SAP carbon accounting through a green ledger
At a Glance: Carbon Accounting and SAP’s Green Ledger Innovations:
Carbon accounting involves the recording and reporting of greenhouse gas (GHG) emissions resulting from our business activities.
In this blog, we will take a closer look at carbon accounting and explore how SAP reinvent carbon accounting and lead companies to a green ledger
The reasons behind thegrowing significance of carbon accounting:
1) The Impact of current Industrial Revolution on Carbon emissions:
We cannot ignore the significant positive impact of the industry, especially with the current Fourth Industrial Revolution (4IR), which is revolutionising human well-being in various aspects such as healthcare, the economy, education, innovation, safety, and more.
On the other hand, it’s essential to emphasise the downsides, including the risks of privacy breaches, cybersecurity threats, job displacement, and the significant risk of releasing large amounts of greenhouse gases into the atmosphere.
This contributes significantly to global warming, which is one aspect of climate change that can wreak havoc on plants, animals, people’s livelihoods, and communities.
2) The Growing Number of Climate Regulations:
More and more regulations have been announced to protect the climate, and organizations are now required to comply with approximately 20 times more of climate regulations than what they have to comply with in the past.
3) Low accuracy of current carbon data:
Considering some barriers, such as the fact that 30% to 40% of carbon emission data are not accurate and, in most cases, are stored manually in offline spreadsheets rather than integrated systems.
Moreover, from personal experience in previous project(s), it’s worth noting that some businesses report carbon emissions based solely on data from factory chimneys emissions meters after adding averages of other carbon emissions without considering the full life cycle product carbon footprint.This enabling organisations to easily meet the governmental regulations, However, it raises concerns about the accuracy of carbon data.
Based on the above mentioned critical environmental impact and to solve related barriers, in May 2023 at sapphire SAP announced solutions to reinvent carbon accounting and lead companies to a green ledger which enables them to take the financial decision inline with environmental ones.
An elaborate explanation of Carbon Accounting:
Carbon accounting is the process of recording, analysing, monitoring, verifying, and presenting the quantity of greenhouse gas emissions either produced or removed from the environment to predict, understand and take decisions about the impact of business or organisational activities on the environment.
Decarbonization journey until transitioning to the Green Ledger:
Before SAP launched the green ledger, some companies started their decarbonization journey, In such cases I invent my own workarounds to record the carbon emissions quantity on transactional data like creation of financial custom fields – coding block and customising new carbon validity certificates which is part of country specific requirements in business partners.
When SAP launched the green ledger and embedded it into RISE with SAP S/4HANA Cloud and the GROW with SAP solution, it gave much more solution capabilities and automation for managing greenhouse gas emission as it launched two extra integrated solutions for climate actions.
With SAP sustainability data exchange, there is no need to request and upload the carbon emission data manually from our business partners as data can be securely exchanged according to the Partnership for Carbon Transparency (PACT), hosted by the World Business Council for Sustainable Development (WBCSD).
However, this solution automates carbon data exchange, the manual carbon certificate workaround is giving the benefit if automatically blocking BP with expired certificate in case of carbon emission data is not shared in approved timely manner or emission data exceeds our limit as example of blocking reasons for dealing with BP.
To customise BP certificates for Saudi Arabia for example we can go through the following config. path:
Financial Accounting (New) → Accounts Receivable and Accounts Payable → Vendor Accounts Master Data Preparation for Creating Vendor Master Data Accounts Payable for Saudi Arabia
- Define Certificate IDs
- Assign Certificate IDs
- Specify Blocking Behavior for Certificates
- Specify Vendor Blocking Reason for Expired Certificates
The second solution in climate action is the SAP sustainability footprint management which enables us to reduce the dependence of average carbon emissions in favour of actuals as it enables us to track and analyse carbon emission at each stage of our business operation through managing emission factors from different sources in addition to tracking and modelling energy flow.
SAP sustainability footprint manages Carbon or Greenhouse gas emissions resulting from our business operation under one of following carbon emission scopes:
Scope (1): Direct emissions results from organisation direct use of fuels, heating sources it includes organisation’s cars or chimneys
Scope (2): Indirect emissions comes from energy purchasing
Scope (3): Any indirect emissions comes from our business partners based on our purchase like business trips flight emissions
Now, it’s time to combine my carbon data into our transactional data in S/4HANA Green Ledger to give the management better insight to make a trade off between the financial decisions and environmental impact.
This required the data replication between S/4HANA and SAP sustainability footprint management.
Unfortunately, not likely the workarounds related to customised fields that used before, the system doesn’t not update the environmental data immediately into financial transactional data.
To customize a new field for carbon emission quantity recording we may use the following config. path:
Financial Accounting Global Settings → Regenerate CDS Views and Field Mapping → Ledgers → Fields → Customer Fields → Edit Coding Block
We need to replicate the financial data as the last step after finalising the data exchange and adding emission factors to calculate the footprint emission calculation then update the carbon data into the transactional data.
- In this blog post we fastly went through the importance of managing our business carbon emissions and complying with the increasing regularities around it.
- We had a comparison between the limited workarounds that used before to manage the carbon emissions and new SAP S/4HANA capabilities
- We got introduced to important related environmental concepts and how to use it in alight with our transactional data