Oracle and the evolving ESG space

While enterprise software vendors today are gushing about ChatGPT, large language models, etc., are any of them addressing ESG (i.e., Environmental, Social & Governance) requirements? The short answer is that a scarce few are but even those efforts may be less than notable. Within the application software world, there are a couple of camps visible:

• Vendors who actually downplay ESG efforts
• Vendors who simply greenwash their limited activities and behave as if their half-hearted efforts are something to be proud of 
• Vendors that sell some sort of ESG tool but don’t really walk the walk with their own firm’s commitment to ESG goals
• Vendors that are trying to change for good and are beginning to create solutions that will make a difference
• And, many other categories/segments

When viewed graphically, most vendors really haven’t done much technically. If they offer anything, it’s usually a basic reporting template tool. What these firms are doing to support better social policies regarding their employees is often more impressive than what their technology can do. And, the impact these tech firms are having on their customers and suppliers is even less impressive. 

In recent months, one major tech CEO refused to address ESG questions from analysts even though his own firm has numerous software partners plying ESG solutions to his customer base. Some CEOs are terrified of activist shareholders, many of which believe ESG initiatives are a drain on short-term earnings. These CEOs are intentionally avoiding any mention of ESG in earnings calls so as to avoid becoming a target. Some vendors have (momentarily) downplayed ESG functionality and briefings while they hone their messaging around new AI technologies. None of this is a good look for tech vendors. 

For some, ESG is a just a regulatory requirement. For others, it’s a political thing and for others still, it’s a moral issue. Let’s remember that ESG requirements keep growing and companies will need to respond. That’s not optional. All companies will likely benefit from newer technologies that help them collect, report and analyze critical ESG data.  Ignoring ESG is not an option. 

Readers should note that ESG covers more than carbon emissions. It concerns employee safety, providing employment to the less advantaged, eliminating discrimination and more.   

Bottom line: Software buyers need better/new solutions and many tech firms could do a lot better in this regard.

 

State of the Market

ESG technology is currently in its infancy. Some ERP and CPM/EPM (corporate performance management/enterprise performance management) vendors may have an ESG tool. Those products:

• Have a number of integrations and an integration layer to connect the tool to financial, EH&S and other systems. 
• Take data from manual entries and integrated systems and place it in its data warehouse
• Move and adjust this warehouse data so that it can be mapped to the appropriate fields in regulatory reports

But, these tools have limitations, some of which are customer-triggered. For example:

• These tools can only support drill-down, drill-around inquiries if the source systems it integrates with maintain this data at a more granular level.
• Many firms only have one gas meter, one electric meter, one water meter, etc. for an entire facility. If you want emissions data down to the product, batch, etc. level of detail, you’re out of luck.
• Few source systems were designed to capture all of the statistical, financial and operational data (e.g., IoT records) that would support detailed ESG data
• Most tools are designed to support regulatory requirements but not necessarily to provide operational insights or variance analysis.
• Many of the ‘Social’ aspects of ESG may not be supported in these tools.

What Oracle is offering now

Oracle’s technology stack and its full suite of ERP and EPM/CPM tools can help customers today and the potential for greater solution power exists. 

Yes, Oracle has an ESG reporting solution. It can take relevant data from Oracle Financials and other applications and map them into a number of ESG regulatory reports. Along with this ESG solution, Oracle’s ERP and other applications can provide additional data points to an Investor Relations group, regulators and more. Oracle’s tools can access time and other people-related data from its HRMS. It can correlate where specific assets are located and identify what power source is used with them. It can capture selected supplier information from its SCM and Accounts Payable systems to understand the degree with which these firms treat their employees, the methods used to produce or ship products and much more. I could go on and on but the key point is that a single, broad ERP product line actually makes the preparation of ESG reports easier. 

What Oracle customers can achieve is probably going to be a bit limited for now because:

• Some customers may not have many Oracle applications installed. These customers will need to either create custom integrations to numerous non-Oracle applications or collect and enter data manually into ESG reports in the near-term
• Some functionality, like detailed chart of accounts, flex fields, etc. were set up to process monthly, summarized accounting data and may not be as detailed as what users might want.
• Some statistical or operational data is not in an Oracle system and may require manual entry to get it into regulatory or other ESG reports.
• Oracle is continuing to enhance its ESG functionality. Customers will get more functionality in subsequent upgrade cycles. 

But Oracle has a number of assets to leverage relative to its current and future ESG offerings. The company:

• Has a significant, broad application suite within the cloud Fusion apps product line
• Has a single technology stack/platform 
• Has a rapidly growing collection of AI, workflow and other services to help extend ESG functionality and capability
• Has a global hyperscaler (i.e., OCI) capability that can handle extremely large, granular operational datasets that can better inform a firm’s ESG compliance efforts

Oracle’s ESG Analytics and Planning solution:

• Is part of Oracle’s Cloud EPM solution – this includes 200+ KPIs, several preconfigured reports and dashboards
• Has GRI and ISSB dashboards/report formats with more formats planned
• Has functionality to track performance in one central data store
• Can help a multi-person ESG team understand their specific roles/responsibilities and data capture activities. 
• Aids in tracking ESG targets and progress towards the same. The software allows users to enter commentary that can flow into key reports.

The following graphic provides a more complete picture of Oracle’s ESG capabilities. Not many application software firms can field a solution like this or at this time. In the bottom left of the graphic, Oracle has a Fusion Object called ‘Asset Meter Readings’. This is a critical bit of functionality for firms that want to capture, in real-time, the specific amount of electricity, natural gas and/or water that individual products, batches, plants, jobs, etc. are consuming. Otherwise, most firms have to settle for a monthly reading of these meters with no idea of how to allocate these amounts to these products.

Capturing more granular data is critical to understanding what is actually happening in a firm, the emissions variances from month-to-month, which products generate the most/least emissions, etc.  Annual, highly summarized or aggregated data might be good enough for regulatory reports but it won’t help business and operational leaders determine how to make better products, optimize their supply chains, or, be a better corporate citizen. 

Other items on that graphic also warrant attention. These include the extensible calculation engine, traceability of data and the AI auto-classification tool. Spreadsheets will likely never match what’s on this slide or what this product’s capabilities will become. 

Oracle by the numbers

Oracle shared a number of data points regarding its own ESG performance. Executives noted the following goals for 2025:

• 100% renewable energy use for Oracle Cloud and Oracle Operations
• 25% reduction in employee air travel emissions
• 100% of key suppliers has an environmental program in place
• 80% of key suppliers has emission reduction targets in place
• 33% reduction in potable water and waste to landfill per square foot 
• Be carbon neutral

The company is also aiming for a 50% reduction in total emissions by 2030 and to be net zero by 2050. 

So, how has Oracle done so far? Executives reported:

• 3 million pounds of retired hardware assets were collected for recycling or reuse in FY22 with 99.9% reused or recycled
• 88% of Oracle’s key direct manufacturing suppliers (representing 80+% of spend) have energy or carbon reduction goals in place
• 22% increase in renewable energy use in 2021 over the previous year
• And, 100% renewable energy used in 16 regions for Oracle Cloud data centers

That data center claim got my attention as it was, in one Oracle executive’s, ‘a slam dunk’ for Oracle. The company chose to locate its Oracle Cloud data centers near hydroelectric, solar farm, wind farm and/or geothermal energy sources. These cloud data centers represent Oracle’s biggest single energy consumption item. (see image below)

Oracle executives also highlighted a number of social targets and programs. More specifically, they noted:

• Oracle employees are involved in a number of volunteer opportunities and are given time to pursue these
• Oracle Education Foundation to teach young people technical skills
• Oracle Academy provides free computing training in 130 countries
• Oracle Giving supports thousands of non-profits globally
• Oracle Workforce supports diversity and accessibility initiatives

Oracle has also won awards for:

• Its diversity efforts
• Its employment of women
• Supporting the disabled community
• Support for LGBTQ, veterans, Generation Z and more

My take

Oracle clearly sees that ESG has a long-life and will require ever more sophisticated applications to meet the ever growing regulatory requirements. Its vision and solutions are multi-faceted and will add value to those customers who want to do much more than simply meet short-term regulatory requirements. 

Oracle has some competition for an ESG solution set, but that market is surprising immature and not universally supported by application software vendors. For some software firms, in fact, they’ve left the development of ESG solutions to their software or implementation partners to create. Bolt-on or incremental solutions are often the first wave of net-new solutions but given the all-encompassing impact of ESG requirements on the totality of an enterprise, a more complete, integrated product set will likely follow. 

There is a lot Oracle can leverage within its OCI, Fusion Apps, analytics and other products. Time will tell how much Oracle will continue to invest in these solutions and what kind of customer adoption will follow. Given that regulatory requirements keep moving more down-market (and that larger firms are demanding ESG data from ever smaller suppliers), the customer adoption should continue to grow.