SAP takes steps toward ‘green ledger’ for carbon accounting

SAP wants to give new meaning to the resources in enterprise resource planning, going beyond the boundaries of the enterprise and accounting for its impact on the whole planet.

The software provider plans to do that by enhancing existing tools for estimating greenhouse gas emissions due to an enterprise’s activities, and adding capabilities for exchanging that data with partners, bringing it all together in a “green ledger” that will record the climate cost of doing business alongside the financial cost.

SAP’s goal is to provide businesses with the accounting tools they need to decarbonize their supply chains — an initiative of greater interest of late to organizations seeking to improve ESG (environmental, social, and governance) strategies.

To help businesses calculate their climate impact, SAP is expanding the capabilities of the Sustainability Footprint Management tool in S/4HANA Cloud, and adding new tools to enable enterprises to exchange detailed greenhouse gas emissions data with their partners in a common format.

“CEOs, CTOs, and CIOs are now under increasing pressure by shareholders, by regulators, by consumers, and increasingly also by suppliers to increase the accuracy and transparency of their carbon emissions data within the organization and more broadly across the supply chain,” said Michael McComb, global head of sustainability communications for SAP.

Companies can already calculate the carbon intensity of their products to some extent, working with estimates for the average carbon emissions of various materials and processes — but this does not take into account day-to-day variations due to the quality and origin of inputs, transport, the weather, or the efforts they or their suppliers have made to improve processes.

“These estimates and averages just aren’t sufficient any longer,” he said. “What we’re trying to do is move companies from these averages to actuals.”

A climate PACT for suppliers

Making carbon emissions calculations more accurate and timely requires that enterprises and their suppliers agree on common methods for processing data, and common formats in which to share it.

“SAP is addressing both of those by working with organizations like the World Business Council for Sustainable Development,” McComb said.

WBCSD is the organization behind the Partnership for Carbon Transparency (PACT), which sets guidelines for accounting for product-level carbon emissions and exchanging the data.

At its Sapphire customer conference on May 16, SAP unveiled an update to its Sustainability Footprint Management tool, enhancing the carbon emissions calculations it can perform, and unveiled the beta version of a new component for SAP Business Network, the Sustainability Data Exchange, to simplify passing of carbon emissions data between partners in a common format, even when only one of them is an SAP customer. SAP plans to make the Sustainability Data Exchange generally available in the third quarter.

SAP will regularly update the emissions calculation engine in much the same way that it offers updates to tax calculations, according to McComb. “We’re integrating the latest science and the latest reporting and calculation frameworks into the solution,” he said.

A green ledger

Together, these two additions to S/4HANA will enable SAP customers to create a “green ledger,” a financial-grade accounting system for nonfinancial resources, to help them meet their ESG reporting obligations.

In Europe, those obligations are soon going to become a lot stricter. The European Union’s Corporate Sustainability Reporting Directive (CSRD), which entered force in January 2023, will require a broader range of enterprises to report sustainability information, including Scope 3 emissions, aka value chain emissions. The very largest enterprises will have to do so for fiscal years starting on or after January 1, 2024, with smaller organizations gradually coming within the scope of the legislation over the following two years.

Initially, SAP will make it possible for its customers to account for greenhouse gas emissions up and down the supply chain, but it will expand the reporting capabilities to other resources or other sustainability-related materials in time, McComb said.

SAP is taking a step toward that already, adding sustainability and human rights information to the criteria by which enterprises can search to its SAP Business Network supplier directory.

Competitive advantage

In the past, a lot of carbon accounting and sustainability management has been done manually, leading to costs, inaccuracies, and delays, said McComb.

Companies are now seeing better reporting as a competitive advantage and are looking for more precision and automation in the way that they do it to avoid double counting or other inaccuracies, he said.

Late last year, seven PACT member companies demonstrated the exchange of product-level carbon emissions data in a trial using software developed by SAP, CircularTree, or their own in-house development teams. The interoperability trial showed that such reporting using a common data format is possible even when multiple software vendors are involved.