Why Anaplan solutions are critical to global climate change challenges
Author: Asslam Umar Ali, Manager Financial Performance Management at Fortescue Metals Group
The green economy of the future: More data, planning rigor, and technology support
Climate change is the most critical challenge of our generation — it also provides opportunities for businesses to create economic value. Clean energy transition is now a transformational business disruption affecting every aspect of an organization’s operations and assets. As the economy moves towards the greener future with an aim to displace fossil fuels and protect our planet, businesses across the globe are realizing the impact, taking a bold stand on Environment Social Governance (ESG) standards to drive climate change, and embracing the opportunities and benefits of a green economy.
Today we join the world’s largest environmental movement, Earth Day, in working towards achieving net zero emission by 2050. Companies plan to achieve this target through different strategies, government support, and training and development. Nevertheless, technology and innovation will be the key driver for emission reduction, and all the initiatives will rely on one common vital component: data. Good quality data — as single source of truth on an enterprise-wide platform integrated with strategy and plans — becomes critical for planning and decision-making of green programs.
This article aims to investigate and understand the current climate change challenges businesses face and proposes solutions on how Connected Planning and Anaplan can support the journey towards net zero. The more information organizations have on Connected Planning, the more it will help provide real-time collaboration across business functions and strategic alignment. Plus, it will enable line-of-sight to where we are at and where we can go to achieve net zero target.
Background: Decarbonization’s business future
As we move toward a low-carbon economy, organizations have taken a stand in the decarbonization revolution. But what does this really mean to the business? This goes back to the Paris Agreement (adopted by 196 parties in 2015) — economic and social transformation needed to limit global warming well below 2 degrees Celsius. Decarbonization is the reduction of carbon dioxide emission, with an aim to reduce and eliminate carbon emission altogether in reaching net-zero emissions.
Therefore, decarbonization means the use of low-carbon energy generation and the reduction in the use of fossil fuels. Further, accomplishing alternate low-carbon technologies with energy sources such as clean green hydrogen, renewable sources, electric, and microgrid.
According to the latest McKinsey report The Net-Zero Transition, capital spending in the net-zero transitions between 2021-2050 on physical assets for energy and land-use system would amount to about $275 trillion; on an average of $9.2 trillion per year. Its accounted energy-related emissions make up as much as 83% of carbon dioxide emissions — power generation and industry account for the major section of carbon dioxide emission (data exhibit i & ii). While the transition creates opportunities across the sectors, the high emitters would face substantial repercussions on demand, production cost, and employment. For example, the steel and cement industry would face an increase of about 30-40% in production cost by 2050. In opposition, it’s stated that low-carbon product and support services would expand, with the demand for electricity expected to raise more than double by 2050.
Key challenges: Commitment to decarbonization
The execution of the sustainability effort raises significant opportunities for organizations to incorporate climate-change initiatives into the business operating model — through strategy, supply chains, finance, capital planning, and customers. Fundamentally, there is a need to understand the Greenhouse Gas Protocols:
- Scope 1: emissions resulting from direct-owned or contracted sources.
- Scope 2: emissions resulting from indirect source of purchased energy.
- Scope 3: emissions resulting from all indirect operation that occur in the value chain of the organization (both upstream and downstream emissions).
This will drive the taxonomies for goal setting and determining KPIs for reporting and monitoring the decarbonization journey. This requires data capture from the value chain, which is complex and presents a challenge for many organizations across different industries. Currently, many organizations are somewhat mature with managing financial data on a connected platform — this is not the case for sustainability data. Finally, it comes down to the internal information management systems to capture every piece of the puzzle (data points) to regularly monitor, measure, plan, and report.
You cannot change something if you cannot measure it. This is where organizations will now have to investigate more than ever for real-time data to make decisions. Plan not just with the short-term horizon but with long-term. It’s not about just going through budget cycles, it is about measuring performance to deliver set goals and at the same time keeping check on the cost position with data becoming the biggest asset and central focus.
Plan by connecting all areas of an organization by breaking down siloed systems. Keep everyone aligned to the same goals, assumptions, and rules to accelerate business values and enable decision-making on a single cloud platform.
Solution: Bringing it all together for agile decision making
As we have seen, the decarbonization process involves alignment of financial and operational functions across the different layers of the business. It is important to have the right information at the right time on one enterprise performance system.
Anaplan provides a paradigm shift from traditional planning to dynamic, collaborative, and intelligent planning across all areas of business. It connects the challenges of complex operational and decision-making tasks required through value chain of the organization. Therefore, it allows us to bring together all the enterprise planning required to make decisions in one ecosystem, where the organization is not dependent on disconnected tools and manual processes. It supports the alignment of set common business rules or language onto a connected enterprise planning system. This lets the key decision-makers at the different levels and functions access information and present the information with an aligned strategy. Moreover, it connects different data systems to create a single source of truth to communicate information across the planning functions.
Since the solution is on the cloud, the scalability of the platform and creation of models becomes highly seamless and connects to enterprise for any number of users. Before an organization becomes mature with the decarbonization of business, it is recommended to consider key aspects of planning solutions to tackle future business decision-making. The below Connected Planning honeycomb shows how the connected ecosystem for decarb would look, bringing all the key components together.
Roadmap: Takeaways for impactful initiatives
- Understand the overall business decarbonization strategy with timelines.
- Conduct a review of the planning model and identify key operational energy drivers.
- Based on the strategy, work with business functions to articulate key performance metrics.
- Identify decision processes and formulate governance.
- Map out all the data sources and plan to build data marts (data hub) with your existing data governance.
- Define common data definitions and business rules. (Not only for accountability but also this helps with reporting.)
- Start small with a simple business case.
- Address the business questions with the business case: where we are right now, what results do we expect to get, what do we want to achieve, and how we will get there.
- Finally, develop a vision for user experience. This is key from the get-go to communicate results and reporting to the leadership team, operations, and other stakeholders.
What is your organization doing to tackle climate change challenges? Leave a comment!