Three years ago, software provider SAP was informed by one of its customers, a large European telecommunications company, that their business relationship would cease unless SAP produced a report detailing its energy use and greenhouse-gas footprint. A growing number of companies headquartered in Europe, as SAP is, were producing such documents along with their traditional annual reports. “It went from a nice-to-have to a must-have,” says Rami Branitzky, the managing director of SAP Labs North America.

The company, which is based in Walldorf, Germany, not only created the report but also set an ambitious goal of cutting its global carbon emissions in half by 2020. In 2009 alone, it was able to cut emissions by 15 percent, saving 90 million euros (about $120 million). The emissions reduction—the equivalent of taking 50,000 cars off the road—was achieved in large part by changes in behavior at the $15 billion company, including cutbacks in air travel. SAP’s internal savings, however, are just the beginning. The company calculates that its 105,000 customers in 120 countries collectively account for one-sixth of global carbon dioxide emissions. If those clients could be helped to make similar cuts, Branitzky says, the environmental benefits could be immense—and SAP could reap new business in the process, since it creates and sells analytical software that lets companies monitor their own carbon footprints and increase their energy efficiency. According to SAP’s own estimates, the market for “sustainability software” will reach $7 billion within five years. “They’ve really taken the ball [on sustainability software] and are running with it faster and harder than any of the large players,” says Warren Wilson, an energy and sustainability analyst at the London-based market research firm Ovum.

To highlight the reductions in its own carbon footprint, SAP recently showcased five efficiency initiatives at its campus in Palo Alto, California. The projects included installations of LED lights and solar panels. The company also overhauled its data center and has begun purchasing a fleet of electric vehicles and charging stations.

But the project with the fastest return on investment involved telepresence communication systems, which make it easier for meetings to happen virtually rather than requiring air travel. SAP installed three videoconferencing systems from Cisco Systems that use high-end visual and audio equipment to create the sense of being in the same room as others who may be half a world away. Each system cost $300,000, but SAP says they paid for themselves in one year by reducing the need for business trips. “Our biggest footprint that we generate by far is airplanes, as many people commute back and forth to Germany,” says Branitzky. “I think we knew it inherently, but only when we started measuring it did we see the impact and do something about it.”

SAP sought to get more efficiency out of the data center by spending $128,000 on a retrofit that cut the facility’s energy requirements by 15 to 20 percent and should pay for itself in five years. The company installed a rectifier, a device that converts all electricity coming into the data center from AC power to DC. Electricity is typically converted from AC to DC at each server using small, inefficient rectifiers that give off a significant amount of waste heat. Doing the conversion in one central device increases the efficiency of the process and reduces the amount of heat generated in the server racks.

Of all the initiatives, this is the most significant, according to Michael LoCascio, an analyst at Lux Research. But he suggests that SAP could even go further in this regard. “I find it amazing that there is no focus on their data center’s cooling systems,” he says. “You get more bang for your buck, but it isn’t sexy.” Branitzky says the company is just getting started on its data center efficiency efforts and has already begun improving the cooling systems at similar facilities in Germany.