensive and integrated support to renew business infrastructure systems and efforts toward GX. We encourage companies considering constructing a business infrastructure for decarbonization to contact us.

*1 SAP® Green Ledger supports decarbonized management by combining financial information held by ERP with GHG information generated by companies (Figure 2). Linking carbon information to financial information in the ERP makes it possible to handle financial accounting and carbon accounting as double-entry bookkeeping.

Figure 2. Carbon information management in conjunction with ERP

[Function]

Business infrastructure: Provide infrastructure that combines reliable financial information with structured carbon accounting.
Audit response: Utilize the rigor and reliability associated with financial accounting reports and ensure audit accountability through carbon accounting reports.
Decision-making: Integrate carbon emissions with financial planning and real-world data to make strategic decisions.
Regulatory Compliance: Enhance functionality to comply with regional environmental regulations (e.g., CSRD, ISSB, etc.) and future disclosure requirements.

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