Situation
Today reducing carbon emissions to zero is one of the top priorities for most customers and organisations around the globe.
Becoming aware there is no planet B, ever more customers ask for products with a net zero carbon footprint. Global governmental initiatives, like Paris Agreement or COP26 drive global commitments. Lastly also the capital market shifts its focus to sustainable business models.
Reliable and timely carbon information in business processes is crucial but scarce
Responding to these trends, many companies currently aim to effectively reduce their carbon footprint – both on corporate and on product level.
Most organisations aim towards net zero carbon emissions over the next decades. Net-zero is a state in which the greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere. It has gained significant traction, with net-zero pledges covering 16% of the global economy in 2019 and recently growing to nearly 80% committed to net-zero by 2050.
“To reach a state of net zero emissions for companies implies two conditions:
- To achieve a scale of value-chain emission reductions consistent with the depth of abatement achieved in pathways that limit warming to 1.5°C with no or limited overshoot and;
- To neutralise the impact of any source of residual emissions that remains unfeasible to be eliminated by permanently removing an equivalent amount of atmospheric carbon dioxide.”
(Source: https://sciencebasedtargets.org/)
Carbon emissions are commonly segmented in three scopes:
(Source: GHGProtocol.org)
- Scope 1: all carbon emissions from own operations, like factories and intra logistics.
- Scope 2: all carbon emissions related to purchased energy
- Scope 3: all external emissions:
- 1: upstream emissions related to all procured goods and services
- 2: downstream emissions, related to lifecycle emissions of finished products
In this blog post we focus on scope 3.1 carbon, as here the supply chain and procurement functions claim a major lever to drive improvements through their sourcing decisions and supplier collaboration.
In some industries, like Chemicals, the upstream scope 3.1 carbon emissions relate to 70-80% of the overall corporate carbon profile.
It’s not easy for companies though to calculate their corporate carbon footprint. While it is already challenging to calculate the own carbon footprint (scope 1 and 2), it is even more difficult to calculate the carbon footprint of purchased goods and services. (scope 3.1).
A lack of globally harmonized carbon reporting standards and audit procedures leave companies with large ambiguity to interpret the carbon emissions reported by suppliers. Even more challenging is the lack of solutions to efficiently exchange carbon data across multiple supplier tiers on a product level in a secure way.
This leaves many companies currently with the pragmatic approach to calculate the scope 3 carbon profile, multiplying material spend or material quantities with category-specific carbon emission factors, procured from Lifecycle Carbon Assessment (LCA) Databases, like EcoInvent, GABY or CDP, and report them in an external carbon accounting solution.
While this helps to get a first estimate on the scope 3 carbon footprint, this is often not enough to effectively manage an intelligent enterprise towards net zero carbon.
There are two underlying issues:
- The carbon data, based on historic performance and benchmark values, usually does not reflect the exact carbon profile for a specific purchased product from a specific supplier at a specific point in time. This makes it difficult to measure, how collaborative carbon-reduction efforts with suppliers materialize in lower carbon results.
- To drive business decisions towards lower carbon options, accurate and relevant carbon product data needs to be seamlessly available within the business process context and part of the decision driving analyses.
How to address these challenges in a pragmatic manner?
How SAPs solution suite can help to run net zero carbon supply chains
For a few years now, SAP has been establishing a major focus on sustainable enterprise solutions.
The core idea is to enable SAP customers, to run their core processes in order to deliver on their goals for top line, bottom line and green line. Accordingly, at critical business process decision points, relevant carbon-related data is weaved into many SAP Intelligent Enterprise and Business Network solutions.
While much information has been shared already about the business value and capabilities of the various sustainability solutions in SAPs portfolio, in this blog post I’d like to take an initial stab to highlight how our solution suite modules can work together towards this objective.
Let’s discuss the process top down to understand the flow of scope 3 carbon information through the core processes and related SAP solutions from suppliers to customers.
Achieve Net Zero Carbon, by enhancing core processes with decision relevant carbon information.
(Source: SAP)
1. Suppliers
There are multiple ways to gather scope 3 carbon data from the supply market as well as to share with customers. LCA databases are a good fallback data source and triangulation point to validate supplier-provided primary carbon data.
SAP Business Network provides multiple options for digital carbon data exchange, depending on spend category and required capabilities:
| SAP Network Solution | Spend Categories | Carbon Exchange Capabilities |
|---|---|---|
| SAP Business Network for Procurement | All | Exchange carbon attributes in RfX, ASN, Invoices down to material level |
| Concur | Travel | Exchange carbon profile of booked journeys |
| SAP Business Network for Logistics, Freight Collaboration | Transportation | Gather carbon per unit of material, related to utilized transportation capacity, mode and distance |
| SAP Business Network for Logistics, Material Traceability | All | n-tier anonymized and secured carbon/certificate exchange on material level, using open communication standards, capable of batch handling; leverages distributed ledger technology. |
| Greentoken for carbon data exchange | All (mainly Chemicals/ Food/ Automotive) | n-level anonymized and secured carbon/ certificate exchange on material level by using principles of mass balance and tokenization; leverages distributed ledger technology; enables chain of custody and end to end provenance to trace bulk raw materials |
This variety of data sharing options allows for category and industry specific use cases to exchange carbon information with value chain partners in a completely digital way, just as an additional attribute in transactional documents.
It appears obvious, that beyond carbon also further product specific information can be shared through these networks, for example to provide evidence of product origins, like certificates, or to show compliance with other sustainability objectives, such as human rights (refering to the Lieferkettensorgfaltspflichtengesetz in Germany).
2. Spend Management
The spend management (Source to Pay) process is the natural scope 3 carbon data ingestion channel for an organisation. Already today it is possible to digitally gather carbon data from suppliers within the RfX process in SAP Strategic Sourcing Suite or SAP Product Sourcing (future functionality), down to material level, if needed. Further data ingestion points within advanced shipping notification (ASN) or invoice documents allow for revised and accurate carbon data later in the process. SAPs purchase to pay process (i.e. in SAP S/4HANA or SAP Ariba catalogues) also may offer carbon transparency on material & supplier level to the buyer to influence buying decisions, and actively reducing the corporate carbon footprint. From here, carbon information is transferred to subsequent processes and solutions, i.e. to calculate the corporate and product carbon footprint.
3. Corporate Footprint Management
Many companies disclose their scope 1 and 2 carbon emissions on a corporate level to the capital markets already for many years. In future, this reporting requirement is likely to be expanded to scope 3 emissions as well within the SAP EHS Environment Management solution.
4. Product Footprint Management
Increasingly customers ask for specific carbon footprints of their purchased products and services. The high media attention on the carbon backpack of electric vehicles is a case in point. Customers trust can only be achieved through full transparency on the specific carbon profile of a particular product. This however requires very high quality of scope 3 carbon data from the supply base, as well as sophisticated carbon allocation and accounting capabilities within the organization.
SAP Product Footprint Management solution has been developed for this purpose. The calculated data can be fed into a corporate carbon reporting solution, as well as shared with customers on product level, as input for their procurement process and carbon calculation.
While this approach might appear feasible for certain industries as of today, for others, such as specialty chemicals, it may still take some time to get to product specific carbon footprints, due to complex production processes, and related carbon allocation challenges to overcome.
5. Product Development
The product development function maintains not only a powerful lever to reduce costs through adjusted design and specifications, but also reducing the carbon footprint by diligently selecting the most suitable materials/components with the lowest carbon profile or adjusting recipes or bills of material (BoM). High innovation pace leads to many product variants and frequent cross-functional alignments in short time. To keep all parties working on the most current version of the product design, seamless process collaboration and data exchange of recipes and BoMs between SAP Product Lifecycle Management (PLM) and SAP Intelligent Spend Management solutions is crucial.
6. Integrated Business Planning
The production process is another major contributor to the corporate carbon profile. How helpful would it be, to allocate customer orders toplants, not only optimized on time and cost dimension, but also incorporating the carbon perspective? Supply Chain Planners could take informed decisions, incorporating production process carbon as well as emissions, related to transportation modes and distances for certain planning scenarios, with the help of SAP Integrated Business Planning (IBP).
7. Sustainability Control Tower
Finally, with help of the SAP Sustainability Control Tower a company can manage all sustainability objectives and measures in one place. Preconfigured reporting templates, compliant with external reporting requirements, allow to swiftly manage the organization in a sustainable way, chasing to zero for emissions, waste and inequality.
Some of the mentioned functionalities and interfaces to share carbon information between these solutions are still in development, others are already available for use today. Subsequent blog posts from SAP may shed more light on industry specific variants as well as the architectural setup options and roadmaps.