Explaining Business Challenges

Recently, businesses have increasingly recognized the link between climate change and corporate action, prompting a surge in net-zero emission commitments. When considering climate action, businesses initially focus on operational efficiency. However, decarbonization progress requires engaging with stakeholders" across the value chain and business ecosystem to address significant emission sources. Notably, Scope 3 emissions - generated from procured products and services as well as product usage— constitute the largest portion of a company's total carbon footprint.

The decarbonization journey begins with understanding Product Carbon Footprint (PCF) values across the value chain, particularly from suppliers' products or raw materials. Obtaining this data can be complex due to the multitude of suppliers involved. For instance, an automotive manufacturer may have numerous direct (tier 1) suppliers and even more indirect suppliers.

Accurate PCF measurement is crucial for achieving net-zero emissions. However, data collection poses a significant challenge, as companies often rely on periodic emails from suppliers for primary data—an approach that lacks scalability. Inconsistent data formats lead to non-standardized data, while the absence of primary data results in reliance on third-party vendors for secondary data. This approach makes it difficult to distinguish between efficient and inefficient suppliers and raises data trust issues, including the risk of potential green washing.

To overcome these challenges and accelerate decarbonization, solutions like SAP Sustainability Data Exchange are essential. In this learning journey, you will explore how this solution can support your sustainability goals.

Carbon management is one of the biggest challenges businesses face today. Companies must accurately report their carbon footprints due to stricter disclosure requirements and regulations imposed by governments worldwide.

Over 70% of a company's carbon footprint originates from scope 3 emissions, which encompass both upstream and downstream activities within the value chain. These indirect emissions have a profound impact on a company’s overall environmental footprint. However, most companies lack transparent visibility into their emission data from value chain activities. This lack of insights presents a substantial challenge to implementing effective emission reduction strategies.

Additionally, the emergence of industry consortia, such as Catena-X, and evolving standards is driven by concerns related to data security, sovereignty, and data sharing.

The key business requirements for advancing climate action are as follows:

• Data Strategy and Audit-Ready Results: Companies must establish a robust data foundation to comply with various disclosure requirements. This involves developing comprehensive data strategies that ensure accuracy and withstand regulatory audits. By doing so, businesses can provide verifiable and reliable information on their sustainability efforts.
• Access to Accurate Primary Data at Scale: Effective carbon management requires the seamless exchange of carbon data across supply chains. Companies must ensure that footprint calculations are based on precise, high-quality data. Scaling access to this data is essential for identifying emission hotspots and implementing targeted mitigation strategies.
• Carbon Data Transparency at a Granular Level: Integrating detailed footprint data into business processes is critical for achieving meaningful emission reductions. Enhanced transparency enables companies to make data-driven decisions, track progress toward sustainability goals, and ensure alignment across all organizational levels.

In most industries, primary data is often unavailable, forcing companies to rely on secondary and averaged data for Product Carbon Footprint (PCF) calculations. This lack of direct data compromises the accuracy and reliability of carbon footprint measurements, making it difficult to track and reduce emissions effectively.

The key challenges of data collection and sharing across supply chain partners include the following:

1. Visibility Issues: Companies experience little to no visibility in their supply chains regarding scope 3 data. This lack of insight hinders organizations from comprehensively understanding their indirect emissions, which are critical to forming an accurate carbon footprint.
2. Inconsistent Methodologies: The absence of consistent methodologies and standards for PCF calculation and data exchange presents significant challenges. Varied practices across different entities complicate efforts to obtain uniform and comparable data.
3. Communication Barriers: Carbon data sharing today is ad hoc or lacks standardization, leading to questionable data quality. Companies use heterogeneous and outdated tools such as Excel, email, and portals, which lack interoperability. This fragmented communication infrastructure creates inefficiencies in data sharing and collaboration. The lack of standardized carbon footprint calculations or exchange methods results in variances in data collection and reporting approaches.

The lack of standardized data sharing and calculation methods, reliance on estimates, and the need for collaboration and data sovereignty make carbon management one of the biggest challenges companies face in achieving sustainability goals and complying with regulatory requirements.

In the next lesson, you will learn more about the features of SAP Sustainability Data Exchange and how it enables collaboration with business partners to accelerate supply chain decarbonization.