Complying to EUDR using SAP Ariba Supplier Management and SAP Green Token

[AllanSoo]

Authors: Allan Soo, Sabrina Haller, Gloria Figaroa and Nike Klaubert

Complying to European Union Deforestation Regulation using SAP Ariba Supplier Management and SAP Green Token

Introduction

From the 30th of December 2025, large and medium-sized EU importers will be impacted by the European Union Deforestation Regulation (EUDR) requiring them to conduct both due diligence and track and trace activities to make sure that the commodity (produced after the date that the regulation comes into force) does not originate from a plot of land that has been cleared for commercial purposes. Initially announced from 29th of June 2023, the phase-in period gives companies time to prepare for the regulation.

What commodities and products are impacted?

EUDR declares that both raw commodities and products containing these commodities are subject to compliance. The commodities include:

• Cattle, meat livestock and leather
• Cocoa beans, cocoa powder (no sugar/sweeteners) and foods containing cocoa
• Coffee
• Palm oil and some of its derived products
• Rubber, including tyres, conveyor belts and cords
• Soya beans
• Wood and timber, including pallets, kitchenware, printed paper, furniture and seats.

Based on these items, it becomes difficult to determine whether the item requires EUDR due diligence assessments. Purchasing activities from foreign countries requires determining whether the impacted commodity contains a product that is restricted from imports into the EU. Further details on these commodities can be viewed in the EUDR document, Annex I.

Who should be concerned?

Sourcing and procurement departments in the EU will need to begin implementing processes that conduct thorough due diligence and reporting activities to ensure that imported items are not subject to deforestation for commercial purposes.

 A large company, according to the EU Accounting Directive (2013/34/EU), would exceed two of the following:

• Balance sheet total of €20,000,000
• Net turnover of €40,000,000
• Average number of employees of 250 for the financial year

For medium sized undertakings, the entity must not exceed two of the following:

• Balance sheet total of €20,000,000
• Net turnover of €40,000,000
• Average number of employees of 250 for the financial year

The commission, furthermore, defines small undertakings as:

• Firms with fewer than 50 employees for the financial year
• Annual turnover or balance sheet below €10 million

And micro undertakings as:

• Firms with fewer than 10 employees
• With an annual turnover below €2 million for the financial reporting year.

EUDR reporting periods begin with large and medium enterprises from the 30th of December 2025, with small and micro enterprises beginning their reporting periods from 30th of June 2026. Any new item containing an EUDR commodity that is being placed onto the EU market from these dates will be subject to the regulation. Entities are to conduct their EUDR due diligence checks once every year and store these records.

What about Omnibus Proposal proposed by the EU Commission?

The proposed Omnibus package will not amend current planned obligations to existing and future reporting entities. Leaving EUDR largely intact.

Penalties for noncompliance?

Up to 4% of the importer’s annual turnover and confiscation of commodities or products if it is found to originate from a plot of land cleared for commercial purposes. For wood products, the exporter must have legally obtained the product for export into the EU.

Procurement’s role in addressing EUDR

Situations that require procurement to have processes in place for complying to EUDR includes purchasing a new item from any (existing or new) that contains a commodity or product that falls under Annex I of the EUDR document.

An example is the procurement of wooden office furniture, wooden pallets and chairs with SAP Ariba Sourcing and Buying, or using SAP S/4HANA to source soybeans and timber.

SAP’s solutions to complying with EUDR

SAP offers a range of sourcing, reporting and due diligence solutions to help customers comply to EUDR. SAP Green Token is designed to address Article 9 of EUDR, while SAP Ariba Supplier Risk provides assessment, risk mitigation and monitoring solutions – and aims to help customers comply to Articles 10 and 11. Fig. 1 provides an overview of the solutions SAP and partners offer to help customers comply to EUDR.

Figure 1: How SAP Ariba works with SAP’s solutions to manage and mitigate deforestation risks for sourced commodities and other products containing declared items. *Suitable partners can be found on store.sap.com by searching for “EUDR”. ** Custom Fields or Custom Risk Categories (GA 2408, see SAP Help - Custom Risk Categories / SAP Help - Enable Custom Risk Categories).

SAP Green Token and Article 9

SAP Green Token is a supply chain compliance cloud solution that enables accounting of sustainable material movements with segregation or mass balancing and tokenization for trust and compliance with recognized standards and regulations. The primary EUDR compliance capability is the use of segregated material accounting (Fig. 2) and management of the due diligence statements for EUDR.

Figure 2: Input-output track and traceability of raw commodity materials across the value chain with tokenised sustainability information to the final product.

SAP S/4HANA sourcing and PO order line-item creation leads to SAP Green Token journey for a commodity that is impacted by EUDR. The inbound claims (Fig. 3) and orders for the commodities should be supplemented with the sustainability information from the supplier proving that the commodity has not been sourced from deforested land.

Figure 3: Inbound records of the raw commodities that are being sourced into the EU within SAP Green Token solution.

Depending on whether the organization is the primary importer into the EU or an organization further downstream within the EU, the due diligence statement information is automatically uploaded into the EUDR Traces Database. Subsequently, the generated reference number is captured back into SAP Green Token.

The next step requires the exporter or processor to undergo the “conversion” of the material into a percentage of waste (Fig. 4), recycled content, EUDR commodity content, etc. that perseveres the tokenisation process. The tokenisation process converts the raw material into a digital asset containing sustainability information which can then be passed down the supply chain via segregated-balanced accounting. In this use case, you may purchase a piece of furniture that is 40% timber coming from a non-EU country. For outgoing deliveries, SAP Green Token can automatically share this information with customers via email.

Figure 4: Conversion process where the percentage of materials are classified based on certain sustainability attributes so that they are fully accounted for.

The compliance process is not complete, as Articles 10 and 11 of the regulation need to be complied to. For this, a risk mitigation, assessment and management solution are needed. This is where SAP Ariba Supplier Management comes in.

During the outbounds process in SAP Green Token, due diligence statements can be tracked with the dashboard which can be seen below in Fig. 5.

Figure 5: Outbounds process where the POs for materials, satellite JSON files and their attached statements can be monitored towards compliance.

Using SAP Ariba Supplier Risk to conduct deforestation due diligence

SAP Ariba Supplier Risk supports the buyer with risk assessment, risk mitigation and risk monitoring activities for EUDR (Article 10 and 11). The supplier’s data can be added to SAP Ariba Supplier Risk through synchronization with an integrated ERP system, supplier data file import or by supplier requests as part of the onboarding process in SAP Ariba Supplier Lifecycle and Performance. To assess the EUDR risk exposure, suppliers can be segmented based on the commodity to identify suppliers in scope of EUDR. The supplier’s data can then be screened with intelligent web crawling solutions and 3rd party data providers that can be integrated via custom fields using the risk category information risk category can be developed within SAP Ariba Supplier Risk as a part of a maximum of 25 custom risk categories to feed in this data. Fig. 6: shows the screening and risk categorisation of the suppliers in the solution.

Figure 6: Showing the number of suppliers that are low, medium and high risk at deforestation practices. Buyer then conducts due diligence on these suppliers through further questionnaire assessments.

To achieve a holistic EUDR risk view of the supplier, the engagement request feature can be leveraged to obtain additional EUDR specific information directly from Tier-1 suppliers. In this context, customers have the flexibility to create their own questionnaires with EUDR related questions. When selecting suppliers for assessments, factors such as the country’s: incidence for deforestation, rate of deforestation, reports and claims of deforestation, impacted indigenous peoples from land clearing, corruption/political indexes, supply chain and plots of land cleared, risk of the product being mixed with other commodities at risk of deforestation, and any FLEGT timber licenses (if applicable). This forms a part of the risk assessment process.

In case a concrete risk has been identified (e.g. a high deforestation risk), it can be addressed by creating a finding that is associated with the engagement request. The risk mitigation is supported by the application Findings and Event Collaboration in SAP Ariba Supplier Risk. A finding is raised, reviewed and assigned to internal and external stakeholders such as the supplier risk manager, external stakeholders like the individuals from the supplier’s organization or other external parties for example, NGOs or auditors. They can collaborate on analyzing the finding and execute an action plan, like requesting further information from the supplier and planning audits on sites to proactively mitigate the risk.

Embedding EUDR due diligence into purchasing processes

 Buyers must be aware of the deforestation risk of suppliers whenever they need to take a decision. By embedding the deforestation risk category in SAP Ariba Sourcing and SAP Ariba Contracts buyers can determine suppliers with a low deforestation risk in a sourcing event or award contracts to suppliers that are best aligned with their deforestation risk appetites.

Figure 7: Buyers can extract up to 25 custom risk scores (and create a deforestation risk score) from SAP Ariba Supplier Risk into the SAP Ariba Contracts workspace and SAP Ariba Sourcing, with guided sourcing capabilities (from left to right).

EU Observatory and other resources

The EU provides resources (such as the EU observatory on deforestation in Fig. 8 and 9) to help buyers and importers of EUDR commodities to track and identify high risk countries of concern based on satellite, forest imagery that is continuously updated.  Importers of the high risk EUDR commodity can determine deforestation rates via this portal. You may be wondering; how does an importer legally import any form of wood into the EU? Wood that is harvested after the 29th of June 2023 will need to adhere to the EU Timber Regulation (EUTR), which is a regulation that aims to prevent imports of illegally logged timber products.

The EU will have a benchmarking system designating countries that are standard, low or high risk which will guide buyers in conducting further EUDR due diligence activities. The publication of the risk country profiles is planned to be made available from 30th of June 2025 and an existing country classification list can be accessed here.

Figure 8: The EU’s deforestation observatory showing commercial land clearing deforestation coverage and trends.

Figure 9: EU’s Observatory mask showing deforestation metrics such as coverage and incidence rates.

These are some of the publicly available tools provided by the EU that helps buyers monitor activities for deforestation. The buyer can take these metrics and conduct further due diligence on new imports for EUDR commodities and products through SAP Ariba Supplier Risk, SAP Ariba Supplier Lifecycle and Performance Management, and SAP Green Token on a yearly basis.

Conclusion

Chief Sustainability, Compliance and Procurement Officers face new regulatory, cross-border challenges they need to address in a time where environmental regulations are altering their sourcing behaviours to protect ecosystems. To facilitate this level of compliance, automated reporting, supplier assessments, and material track and trace solutions are needed to mitigate both supplier and deforestation risks. Solutions and new processes need to be established to ensure prevent confiscation of goods and avert fines. SAP Ariba and partners can help you comply by offering solutions to conduct due diligence, track and trace, due diligence statement reporting and risk management.