SAP, One of the World’s Largest Tech Companies, Aims to Tackle Scope 3 Emissions
Words by Andrew Kaminsky
Companies are increasingly being regulated to lower their greenhouse gas emissions and produce net-zero strategies. In some cases, reducing emissions is relatively straightforward. Once you start diving into what achieving net zero actually entails, however, the waters can get pretty murky. In response, one of the global leaders in business software and technology, SAP, is stepping up to help companies reach their ambitious climate action goals.
The complexities, for the most part, involve Scope 3 emissions. Scope 1 emissions are those created from direct business activities and Scope 2 covers the emissions from the generated electricity, steam, heating and cooling functions associated with the business. Scope 3 emissions, which account for the vast majority of emissions in most companies, cover those created across entire value chain of an organization — all the way upstream to the raw materials, and all the way downstream to consumer end use and disposal.
Multinational corporations with hundreds or thousands of suppliers around the world run into significant challenges when trying to track, measure and report their Scope 3 emissions. These challenges aren’t insurmountable, but they do require strong relationship-building with suppliers and support from digital technologies.
Global technology company SAP is uniquely positioned to help companies with their Scope 3 emissions. Having almost 90 percent of the world’s financial and goods flows touch an SAP system, including nearly all carbon flows, SAP has access to the supply chain data that companies are looking for in their Scope 3 accounting. SAP is converting this unique position into sustainability solutions that ease the hurdles that businesses encounter when trying to manage these challenging emissions.
What are the challenges with assessing Scope 3 emissions?
We can break down the main challenges associated with Scope 3 emissions into three categories: understanding what and where to report, collecting emissions data, and organizing and using the data. Each phase of the process presents its own set of difficulties.
Understanding what and where to report. For organizations new to Scope 3 reporting, the first step is figuring out what they need to report. Identifying which jurisdictions and reporting frameworks require Scope 3 disclosures, understanding the different requirements of each disclosure, and identifying which emissions are most material to the organization are three of the most significant challenges in this phase.
The International Sustainability Standards Board standards, set to take effect in 2024, are expected to become the global standard for sustainability reporting and should finally bring some clarity to the regulation migraine. Most jurisdictions are expected to adopt this standard moving forward. But as of right now, the lack of uniformity across frameworks and across jurisdictions is one of the most frustrating aspects of Scope 3 reporting for organizations.
“When I speak to C-level executives, the problem is the lack of standardization and the insecurity about accurately measuring and baking sustainability into business cases,” says Sebastian Steinhaeuser, chief strategy officer at SAP.
Collecting Scope 3 emissions data. The next phase is collecting data, and this is where things can get quite complicated. The main challenges with collecting emissions data are identifying all suppliers, getting accurate primary data, finding secondary data or industry averages when primary data is unavailable, and managing industry-specific issues.
Sifting through extensive supply chains to identify all suppliers and find the required emissions data is an incredibly painstaking task. For companies that have thousands of suppliers all over the world, this might be nearly impossible, and at best, it’s immensely time-consuming.
SAP’s Sustainability Data Exchange allows companies and suppliers to effectively share standardized emissions data across business networks. Meanwhile its Sustainability Footprint Management solution calculates and manages the entire range of value chain emissions, producing audit-level data that is ready for use in the various reporting frameworks.
Whether trying to tackle this problem on your own or by employing a data management system like SAP’s, the most important thing is to build strong relationships with suppliers. It’s critical that suppliers understand the importance of their role and the benefits they enjoy by providing accurate, granular emissions data.
Organizing and using Scope 3 emissions data. Companies that employ a carbon emissions data management system can make great strides in managing their Scope 3 emissions data. Receiving data in many locations and compiling it all in one place, avoiding critical errors in manual data collection, receiving data at different timeframes from suppliers, and having to manage data submitted in different formats can all provide substantial headaches for sustainability teams.
Beyond collecting and organizing critical emissions data, the key is to use the information to optimize and ultimately reduce emissions.
"Technology gives business leaders the needed data transparency to make more sustainable business decisions,” Steinhaeuser says. “Having the ability to work with verifiable data across supply chains will change the way business works and accelerate climate action.”
With significant penalties on the rise for non-compliance and greenwashing, companies need to be sure the data they report is 100 percent accurate. Any errors or oversights in this phase can spell disaster for a company’s regulatory compliance and public image.
Having a trusted emissions data management program will not only hugely reduce a company’s workload, but it will also give them the peace of mind that the data they are reporting is auditable, accurate and complete.
The SAP transactional carbon accounting approach
To effectively reduce emissions, companies need to work with the most accurate data available. However, not all suppliers are able to provide such data yet. This is where a transactional carbon accounting can help companies get the most accurate snapshot of their emissions profile and drive change by leveraging their financial management systems.
“Only 9 percent of companies have a comprehensive view of their greenhouse gas emissions and their impact across the entire value chain,” Steinhaeuser says. “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.”
Incorporating a hybrid strategy allows companies to focus first on the areas of their supply chain that produce the most emissions, work to reduce those emissions, and then transition to a broader scope of the supply chain, incorporating more supplier-contributed primary data.
With all of the complexities and challenges involved with Scope 3 emissions, taking a targeted approach that slowly builds the wealth of primary data will allow for continued improvement and greater accuracy in a company’s Scope 3 profile. This approach will not only satisfy regulators, but it will also provide investors and other stakeholders with confidence that businesses understand where their emissions are coming from, and that they are doing all they can to reduce them, one step at a time.
This article series is sponsored by SAP and produced by the TriplePundit editorial team.
Image credit: NASA/Unsplash