Issue

Currently, there is no process or tool to measure sustainable raw material percentages through the supply chain processes in Syensqo.  The company does not have visibility into the origin of materials and to which extent they are truly sustainable.  Syensqo will have to disclose zero percentages as part of reporting as Syensqo is unable to determine actual percentages.  It carries a considerable reputational risk for Syensqo, which is turning into a financial risk as only Green Bond financing opportunities are considered by green investors.  Green bonds are fixed-income financial instruments which are used to fund projects that have positive environmental and/or climate benefits.  Syensqo can only be considered for Green Bonds if sustainable raw materials are procured. 

In contrast, Syensqo is making claims to customers about the sustainability of some of their products.  It is contradictory to the annual company reporting stating zero percentages of sustainable raw materials.   Syensqo needs a solution to enable the company to disclose sustainable raw material percentages based on actuals to customers in line with CSRD requirements going forward to alleviate further reputational  and financial risks.    

Recommendation

The recommendation is the implementation of SAP Green Token solution (Option A) to cover the end-to-end traceability of raw materials and related calculations.  It enables a high level of traceability and transparency into all materials whilst managing supply chain complexities.   It also allows the company to track and report GHG emissions of products that are received and sold in conformance with certification standards.  Further, it provides standard reports with real time data which can be used to support audits for International Sustainability and Carbon Certification (ISCC).  

Background & Context

Supply chain sustainability is based on the traceability and transparency of sustainable material usage for commingled and bulk-traded materials.  There is a regulatory drive by the Corporate Sustainability and Reporting Directive (CSRD) to disclose percentages of sustainable raw materials as part of Scope 3.  It is relevant for non-bio-sourced (e.g. fossil-based plastics to circular plastics) and bio-sourced (e.g. vegetable or animal origins and biodiversity) raw materials.  

Today the information relating to raw material percentages is collected and stored in a redundant, unstructured and non-auditable manner, which is reflected in the current process.  The inconsistency reflects the disconnect between Marketing and the regulatory requirements. 

1. Initially the customer requests a non-GMO certificate. 
2. Questions arrive at the frontline desk.
3. Questions are then forwarded to the Sustainability champion of the relevant GBU.  
4. The Sustainability champion then asks the buyer to send a form to the supplier.  Data needed from supplier is GBU specific e.g. Aroma and food.
5. Alternatively the Sustainability champion contacts Product Stewardship. 
6. The completed forms are finally stored on a personal Google drive. 

Audits

At company level, Syensqo has KPIs on circular sales hence asking each GBU for sales of renewable products twice per year asking.  There is a lack of transparency as part procurement process resulting in Syensqo having to change as auditors will not accept current way of working.   Circular sales KPIs have been audited for four years by Deloitte.  Since last year these KPIs have been audited by Ernst and Young, which nearly failed in first year.  If audit fails next year then the figures cannot be published in the annual report.   Sysensqo's credit rating as well as credibility might be impacted.   

It holds a different level of risk at product level, where products are sold at higher price due to being sustainable e.g. the purchase of palm oil which is certified sustainable.  Audits are possible from customers at random and fines and commercial disputes are possible due to breach of contract.  

Certification

The mass balance approach is an important milestone on the pathway to a circular economy and bioeconomy. It has been designed to trace the flow of materials through a complex value chain. The mass balance approach is used among other in ISCC Plus certification.  ISCC Plus is a voluntary sustainability certification for e.g. plastics and chemicals to reflect that traceability along the supply chain is given.

Current Landscape

No impact on current Sustainability landscape as currently managed using Excel files only.  

SAP GreenToken

SAP Green Token is a chain-of-custody business application designed to help organizations trace and account for certified sustainable versus conventional products throughout the supply chain network.  Organisations can trace the inbound material’s origins from their suppliers and outbound product sold to downstream partners.  It is a SaaS (Software-as-a-service) cloud stand-alone solution.  SAP GreenToken has been previously investigated by Syensqo in 2023 when it was decided to await the implementation of SAP S/4HANA.  It has been implemented as a solution for other companies in the extended chemicals industry e.g. Eastman Chemical and DIC Corporation. 

The solution capabilities include the following:

• Mass balance accounting
• Traceability and transparency of attributes
• Managing supply chain complexity
• Accessibility and onboarding
• Certification management
• Reporting and auditing
• Data privacy and process transparency
• Automation via integration:
  • Open APIs for non-SAP systems.
  • Integration with SAP sustainability solutions e.g. SAP Product Footprint Management (PFM).

Using the principles of mass balance, tokenization and blockchain, SAP Green Token acts as a multicommodity platform that enables the accounting of the full chain-of-custody of commingled raw materials to their origin.  By combining Tokenization, Blockchain and Mass Balance the solution supports certification management for e.g. ISCC+.

Use Case Example:

Track and Trace

The chain of custody feature provides transparency into all materials as per inventory and what materials they are comprised of.  It also provides key information on the materials, the number of sustainable and conventional volumes transferred, along with the identity of the member who provided the material.  This level of transparency is only available for upstream members of the network. The supply chain member accessing chain of custody won't have this level of transparency for downstream members of the network.

The material provenance view shows the original raw material from which the selected product or material was derived, regardless of the intermediary conversions or transformations. It gives visibility of the sustainable qualities of raw material from its original source and introduction into the supply chain.

The primary source of input for the SAP Green Token application is through the upload of structured files in a comma-separated values format (CSV). The CSV files can be from any 3rd party system, which are uploaded on the Imports screen.  Uploading CSV files automatically drives other features within SAP Green Token, such as volume requests and the creation of volumes, and creating or updating entries on the inbound delivery screen. These include:

• Inbound Deliveries CSV
• Conversions CSV
• Pending Orders Fulfilment CSV
• Goods Issued CSV
• Sales Inquiries CSV

Sustainable and conventional (non-sustainable) commodities are traced through your supply chain and production processes using mass digital twins (tokens) on a blockchain. This allows transparency from different origins to be measured by counting the tokens.  Each organization or member of the supply chain forms part of the network.  Members of your supply chain network that are onboarded into SAP Green Token are referred to as 'online' members, while those that are not are 'offline' members.  There are slightly different workflows for interacting with online and offline members.

Process workflows include:

• Conversion Workflow
• Outbound Workflow
• Inbound Workflow
• Consumption Workflow
• Multisite Workflow

Example for online partner inbound workflow:

1. Consolidate relevant deliveries for the delivery period:  automated upon integration with SAP S/4HANA.  
2. Extract delivery information to Inbound Deliveries CSV:  extract the inbound deliveries identified and consolidated in the step above and populate the Inbound Deliveries CSV manually or automatically if configured appropriately in the ERP system.
3. Import the CSV into SAP Green Token: entries on the Inbounds screen are created by uploading volumes in CSV files using the Import CSV button on the overview screen or by dragging and dropping files on the Imports screen.  After uploading an inbound deliveries CSV, you can review all inbound delivery transactions on the Inbounds screen.  The Inbounds screen provides details on the delivery of certified and conventional materials.  Users can view different attributes associated with the materials as well as the status of the order.
4. Fulfilment request generated and inbound delivery entries created.
5. Request fulfilled by upstream partner.
6. Tokens received and your balance is updated.

Certification and Reports

Green Token allows the company to track and report GHG emissions of products that are received and sold in conformance with ISCC+ standards.  It is accomplished by the persistence of attributes to the certified tokens associated to an inbound and conversion order.  ISCC GHG attributes are provided out-of-the-box with Green Token. The attributes can be assigned to any material to track and report against manufacturing and delivery processes.

The Reports view includes a set of complementary reports which can be used to support audits for International Sustainability and Carbon Certification (ISCC).  The data for these reports is generated in real time through the day-to-day transactions that are executed in SAP Green Token.  It reduces the level of effort and the margin for error in pulling supporting details from disparate systems.  The following reports are available:

• Conversion Audit Report
• Material Balance Report
• Material Movement Audit Report
• Order Audit Report
• Transaction Audit Report

Assumptions

There is a current RFI to replace Ethixbase for use case 1 (company information), which is not in scope for ERP as there is an immediate need for implementation due to the termination of Ethixbase in December 2024.  Use case 2 (product level information), for which there is no time constraint, is covered by the ERP Rebuild project based on this Key Design Decision Document.

Constraints

Impacts

There is an impact on integrated supply chain processes (inbound and outbound) e.g. procurement and manufacturing.  There is no impact expected on processes related to Finance.

Business Rules

The solution is relevant for product level information for non-bio-sourced and bio-sourced raw materials.  

Options considered

Option A: SAP Green Token

• Ensures traceability as part of Procurement (Sourcing/Buying)
• Substantiates sustainability claims to derive value based pricing (Marketing/Selling)
• Reduces Scope 3 emissions as part of Supply Chain (Transporting)
• Follows trajectories to meet targets as part of Reporting (Finance/Regulatory)
• Supports access to green financing
• Meets ESG expectations (customers/regulators/investors/disclosure)

Option B: Hentrac

• Small start up company founded in 2022.
• Niche alternative. 
• Specialises in supply chain traceability. 
• All batches are identified throughout the entire production and distribution process by setting up parallel or sequential production processes.
• E2E mass traceability solution using a designated platform. 
• Combines production data with sustainability information, which is exportable. 
• Notifications of breaches.
• Very small use case, only ISCC plus audit.  
• Demo scheduled for Syensqo in September 2024.

Option C: Do Nothing

• No product life cycle management. 
• Continued use of Excel files.
• No ERP integration. 
• No central data repository.
• Issues as described would remain.

Evaluation

See also

Change log

Workflow history