Sustainability has risen quickly to the top of executive priorities, with climate action being the most pressing concern. The central question is no longer why, but how? A big part of the answer may come from the unlikely world of accounting. Companies need to start treating carbon like money – they need a carbon accounting system that mirrors their financial accounting system.
However, carbon accounting is still done mainly using spreadsheets and semi-automated tools that use estimates and averages for carbon footprints. Only 9% of companies have a comprehensive view of their greenhouse gas emissions and their impact across the entire value chain.
This is no longer enough. We need to account for carbon with much more precision and control by using actual data values across our business operations and supply chains in sync with financial flows. We need to redefine “resource” in enterprise resource planning (ERP) and extend our understanding of resources beyond financials. SAP now brings a precision-approach to do just that by enabling transactional accounting for carbon.
Introducing Future-Proof Solutions for Transactional Carbon Accounting
SAP’s approach to transactional carbon accounting comprises three future-proof capabilities.
First is SAP Sustainability Footprint Management, a single solution to calculate and manage carbon flows with high granularity on company, process, and product levels across Scope 1, 2, and 3 emissions. The solution integrates capabilities from previously released SAP solutions and adds new functionalities, such as the ability to manage a greater scope of emissions sources and support for a broader range of industry-specific requirements. Using SAP Sustainability Footprint Management helps provide a seamless integration with SAP S/4HANA, allowing for a strong data foundation to calculate footprints directly from individual transactions at each step of production. Companies can reduce their climate risk and make progress towards their climate commitments by better adhering to and reporting on rapidly changing standards. They can also achieve operational excellence by dramatically improving the speed, accuracy, and efficiency of emissions calculations and management. SAP Sustainability Footprint Management will be available from June 2023.
Second, SAP offers SAP Sustainability Data Exchange, a new application designed to securely exchange standardized sustainability data, including product footprints, along the value chain. The application allows precision accuracy by gathering actual carbon data directly from suppliers. SAP Sustainability Data Exchange, part of SAP Business Network, uses the carbon data interoperability standards established by the Partnership for Carbon Transparency (PACT), hosted by the World Business Council for Sustainable Development (WBCSD). The beta version is available and will be generally available in Q3 2023.
Third, SAP also introduces the green ledger concept, which combines financial and environmental data to enable deep insights and effective decision-making at different points across the business process. Green ledger will be embedded into RISE with SAP and GROW with SAP for SAP S/4HANA Cloud and will deliver new capabilities with each release. The next major update, for example, offers a new way to embed carbon data, starting with most impactful scope categories, into product-level costing.
Using these three powerful capabilities that reinvent carbon accounting, executives can have a future-proof tool kit to help manage and reduce their carbon footprints. The SAP solutions record data based on actuals instead of averages to increase data transparency, accuracy, and reliability. The high-quality carbon data, like the financial data, is auditable, transparent, and reliable. To take climate action, companies sync the emissions data with financial data to make granular, accurate, and right-time decisions that are both financially and environmentally sound.
Acting on Carbon Emissions Data
SAP’s carbon accounting solutions allow business decision-makers to not only see emissions on an operations level, but also at the product level by including carbon footprints alongside financial data to make trade-offs between cost efficiency and carbon intensity. To make these assessments, carbon footprints need to be available at a granular level and at the point where the business decision is made.
In the automotive industry, for example, the sources of steel, rubber, batteries, and electrical components are key elements of the carbon footprint of an electric car manufacturer’s product. SAP solutions provide the foundational data for these purchased materials and components, as well as consumed energy and other inputs, and combine it with additional data sources such as life cycle assessment databases.
Using the input data, the footprint is calculated by matching source data with emission factors. Like in financial accounting, the inflows and outflows of materials, components, and products are traced and accounted for with a high level of transparency and auditability.
This isn’t accounting for accounting’s sake. This level of data transparency helps teams across the business, from the C-suite to supply chain management to marketing, take sustainability action. They can make decisions together on both cost and carbon emissions that are rarely made in parallel today. Based on both cost and carbon values, the car manufacturer can scenario plan and make fully informed decisions about how to drive optimal financial and sustainability performance.
Bringing a Holistic View to Sustainable Business
To truly run sustainably and decarbonize business at the speed and scale needed, companies must record, report, and act on reliable and accessible sustainability data. By embedding sustainability data into their core business processes through their ERP, executives can achieve a holistic, enterprise-wide performance capability.
Based on the ERP backbone, sustainable business data is the foundation for setting regulatory-compliant KPIs and disclosing sustainability progress to a broad range of reporting frameworks using SAP Sustainability Control Tower. This holistic view is vital to understanding where emissions are occurring, setting accurate net-zero targets, and identifying specific areas to take action for maximum decarbonization impact. The SAP Sustainability solutions are cloud-based, modular, and integrate with SAP S/4HANA Cloud.
Peter Bakker, CEO of WBCSD, said accountants will save the world. He very well may be right. With over 50 years of experience in financial accounting, future-proof technology, and wide access to customer and partner ecosystems, SAP is well-positioned deliver high-quality emissions accounting to rapidly scale business decarbonization.
Sebastian Steinhaeuser is chief strategy officer at SAP.