Envisioning the future

In this section, we describe the art of the possible and how new industry trends are driving new growth opportunities and business benefits. What were once considered peripheral and emergent technologies are now very much the mainstream, such as AI/ML, data analytics, automation, the cloud, and blockchain. These can be used to accelerate a new generation of solutions to help businesses with their sustainability goals and ambitions. Tangible business benefits are now within reach once you have established the new SAP digital core with SAP BTP capabilities as wrap-around services.

New horizons

Now that we have S/4HANA providing standard, optimal, and simplified processes across order-to-cash, procure-to-pay, source-to-contract, lead-to-cash, record-to-report, and operational analytics and reporting, you can achieve a lower data complexity and data footprint, which helps with an overall reduction in TCO. More intelligent processes enhance the user experience and productivity. With more efficient processes across S/4HANA and integrated with SAP BTP, you can scale up your innovations and drive differentiated value. This allows the organization to focus on business growth initiatives that address market needs and sustainability priorities.

The following diagram illustrates how businesses can start expanding layers of new capability around the S/4HANA Core ERP. Many businesses can start with sustainability as the first and end goal. How? Move to S/4HANA with sustainability management solutions so that your business is sustainable by design. Next, define, realize, and convert those business benefits into tangible results, fast. All this needs to be integrated with the quadruple bottom line with data and KPIs for people, planet, prosperity, and impact. This can be powered by S/4HANA, SAP BTP with SAP Cloud for Sustainable Enterprises, and SAP Industry Cloud solutions. With the emergent standards around sustainability, compliance and reporting are on the critical path.

How do you meet those emergent requirements? Regulatory standards mean you need to transform real-time insight into action across the whole business process value chain, which means investing in a data architecture that breaks down data silos using SAP BTP data to value solutions SAP HANA Cloud will be used as the database. SAP Data Warehouse Cloud can be used for defining new data models and supporting operational reporting. For data extraction, data transformation, data cleansing, data loading, and data cataloging services, we use SAP Data Intelligence Cloud to allow businesses to move and optimize data from source legacy applications to target SAP systems. Reporting will be handled by Analytics Cloud. These solutions can be easily integrated into SAP Sustainability Control Tower (SCT) to provide holistic steering and reporting. Finally, how do we reduce TCO and modernize IT? By adopting ccrc, gclean core, responsible computing, and green IT principles into developments to decouple process, data, code, and the platform for maximum agility:

Figure 12.1 – Transforming beyond Clean Core into an intelligent sustainable enterprise and ecosystems

Using DevSecOps to deliver value through iterative agile sprints into product increments, the business can see real growth in new capabilities across their organization. Combine that with the adoption of AI/ML fused into intelligent workflows and businesses can start to convert their roadmap into the reality of innovation-led sustainable enterprise – as this is where it is all headed. This vision helps us to focus on emerging industry and market trends, while at the same time, ensuring an evergreen Clean Core ERP with innovations that extend the core S4HANA solution to go beyond traditional ERP capabilities.

Finally, in the Initiation section later in this chapter, we will cover how to get started on the continuous development agenda, describing the initial steps that can be taken as part of the broader SAP transformation roadmap to help enable that business vision and realization of benefits in a well-architected, well-structured, and coordinated way, enabling a positive change culture for the future.

The rise of ESG priorities

In this section, we start to focus on the climate crisis by looking at emissions, waste, and inequality. Many companies define their own environmental, social, and governance (ESG) objectives as they tackle their own sustainability challenges within their business, industry, and broader society. Their ESG reports now replace traditional corporate social responsibility (CSR) reports that are still around. With ESG categories, businesses can show which of the UN Sustainable Development Goals (SDGs) are adopted and are made available to their auditors, regulators, investors, suppliers, customers, and industry commentators, along with industry metrics and data points to compare how the company is delivering on their ESG commitments. In fact, they rely on SAP ERP to serve as a key data source for ESG data, analytics, and reporting to drive insights. They also increasingly rely on SAP capabilities to orchestrate new business processes to drive actions across their business value chains.

Unequivocal climate facts

The UN Conference of the Parties (COP) process is the only global mechanism to get governments, industries, and organizations to agree on commitments to reduce greenhouse gas (GHG) emissions, help mitigate the risk of the climate crisis, and work collaboratively using international standards and frameworks to enable all countries to lead the way toward a more sustainable model of economic growth that operates within planetary boundaries.

COP21, held in Paris in 2015, resulted in a ground-breaking legally binding international agreement to limit global warming to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. This agreement established the 2015 DG the SDGs or Global Goals are a collection of 17 interlinked objectives designed to serve as a “shared blueprint for peace and prosperity for people and the planet, now and into the future” as per the sdgs.un.org site. These 17 goals are assigned to each of the ESG categories. Most companies typically adopt between 4 and 11 of the 17 SDGs and translate them into their own sustainability ESG ambitions and corporate mission statements. Forward-thinking companies are drawing a clear line of sight between some of these goals and their business objectives and operations, so that they can track progress along their sustainability ambitions, goals, and objectives. The following diagram is a good way to represent how the 17 SDGs can be categorized by ESG:

Figure 12.2 – The 17 UN SDGs, categorized by ESG

The UN Intergovernmental Panel for Climate Change (IPCC) issued reports stating that globally, we need to reduce GHG emissions by 45% by 2030 to achieve net zero by 2050 to stave off the worst impacts of climate change. This means accelerating the move away from a fossil fuels economy to more sustainable sources of energy such as renewables (wind, solar, tidal, and so on) and considering zero-carbon options such as nuclear fission energy generation. Many argue that the war in Ukraine, resulting in high commodity prices for oil and gas, has meant that many countries are shifting their focus to renewable energy. The ideal solution of course is nuclear fusion, but that is some decades away from becoming available, so doubling down on available technologies today, with innovations around renewables and battery storage is a clear way forward. Indeed, solar power is the cheapest source of energy on the planet. In fact, the cost of energy produced from solar farms has plummeted. With the latest generation of solar panels, there are even higher levels of energy efficiency achieved). Between 2010 and 2021, the cost of a kilojoule of energy has reduced by nearly 90%, and just considering 2021 alone, that cost dropped by 13%! These figures have surprised many industry commentators, and the forecast for the mid-2020s is to see further drops in the cost of energy produced by solar. It is expected that solar electricity will be up to 50% cheaper today than the International Energy Agency (IEA) had originally projected for 2022 (excluding regional variation) (source: https://www.theecoexperts.co.uk/blog/is-renewable-energy-cheaper-than-fossil-fuels). All of this accelerates solar adoption, and with that, the cost of technology matures with continuous innovation, achieving very high economies of scale and making solar the cheapest energy source on the planet.

Tackling biodiversity loss

The human impact on the environment is more than just GHG emissions. The biodiversity losses underway right now are unprecedented. Scientists have analyzed that 69% of biodiversity loss has already happened since the 1970s, caused by a range of factors, and 70% of the world’s most vulnerable people depend directly on wild species.

In December 2022, COP15 concluded with a historic international agreement on the Kunming-Montreal Global Biodiversity Framework. This allows for new global goals and targets to be set that are aimed at protecting and regenerating nature for both current and future generations, while also ensuring the sustainability of these assets through investments in green global economy initiatives. This agreement complements the 2015 UN Paris Agreement on climate change (COP21) by outlining the path toward a more nature-positive and ecologically resilient world by 2050 with clearly defined quantifiable targets for both 2030 and 2050. These targets include restoring 30% of degraded ecosystems globally (on land and sea) by 2030 and conserving and managing 30% of areas (terrestrial, inland water, and coastal and marine) by 2030. As a result, the agreement aims to limit the rate of extinction of many species of plants and animals so that by 2050, the result should be a tenfold reduction in the extinction risk and rate of all species. Clearly, there is still a lot of work to do, but it is possible, and the targets are not legally binding, but it’s a good step forward in the right direction. Digital technologies are the only way to track progress and convert ambition into real-world action.

These announcements mean that climate action must go hand in hand with action on protecting biodiversity. Enterprises need to reflect these global commitments in their corporate mission statement, goals, and objectives in order to survive and grow in an unpredictable and volatile world, especially since most businesses are integrated into global supply chains.

Start with standards and frameworks to drive compliance and reporting

There are more than 20 global standards and frameworks organizations advising governments, regulators, industry leaders, and businesses on what needs to be reported, when, how, and why. These ESG disclosure and reporting requirements and standards are rapidly evolving worldwide with regulatory, consumer, and investor-driven purposes.

Some standards are global, others are regional and local, and some are industry-specific. Any business must take time to determine which of these standards apply and then identify KPIs/metrics that will be followed to track progress towards sustainability, starting with their ESG objectives. Typically, we have organizations that publish standards and ones that issue frameworks or guiding principles. The point of these standards is that they set a commonly agreed upon benchmark for the calibration of sustainability-related activities. They aim to bring consistency and quality into reporting requirements to allow regulators to compare like-for-like outcomes. They contain specific and detailed criteria using metrics describing what needs to be reported (and why). Meanwhile, a framework simply provides more context for defining the direction of sustainability-related actions, but it is not a methodology. It provides a set of common principles for guidance to enable a well-defined reporting strategy so that frameworks and standards complement each other.

Many emerging ratings and rankings organizations act like data collectors who sell datasets to help businesses score or rank the maturity of their business based on its publically declared ESG credentials. This information is often volunteered by individual enterprises as part of their non-financial disclosure activities, but sometimes information has been gathered through industry regulators based on regulatory compliance requirements that companies need to provide. Why is this information useful and becoming critical? For many, ESG ratings represent a public scorecard and a statement about the risk of doing business with a given company. Many chief procurement officers (CPOs) are dependent on trusted ESG data to define whom to contract as a supplier in their business supply chain activities. As more companies use ESG rating data, the maturity of that data improves so that companies measure, track, and qualify their sustainability-related data for external consumption.

The emerging standards that are now dominant across industries include the US Securities Exchange Commission (SEC), the EU Financial Reporting Advisory Group (FRAG), the International Financial Reporting Standards (IFRS), and the Task Force on Climate-related Financial Disclosures (TCFD), as shown in Figure 12.3:

Figure 12.3 – Emergent global standards are setting the agenda for compliance and reporting

Most companies reflect and incorporate these standards in their sustainability materiality assessments, which allow companies to focus on the really important KPIs and metrics they want to use to transform their business. These standards serve as a yardstick that enables companies to perform meaningful like-for-like comparisons using common data semantics, terminologies, and measurements. The US SEC incorporates both the TCFD and GHG, which address the different sources of emissions across upstream and downstream supply chains.

Tackling waste through circularity

It’s also about our use of raw materials in the linear economy of the take-make-dispose economic model, which is very destructive to the environment as it accelerates biodiversity losses, increases waste, and increases inequality. By introducing circularity business models with better use of raw materials and being smart about product obsolesce through reuse, repurposing, and recycling, companies are creating new revenue streams and growth opportunities, which have increased shareholder value. The circular economy eliminates waste through a cyclical model: make, use, recycle. The circular economy is now driving new opportunities for businesses to capitalize, exploit, and monetize the waste generated from linear manufacturing and production processes.

For example, we see many start-ups in tech hubs across different cities opening circular economy companies, such as second-life clothing companies, or providing digital platforms for the easy reuse and repurposing of waste materials for secondary supply chains. These models are likely to be more common in the future because raw materials are readily available – simply put, making money from waste! In fact, by 2029, Gartner predicts the circular economy will be the only economy, replacing wasteful linear economies as consumer and shareholder preferences rapidly shift toward sustainability.

Tackling inequality through data transparency and action

When it comes to inequality in organizations, this has been a long-term issue that needs to be resolved with better representation across organizational hierarchies and structures through people-focused initiatives that enable diversity and inclusivity and promote talent based on individual merit through capability and expertise rather than traditional policies of longevity within the organization. Triggering outreach programs, diversity campaigns, and celebrating the variety of workforce backgrounds are ways to excite and mobilize talent and increase broader diversity and stronger representation in leadership positions within the organization.

The challenge is to strike a balance between people, planet, prosperity, purpose, and impact. Yet, it’s very clear that sustainability is now a mainstream and critical driver for transformation.

Business transformation with purpose

In 2022, the IBM Institute of Business Value (IBV) did a study on the topic of transformational sustainability, identifying priorities and challenges for the CEO. In the survey, over 51% of CEOs most frequently identify sustainability as their greatest challenge. Their companies plan to increase and prioritize spending toward the ESG objectives in 2023 because they are under mounting pressure to progress toward more sustainable and socially responsible business operations—and to demonstrate these measures in a robust and verifiable way. To that end, prioritizing spending on ESG initiatives and sustainability technology is now an investment imperative that enables them to streamline operations, reduce TCO, increase process efficiency, and increase both employee and customer experience while enabling the business to be much more responsible and profitable in the long term. ESG is more than just good intentions. It’s about creating a tangible, practical plan that achieves real results. Figure 12.4 illustrates the points from the 2022 IBM CEO study showing that sustainability is now a top priority.

Figure 12.4 – IBM CEO study 2022: Own your impact - https://www.ibm.com/thought-leadership/institute-business-value/en-us/c-suite-study/ceo

For the CXO, we see the importance of sustainability rising, requiring data to insight and insight to action. Let’s look at our CXO – the four master personas and this time we'll add the COO as well, to give us five personas. Each of these key stakeholders is now incentivized to embed sustainability into the core of their business in order to achieve ESG-specific outcomes:

• Innovation and growth (CEO): Business transformation, the creation of new business models, and value propositions for customers, employees, and stakeholders.
• Regulatory compliance (CFO): Simplified data transparency in disaggregated data for ESG reporting, holistic steering, and supply chain transparency.
• Operational excellence (COO): Seamless integration into established processes; convert insights into action to drive sustainability into the business core.
• The pathway towards sustainable enterprise (CSO): Define a clear roadmap that meets the company materiality assessment and business goals and objectives.
• The modernization of applications and platforms (CIO): Adopt green IT principles by reducing data replication, snoozing non-productive or inactive systems, moving towards API economy with event-driven architectures, eliminating technical debt, and modernizing apps with containerization across hybrid cloud platforms.

IBM IBV studies during 2022 revealed the trends that are underway with stakeholder, consumer, and employee expectations when it comes to sustainability. These data points are reflected in the way different industries are responding to the need of the hour:

Figure 12.5: Key industry indicators from IBM IBV studies showing the trends toward increasing sustainability expectations in business operations and outcomes. Source: https://www.ibm.com/thought-leadership/institute-business-value/en-us/c-suite-study/ceo

Industry trends

Every industry is now taking action on its sustainability goals and objectives, starting with ESG reporting but moving into transforming the business architecture and toward the intelligent sustainable enterprise powered by SAP at the core. Many industry innovators are focusing on developing assets and platforms to help their sector accelerate their sustainability vision.

For the discrete industrial manufacturing and components (IM&C) process, which is a key part of the manufacturing industry’s production process, many businesses have started to address the following sustainability priorities using structured and unstructured data. This data is typically of a high volume, velocity, and veracity, usually generated through key business events during the manufacturing process workflow, which can be orchestrated through SAP S/4HANA and SAP BTP:

• Emissions management: This is how to offset persistent emissions using emerging carbon capture usage and storage (CCUS) technologies, how to accelerate supply chain decarbonization, and how to ensure continuous reporting accuracy using real-time data across GHG Protocol scopes 1/2/3.
• Circularity: This is how to reinvent and innovate towards circularity in product design by removing the waste and tracking life cycle assessment (LCA) of every material flow through the supply chain at the stock-keeping unit (SKU) level. This includes resource optimization in manufacturing and production planning while ensuring compliance with product optimization, then driving insight into sourcing, risk, and how we manage power grids.
• Responsible sourcing and optimization of physical assets and resources during manufacturing and production planning is a key focus area. Additional focus areas include ensuring compliance with product optimization and driving greater insight into sourcing and managing products' carbon footprint starting from source to pay/procurement processes into the rest of the supply chain. This includes risk mitigation for any deviation from target KPIs/metrics.

In the consumer packaged goods (CPG) industry, the key focus areas are more around the customer experience and recognizing consumer trends where the following factors are driving changes in behavior:

• Brand: Managing customer expectations as part of marketing and reputational impact
• Consumer insights: Customers are very dynamic and willing to move their dollar to another more sustainable and reputable brand
• Ethical practices: Selecting suppliers based on disclosure data, for example, CDP, but also on those who proactively eliminate human trafficking and exploitation
• Insight to action: Analytics, ESG compliance, and reporting

In energy and utilities, we see the obvious move towards renewable energy, but there are other trends underway triggered by the energy crisis witnessed in 2022:

• Accelerating the switch to renewables: Supporting customers to move to 100% renewable energy using a flexible platform for load balancing demand/supply across suppliers, consumers, and now prosumers using a scalable digital platform
• Microgeneration: Supporting communities with their local renewable power feedback into the grid and monetizing that model
• EV and E-mobility: As fleets move to electric vehicles (EVs), supporting the switch to a charging network and consumption model transportation

As you can see, there is a convergence of business benefits that are enabled by sustainability being woven into the fabric of the enterprise. What we are seeing is that those CEOs that are able to fuse their sustainability goals and objectives with their digital transformation agenda for modernizing business and IT tend to benefit from a significantly higher average operating margin than their competitors in their marketplace. This requires a well-defined sustainability strategy with committed sponsorship, stakeholder support, and funding. These organizations are much better positioned to navigate the ever-changing regulations while delivering solutions that meet new stakeholder attitudes and expectations. This is about going beyond disclosure and compliance with reporting and analytics, but it’s about how we infuse AI-powered intelligent workflows to help us with what we buy, sell, and deliver as a closed loop towards circularity in business models and driving the green line right through business value chains.

Challenges to overcome

Yet, as with any other monumental shift, the global economic movement toward sustainability presents significant challenges for industries and businesses. The following list represents some of these challenges:

• How do you break down data siloed across the organization?
• How do you drive the effective execution of sustainability measures with conviction through business change initiatives?
• How do you build a strong technology foundation based on open architectures to drive continuous innovation at the speed and scale necessary to meet your ESG ambitions?
• How do you act on the climate crisis meaningfully? Many companies have committed to carbon reduction or net-zero targets, but their increased voluntary and mandatory reporting requirements don’t always align.
• How do you measure progress consistently across the industry? Tracking material flows and carbon intensity across the pharmaceutical industry is challenging, given the varying product types, modalities, locations, complex supply chains, and data security.
• How do you mitigate risks from extreme weather events driven by the climate crisis? There are significant climate change-related risks to all industries, including physical, transition, legal, and regulatory risks, with little clarity on how to go beyond reporting to implement mitigation and adaptation strategies.

RISE with SAP for S/4HANA with SAP Cloud for Sustainable Enterprises

To help answer and resolve these questions and challenges, this is where the new raft of SAP sustainability solutions can help. With the S/4HANA core, you have the benefit of a simplified data model and optimized business processes that make it much easier to access, analyze, and visualize data across core business processes. We know that standards and frameworks are evolving all the time to meet mandate regulatory reporting requirements for mandatory disclosure requirements; new regulations are announced for 2022 and will continue to evolve. We already know that the supply chain is the source of up to 80% of GHG emissions covering scopes 1, 2, and 3 as per the GHG Protocol.

We know that transforming from a profitable business into a profitable and sustainable business is difficult and challenging. Why? First, where can you find the right real-time, accurate data you can trust? Second, how can you change your business processes to drive focused impact to maximize business benefits?

With SAP Cloud for Sustainable Enterprises, you can start to take advantage of both native sustainability features baked within S/4HANA core as well as net new solutions provided by SAP built on the SAP BTP platform. For example, with SAP SCT, you can start to record, report, and act on your sustainability goals, focusing on what you can do using the data and processes you already have in place:

Figure 12.6 – An overview of SAP Cloud for Sustainable Enterprises. Source: https://www.sap.com/sustainability.html

SAP SCT provides ESG transparency, enabling access to data that is recorded in S/4HANA core and SAP cloud solutions such as SuccessFactors, Fieldglass, Concur, and Ariba. This is along with these new sustainability solutions to record real-time auditable data and turn all that into high-fidelity insights using SAP SCT key ledger mapping to a choice of ESG standards such as the World Business Council for Sustainable Development (WBSCD), EU Taxonomy, Global Reporting Initiative (GRI), IFRS, and World Economic Forum (WEF) KPIs. That way, you can start to report ESG performance across your supply chain. More importantly though is the responsibility that companies will now have to act holistically using this insight from SAP SCT, which offers out-of-the-box integration taking you from averages to actually using automation to accelerate action and measurements.

This way, you can zero in and out of the big three challenges: emissions, waste, and inequality. This brings us back to our first point. We know that existing approaches aren’t doing enough, especially when most of the emissions are stuck in your supply chain. With additional SAP components such as Product Footprint Management and Environment Health and Safety, you can now tap into data from every part of your business to measure, manage, and minimize the bottom-up carbon footprint of products that could be lost within your business value chain:

Figure 12.7 – How SAP sustainability solutions operate across business workflows. Source: SAP

Looking at the growing problem of waste, we see that for all of the raw resources we use in production planning or manufacturing, only 9% gets recycled. To eliminate waste, you need to see the whole picture so you can start circulating materials and regenerating natural systems. That’s where a circular economy model is essential. Together we can capture data across every element in the packaging layer and combine it with local requirements and tax declarations, so you get full visibility and can act on your zero-waste commitments.

The waste you can see

Finally, the human impact of business isn’t visible. An estimated 40 million people are trapped in modern slavery in upstream opaque supply chains, with most of them being part of corporate value chains. You may be making ethical decisions, but your value chain extends to 2,000 supporters and millions of people. With supply chain transparency, we can help ensure decent work in compliance with human rights so you can sustain equitable, responsible business practices that positively impact people and our planet. Becoming a responsible business is hard, but we all have the same goal. With our technology and your commitment, we can achieve a sustainable world, together.

When you stack up the financial impact of inaction or bad action when it comes to sustainability, it starts to add up. Typically, the CFO is focused on meeting financial reporting obligations in line with standards such as generally accepted accounting principles (GAAP) and IFRS, which are standards for the finance ledger, and S/4HANA is excellent for this because SAP has industry-leading Cash Ledger and ERP for 24 different industries. However, economic externalities are not captured, thus the groundswell of interest in and adoption of ESG Green Ledgers. Some external costs/revenue (carbon price, cap, and trade credits) and risks (climate impact on assets, risk reserves, and so on) are applied to the finance ledger, but we are seeing a growing focus on climate-related risks and opportunities, 60 of the top 100 firms use TCFD today. Now, the same CFO, combined with the priorities of the other major CXO players, must focus on broader impacts such as brand, compliance, and even the right to operate.

SAP has defined the business value of sustainability by recording, reporting, and acting on insights through its Value Framework, as shown in Figure 12.8. While individual KPIs/metrics will define business value (depending on the ESG-related standard that is adopted), businesses will integrate these KPIs/metrics into their own materiality assessment, which is done within the context of their industry and their specific business growth strategy. This results in a symbiotic relationship between return-on-investment (ROI), sustainability KPIs, brand equity, and strategic outcomes:

Figure 12.8 – The SAP Sustainability Value Framework shows a symbiotic relationship between each quadrant. Source: SAP

Therefore, the impact of the ESG Green Ledger is getting to be as important as the financial ledger because Green Ledgers align with the ESG criteria, with many enterprises starting to report on multiple ESG frameworks, often manually. This takes tremendous effort, time, and money, and also raises questions of audit, providence, assurance, and quality. The CFO has to consider accountability and value creation beyond financial markets, for example, carbon impact on climate change and biodiversity loss as well as social equity. Therefore, externalities have to be measured, analyzed, and improved, and that’s why the ESG framework with the Green Ledger has to be the scorecard.

With RISE with SAP, you have the S/4HANA core solution supported by SAP BTP capabilities. With SAP Cloud for Sustainable Enterprise, organizations can take advantage of new solutions built natively on SAP BTP, which includes ESG-specific data models, workflows, and integrations that augment the core S/4HANA solution. These include the following:

• SAP SCT: This is a central sustainability data warehouse that enables transparency and management of all organizational ESG-related data. It allows you to set sustainability targets and metrics/KPIs, align sustainability data with established ESG reporting frameworks, monitor progress, and gain actionable insights across the business network. This solution incorporates features of SAP Analytics Cloud (SAP SAC), SAP Profitability and Performance Management (SAP PAPM), and SAP Data Warehouse Cloud (SAP DWC).
• SAP Product Footprint Management (SAP PFM): This solution captures and calculates the environmental footprint of products across their life cycle, using existing business data through procurement of raw materials into production, transportation of materials, energy from production facilities, product use, and end-of-life.
• SAP Responsible Design and Production (SAP RDP): This solution allows you to manage extended producer responsibility (EPR) obligations and plastic taxes according to the latest regulations. It also calculates fees and taxes on material and packaging choices in the supply chain.
• SAP Environment, Health, and Safety (SAP EHS): This solution allows you to manage all incidents, waste, occupational health, and corporate emissions, and calculate all types of corporate emissions: hazardous air pollutants, GHGs, and other air or water emissions. It also enables you to collect and analyze operational activity data such as fuel or electricity usage. Also, you can embed operational risk management for a culture of corporate safety and respond proactively to hazards in the workplace.
• SAP Product Compliance: This solution assesses the compliance of products against multiple environmental and safety regulations across the globe. It also enables clients with product marketability to show that the product is safe to use and operate.
• SAP E-Mobility (EV charging, UX mobile app): This is a single platform to create, operate, and manage electric vehicle charging networks with the integration of other software solutions such as billing, expense reimbursement, and invoicing.
• SAP Landscape Management Cloud (SAP LCM): This solution allows you to analyze the energy consumption and infrastructure costs of SAP systems. You can also manage the running time of SAP systems through scheduled start/stop procedures.
• SAP Logistics Business Network Material Traceability: This is an open network that allows companies to connect with business partners for inter-company collaboration and transparency. It is dependent on the blockchain network and participants within the network. It provides full visibility of every ingredient and component used in a finished product.
• SAP Ariba – Supplier Risk: This provides risk intelligence to guide supplier selection, with proactive monitoring to minimize supplier risk in procurement. It consolidates supplier risk information from multiple sources, including news sites, government data, disaster systems, and public and private data sources.
• SAP SuccessFactors – Human Experience Management Suite (HXM): This provides analysis and insight into HR data from a compliance and ethics perspective to ensure diversity of employees and inclusion across the organization.

These are delivered through SAP BTP with integration with S/4HANA Public Cloud (but will be integrated with the SAP S/4HANA AnyPrem edition and SAP ECC6 via BTP Connector). The following diagram shows a typical reference architecture for SAP SCT integrated with multiple data sources, including S/4HANA, SAP ECC6, and non-SAP datasets:

Figure 12.9 – Reference architecture for SAP SCT. Source: SAP

In addition, SAP has made updates to existing solutions on SAP S/4HANA, such as the following:

• SAP Transportation Management (SAP TM): This calculates the emissions quantity and fuel consumption for a freight order, allowing you to plan the most economical and environment-friendly routes through different modes of transportation.
• SAP Integrated Business Planning (SAP IBP): This executes carbon calculation early in the supply chain planning for the mode of transport and logistics suppliers/carriers so you can get better visibility of the GHG footprint of your products and operations – from the start of the execution of the supply network.
• SAP Extended Warehouse Management (SAP EWM): To stock in warehouse and distribution centers from an energy and resource consumption perspective, including waste management.
• SAP Concur: This captures corporate travel and expense data with the capability to generate reports related to sustainability, enabling corporations and their employees to make informed travel decisions based on sustainability insights. It is best for corporations with sustainable business travel initiatives.

As a consequence, organizations have a real opportunity to balance quadruple growth and profitability. This is the time for finance to take advantage of technology to drive better profitability. S/4HANA solves many of the financial challenges of the past with the new richer capabilities of the Universal journal as a single source of truth for all financial transactions from accounts payable, accounts receivable, cash and banking, credit management, and the finance supply chain as well as inter-company reconciliation and real-time period close. Now, those processes can be augmented by fusing AI and ML capabilities into core business processes right across the enterprise. For example, we can use SAP Signavio to drive process discovery, insights, optimization, standardization, and automation. When it comes to process execution, all of this can be visualized through a single dashboard depicting key workflows operating in real time across the enterprise’s processes. This is a really powerful capability.

Sustainability and SAP enterprise architecture

Successful organizations rely on their enterprise architecture (EA) team to operate across business units and departments to understand the end-to-end business model (for both the AS IS and TO BE world), then manage the impact of business requirements and change, and articulate risks and mitigations. Therefore, the EA team has a critical role in defining business and IT capabilities while providing control points to drive new solutions into the enterprise that plug any capability gaps that were identified for an organization. That way, new changes are adopted after consideration through an EA framework, for example, The Open Group Architecture Framework (TOGAF), with industry best practices, so that changes are owned and managed effectively. The EA team can introduce sustainable thinking and action to address both functional and non-functional requirements, and help the business deliver the outcomes at each layer of the EA structure. The following diagram shows how sustainability thinking pervades each of the EA layers, starting with IT and operational technology (OT) (used for Industry 4.0 use cases), process and data, capability, and strategic layers. Taking an EA-led approach toward sustainability helps to ensure the line of sight from requirements to solution:

Figure 12.10 – An example of a sustainable EA model

We can see that green IT and responsible computing is about managing the impact of energy and emissions from data centers, which ultimately means managing computational resources, storage, and infrastructure while challenging how we architect solutions going forward. We know big data is expected to accelerate in the coming years, demanding high-end computing resources to execute AI algorithms and analytics and deliver business value at device in real time. Using renewables to source energy for the data center is a positive step, but not enough.

SAP developers, technical architects, solution architects, and functional business process experts developing solutions on top of S/4HANA using SAP BTP need to have sustainability principles and non-functional requirements in order to deliver solutions that are compatible with net zero or ESG objectives. Figure 12.11 shows some of the principles that need to be considered:

Figure 12.11 – Selected architectural principles and guidance for sustainable principles

Sustainability and AI/ML

Today, we already have some strong emerging AI/ML features available through SAP BTP and partner ecosystem solutions that augment the SAP process insights and process automation capabilities, for example, with SAP Signavio. With AI, you can curate disparate datasets right across the supply chain to enable better insights around key business and technical events that enable stronger collaboration with partners across the supply chain. Investing in growing AI capability through insight into automation, you get a real-time track and trace capability. From a sustainability perspective, you can combine shipments, increase packaging density, reduce packaging materials, and lower emissions with logistics and shipping. AI naturally combines with ML to consume large datasets to understand, learn, and predict patterns across the supply chain, using data from the edge of the organization connected through sensors/devices to feed real-time analytics, discover patterns, learn from experience, and automate agile and responsive workflows. For the sustainable supply chain, this means proactive process optimization measures can be taken to reduce waste and energy usage.

When it comes to the frontier led by AI/ML, there is the OpenAI project called ChatGPT, which allows you to ask deep and searching questions and get answers in real time that are structured and the articulate and accurate response is obtained using a human conversational AI chatbot. So, what does that mean for a finance department and people looking to perform analytics? It means better use of, for example, natural language that classifies queries, where you can ask questions of your SAP system (e.g. integrate with SAP CoPilot or another suitable AI Chatbot) and get better-quality curated answers that enable immediate actions. The stage is set for businesses to be able to access all of their data and start adopting modern analytics solutions on top of their data. So, imagine if you could ask questions in the context of the way your business performs, namely, “What are my opportunities this quarter?”, “What are my challenges?”, and “Where am I struggling, and where can I do better?” essentially define the next best action. This gives businesses such as Spark4Life a new capability of having much greater profitability and an advantage over their competitors in this space, ultimately delivering better best-in-class shareholder values. Spark4Life can then adopt technology that is sponsored and endorsed by their finance department. Now is the time for AI ML, which is going to drive new possibilities for growth in finance organizations and ultimately lead to more shareholder value through data to decisions in real time.

Sustainability and Digital Twins

We learned about the concept of Digital Twins in the previous chapter, but this time in the context of sustainability, it is just about a digital representation of a physical asset. Going forward, Digital Twins can amplify the moments that matter right across the supply chain, so you get a complete understanding of all the key business events, data points, and impacts. These moving parts of the supply chain in action increase transparency, which leads to reporting, insight, and action. This isn’t just about data collection; it’s about putting data into a more structured environmental context to create these digital twins across the organization, providing real-time insight and opportunities to act with more sustainable interventions and actions.

Sustainability and digital workers

We covered robotics in Chapter 11, but with the power of AI/ML and process automation through SAP BTP – now with SAP BUILD Apps – you can extend the capabilities of existing process automation technologies such as robotic process automation (RPA). The COVID-19 pandemic in 2020 changed entire supply chains to the point where customers now expect nothing but fast, next-day delivery, which stretches the existing capacity of warehousing and last-mile logistics provision to breaking point if it is not designed with streamlined processes. With the adoption of delivery drones, warehouse robotics for pick/pack/dispatch capabilities, and intelligent replenishment processes, we see the optimization of warehouse operations. This leads to streamlined sales distribution, which feeds into finance – all using intelligent workflows in SAP S/4HANA and SAP BTP supported by AI, process automation, and robotics. The outcome is that we can visibly improve workflow efficiency, optimize energy consumption, reduce waste, and reduce transportation fuel usage in the logistics network.

Sustainability, virtual reality, and augmented reality

Going forward, there will be further advanced headset and mobile technology embedded in virtual reality/augmented reality (VR/AR) capabilities that will superimpose data from core ERP and digital twins into real-world visuals through sophisticated geospatial location data to deliver an extended reality. Using VR, engineering staff patrolling heavy asset infrastructure sites can get real work data augmented to their field of view. This can not only inform, update, and notify them of the status of physical machinery and equipment, but also, with the integration of clever chatbots, for example, SAP conversational AI or the OpenGPT standard AI bot, trigger intelligent business workflows to manage maintenance orders, plans, and safety checks, and spare parts so that preventative maintenance is proactively done before risks become issues.

If we look at manufacturing and the connected enterprise assets, we see how the adoption of localized manufacturing with 3D printing means you don’t have to transport prefabricated goods vast distances. Now, we can produce new components and products through designed-to-order processes and, therefore, avoid extended wait times between process steps. These components can be manufactured just in time but also locally, reducing time to value and overall distribution and storage costs. This is called additive manufacturing, and it allows companies to maintain virtual inventories and manufacture stock on demand. From a sustainability perspective, this 3D printing and manufacturing approach can increase the use of recycled content, reduce single-use plastics, and close the supply chain loop as we get smart about using existing materials for 3D manufacturing. Combine this with edge computing and the internet of things (IoT) with process automation and predictive analytics, and you get the benefit of the intelligent digitized production planning and execution process for the whole manufacturing industry.

What does all this mean for a business running SAP? Well, they can implement these solutions quickly using SAP BTP by integrating foundational business processes with these innovative technologies and delivering these services with a user interface using natural language, for example, CoPilot integrated with business processes straight to business users. The outcomes we can now expect from a sustainability perspective include reduced energy use, reduced resource usage such as water, reduced waste generated, increased plant productivity, increased process efficiencies, reduced emissions, and much more.

Sustainability and business networks

No individual business operates in isolation. Every business is part of a vibrant, extensive, and dynamic ecosystem operating complex globally distributed and often brittle supply chains. In Sapphire 2022, SAP announced the continued investment in SAP Business Network as a network-as-a-platform (NaaP) to support underlying mechanisms of global supply chains.

This is where ESG focuses minds to increase visibility, especially when it comes to responsible sourcing and demand planning. For the chief supply chain officer (CSCO) and CPO, this means that they now need to understand much more about supplier information, where raw materials are coming from, whether there are inherent risks in the last mile upstream in the supply chain from forced human labor, carbon-intensive processes, deforestation, or worse? Can they fulfill the requirement of providing goods and services that do not contravene ESG goals and objectives? If they do, then can they switch suppliers easily? This area has a high focus as it is the start of the supply chain. Therefore, the need is for more data to support better sourcing decisions but also managing scope 3 emissions upstream as this is now getting mandated in various standards such as SEC (proposed for 2023/2024) and EU Cross Border Adjustment Mechanism (CBAM) (announced in 2022).

There is an opportunity to combine data from digital twins into the green line that runs through the organization, sponsored by the CXO, and then to present the KPIs/metrics internally and externally to ensure that goods, products, and services produced by any given enterprise are sustainable by design and operationalize this right across the business value chains of the enterprise – not only for compliance and reporting but also to stand out as a differentiating factor.

Additionally, to collaborate across business networks operating in disparate industries, businesses have the option of adopting more sustainable supply chains. Using blockchain technology – a type of distributed ledger technology (DLT) – is particularly useful in its ability to act as a trusted enabler for real-time, reliable, and secure data exchange combined with workflow automation that operates beyond the typical four walls or boundaries of an organization. As the digital platform that underpins transactional activity for any given asset flowing through the supply chain, DLT solutions provide immutability, indelibility, provenance, traceability, and auditability through a system of trust across a vast heterogeneous landscape of supply chain participants who can subscribe to the model using permissioned smart contracts, which act like APIs that are empowered to write approved transactional entries into the blockchain ledger.

When we combine DLT with Industry 4.0 technologies such as the extensive use of sensors across business operations, you get an insight into how products and materials are consumed, then accurately track those components used in products, for example, through a bill of materials, and trace these back up the supply chain to reveal their point of origin. That way, we can remove any doubts or concerns around their ethical sourcing, authenticity, quality, and handling in the supply chain. This level of transparency is unprecedented and gives businesses direct insight at any stage across the supply chain. It’s not only about greater trust in the data used in the supply chain but also about efficiencies and speed. There are many blockchain solutions available in the marketplace – see SAP API Hub at https://api.sap.com/package/SCPBlockchainServices/overview, for example, where we can integrate DLT solutions with SAP S/4HANA via SAP BTP integration suite to achieve processing efficiencies, reducing the time taken to execute supply chain processes that span multiple third parties from days to minutes/seconds, depending on the specific steps and complexity.

More recent, the SAP GreenToken offering combines Digital Twin with blockchain capabilities to provide material traceability to enable increased use of circularity models across industries. This solution enables end-to-end traceability and transparency for raw materials used in supply chains, such as how we track and trace the use of plastics in many industries. SAP’s GreenToken is an offering that leverages capabilities such as mass balance certification standards, tokenization, and blockchain for chain of custody to tackle the significant sustainability challenges in the global supply chain network. See https://www.sap.com/documents/2022/03/c81bc8cb-1d7e-0010-bca6-c68f7e60039b.html for further information.

Going beyond the enterprise

If we look ahead using 2023 trends as forecasted by IBM, SAP, and Gartner around tech predictions, they all describe emergent technologies over the next five years where all of them have a line of sight to a sustainable outcome. Let’s look at the top four focus areas:

• Industry Cloud Platforms: We know how to use modern cloud capabilities to run operational transactional ERP workloads on either public or private cloud platforms. While this reduces Opex costs as a tactical benefit, it is not the strategic destination that most businesses strive for. The real value comes from transforming and optimizing that workload by using industry-specific platforms that have customizable and extendable solutions to support industry-specific solutions for retail, insurance, banking, healthcare, manufacturing, utilities, and more. These industry cloud solutions are developed using an open architecture framework on top of SAP BTP. They provide oven-ready business processes that comply with best practices, use predefined templates and accelerators that aid rapid adoption, drive faster innovation and cycle times, increase process efficiency, and reduce time to value. By infusing AI, analytics, IoT, and process automation, a business can maximize speed to market with scalability as they respond to new sustainability features, functions, and capabilities (see https://partneredge.sap.com/en/solutions/industry-cloud/about.html). Examples of sustainability include the following:
  • Industry cloud for utilities could provide features that track payments to prosumer apps for the microgeneration of electricity through household solar energy when this is sold back to the grid at peak or off-peak times.
  • Industrialized IoT and Digital Twins to model energy from renewable source conversion to green hydrogen to reduce methane use in gas supplies.
• Superapps: Here, we already know that the new generation of the working population (Gen C) is fully accustomed to digital native and mobile-first experiences as a given. They expect to perform multiple functions, all within the comfort and ease of a single mobile app experience. For example, ordering a pizza, doing their banking, and starting a group chat all at once. These are not just composite mobile apps. They’re built as platforms and provide more personalized experiences through built-in mini apps that cover a broad range of uses. Superapps reduce friction throughout the user experience, increasing value for a larger user base and providing more engagement for customers, partners, and employees. Garner predicts that by 2027, more than 50% of the global population will be daily active users of multiple superapps, and over the next three years, consumers will want convergence of these capabilities on a superapp across different industries, for example, finance, retail, and healthcare, and workforce adoption will gain even more traction. Some sustainability examples are as follows:
  • Sustainability services, offered through the digital banking ecosystem to small/medium businesses, can offer them circularity.
  • A unified retail experience through a platform provided by major retailers to provide second household goods using customer sales history data, stock inventory, and end-of-life product data such as on furniture or electronics to minimize waste.
• Generative AI: This is where AI learns and changes based on new data conditions and changes in outcomes. This may sound like science fiction, but many customers are using this technique to improve AI modeling in dynamic and volatile conditions such as supply chain disruptions, for example, in the post-COVID-19 pandemic scenario. Garner predicts that by 2026, enterprises that build adaptive AI systems will have 25% more AI models in production than enterprises that don’t. So how does it work? Unlike conventional AI systems, this new generative AI can update and modify its own code to respond to real-world events that were unforeseen or unpredicted at the time of originating that AI code. This type of advanced AI learns by applying sophisticated graph analytics to retrain AI algorithms, allowing applications to adapt more quickly and drive better decision outcomes. These systems require that current processes are re-engineered and have a long lead time. So, we start by assessing the readiness of decision flows for augmented or automated decision-making, then build the foundation by complementing the current AI implementations instead of a complete redesign. Once this is done, we can re-engineer those decision flows to make them more flexible and capable of being updated as soon as more information is captured. This is a whole new architectural approach to developing responsive AI based on evolving data models. Some sustainability examples are as follows:
  • Selecting alternative vendors as part of source-to-pay or source-to-contract procurement processes in the event of a vendor deviating from ESG metrics or supply chain instability with sourcing materials. An adaptive AI can reconfigure the process workflow to automate the selection of alternative providers that meet selection criteria, for example, price, availability to promise, ESG, credit checks, and so on.
  • Climate risk mitigation actions using external satellite, weather, geospatial, or traffic data to determine business risk exposure and recommend the next best action for mitigation. For example, rerouting shipment trade lanes or relocating warehouses/factories away from locations that have a risk of extreme weather or geopolitical events.
• Sustainability technologies: These will underpin all these previously mentioned trends. This capability isn’t just about your IT infrastructure and solutions, which are important, but it’s about how you use technology to deliver sustainable outcomes for your organization. Gartner says that 75% of executives will be responsible for sustainable technology outcomes and 25% will have compensation linked to their sustainable technology impact. So this is about ensuring that IT emission costs decrease over time even though the demands on IT increases with the onset of new data, apps, and services. With reference to IBM’s survey via Morning Consult (Dec 2023), it resulted in the insight that many companies are planning to build services on top of that infrastructure, including AI (33%), automation (24%), and chatbots (20%). About three in four businesses say that these investments will drive profitability in their business, a key indicator of ongoing investments even as companies face strong economic headwinds. Looking ahead, survey respondents specifically cited digital employees (35%) and generative AI (35%) as the top emerging technologies that will change their businesses the most in the next three to five years (https://newsroom.ibm.com/image/IBM+-+Global+Tech+Investment+Predictions+Report.pdf). When it comes to specific SAP technologies, SAP’s ambitions for 2023 and beyond will be focusing on RISE with SAP powered by S/4HANA and SAP BTP technologies, which will be foundational for all innovation and differentiation:
  • SAP BUILD: SAP Build combines SAP Build Apps (formerly SAP AppGyver), SAP Build Process Automation (formerly SAP Process Automation), and SAP Build Work Zone (formerly SAP Work Zone and SAP Launchpad service) into a comprehensive suite. The solutions in SAP Build are integrated for a unified and engaging customer experience.
  • ABAP Cloud: Now you can do ABAP development using Steampunk (SAP BTP ABAP Environment) to develop modern, cloud-ready, and upgrade-stable ABAP apps and extensions. You can turn these modifications and classic custom ABAP code into upgrade-stable extensions. This is at the center of the Clean Core approach.
  • Integration Suite: SAP’s integration platform-as-a-service (iPaaS) aims to provide scalable, versatile, dynamic integration capabilities that operate across on-prem apps, hybrid cloud, user experience scenarios, and IoT use cases supporting a wide range of integration scenarios, patterns, approaches, and methods. Integration Suite enables industry cloud scenarios that rapidly reduce development times using common connectors and API/microservices that digital teams can use to quickly build highly integrated digital applications.
  • Analytics and AI: The focus on SAP Analytics Cloud, SAP Data Warehouse Cloud, SAP HANA Cloud, and SAP Data Intelligence continues to enable insight to action, where data should be behind every single decision and enterprise plan to enable data-driven decision-making. SAP supports the embedding of new AI capabilities into all business processes with AI and process automation features through BTP.

Figure 12.12 – SAP BTP foundation to SAP S/4HANA and sustainability solutions