The CSRD is an initiative by the European Union that stems from the broader EU strategy for a sustainable economy. The directive ensures companies will be more transparent about the sustainability and environmental impact of their activities. Besides reporting their impact, organizations must also describe their sustainability strategy and ambitions. The directive approaches sustainability through three themes: Environment, Social, and Governance, also known as the ESG indicators.
Everything starts with good preparation. Therefore, it can be beneficial to gain early insight into how your company or its ESG components score and you make plans on how to reduce the negative impact. Those actively working on sustainability and ESG already have an advantage over companies that do not yet have these reporting obligations. But how do you prepare for the future?
ESRS and KPIs
Let's start at the beginning. The European Union has created standards that must be reported to comply with the CSRD, called the Environmental and Social Reporting Standards (ESRS). These guidelines include a lot of quantitative data as well as qualitative descriptions. Especially for the Environmental (E) component, much quantitative data is needed.
Additionally, the ESRS outlines several mandatory Key Performance Indicators (KPIs) that companies must report. These are often quantitative KPIs related to data on environmental impact, such as CO2 emissions. These can be quantitative or qualitative data points. However, collecting and presenting all this data can be quite a task.
With a Life Cycle Assessment (LCA) or a Carbon Footprint, you can accurately measure your impact on the Environment (E). The data obtained from these assessments can be used for your quantitative E KPIs, which are included in your ESG reports. This allows companies to communicate their sustainability performance in a standardized and comparable way.
Besides meeting CSRD requirements, an LCA and Carbon Footprint provide direct insight into the emissions and environmental impact of your business activities. Additionally, with these tools you develop a tailor made system for collecting and reporting your data. We explain how this works here.
LCAs and Carbon Footprints: What Are They?
An LCA is an internationally recognized method that measures the environmental impact of your product throughout its entire lifecycle and all phases; from raw material extraction, transport, production, and usage to waste processing.
With an LCA, you determine the total environmental impact of your product, such as energy consumption, air, water, and soil pollution, waste production, use of natural resources, and other environmental categories. An LCA entails more than just climate change expressed in CO2, it also considers land use, water use, and impact on ecosystems.
Another way to gain insight into your environmental impact is through a Carbon Footprint. Companies often use the Carbon Footprint for sustainability reporting, setting reduction targets, and improving their environmental impact across all production activities. A carbon footprint calculates direct and indirect emissions, divided into scope 1, 2, and 3. These are direct emissions from your own activities (Scope 1), indirect emissions from energy purchases (Scope 2), and other indirect emissions in the value chain, such as those from suppliers and product use (Scope 3).
The Carbon Footprint measures the total environmental impact of an entire enterprise, including all activities, processes, and operations within that company. It can be considered as a sort of CO2 accounting, also known as Carbon Accounting, for your company. The method aligns with the GHG protocol, a globally recognized standard for calculating CO2 emissions.
With the Carbon Footprint, you examine all activities within your company, ranging from greenhouse gas emissions (e.g., CO2 footprint) to water use, waste production, and other environmental indicators. These indicators are often expressed depending on the measured indicator, such as in metric tons of CO2 equivalents, the unit for expressing greenhouse gases.
Read more about how the different impact categories are expressed.
Goal: Know & Reduce Your Impact
Both methods aim to measure environmental impact. Knowing your impact allows you to take steps to reduce it. Both the LCA and Carbon Footprint enable you to make strategic decisions in sustainability and environmental management. However, a Carbon Footprint is broader and encompasses all company activities, while an LCA is more specific and focuses on the lifecycle of a single product or service.
Essentially, the Carbon Footprint offers a holistic view of the scope 1, 2, and 3 environmental impacts of an entire enterprise. On the other hand, an LCA provides in-depth insights into the impact of specific products or services throughout their lifecycle.
Both the LCA and the Carbon Footprint identify the greatest environmental impact throughout the production processes, the so-called "hotspots." This allows you to see immediately where you can reduce your impact, be it in energy consumption, transport, or raw material procurement. This knowledge can then be incorporated into your strategy to become more sustainable and meet mandatory KPIs. Read more about LCAs in our LCA beginner's guide and check out our Carbon Dashboard to see what a Carbon Footprint looks like.
The CSRD: What to Report?
Back to the CSRD. The CSRD reports provide valuable insights for financial stakeholders, such as shareholders, banks, creditors, and other financial partners. The reports are public, making them accessible to employees, customers, residents, or organisations concerned with the environment and human rights. Because all companies will report in the same standardised way, they can be compared regarding their sustainable performance.
Organisations must also publish a sustainability strategy, outlining how they will achieve their sustainability goals and what policies they will implement. However, a good system for data collection and reporting is needed for these obligations.
The Environmental Topics
Companies are well-advised to gain insight into their impact via an LCA early on. Mainly, the Environmental (E) component will influence almost all companies' financial performance, reputation, and operational activities. In short, the environmental aspect will be a crucial factor that companies must take seriously, report on, and take action on.
The reporting requirements for the Environmental (E1) component of the ESRS specifically address climate change and require companies to have a Carbon Footprint for scopes 1, 2, and 3. Generally, companies will have a significant environmental impact in the category of “purchased goods.” To thoroughly map this, a detailed LCA is the best solution.
An LCA tracks the impact throughout the entire supply chain, including the activities of suppliers and sub-suppliers. This helps companies better understand their supply chain's environmental performance. Through detailed analysis, companies can be accountable for their choices and transparently communicate the environmental impact of their purchased goods.
Zooming in on the E component (Climate Change & Energy)
The Environmental component of the CSRD requires much quantitative data, which you can accurately map with an LCA or Carbon Footprint.
Examples of this data include:
- Greenhouse gas emissions: Companies must report their direct and indirect emissions of greenhouse gases (Scope 1, 2, and 3).
- Water usage
- Air pollutants other than greenhouse gases, such as NOx, SOx, and particulate matter.
- Waste production: Amount and type of waste produced by the company.
- Raw material usage: Amount and type of raw materials used.
- Energy consumption: The company’s total energy consumption and energy use efficiency.
- Hazardous substances: Use and management of hazardous chemicals and substances.
Hedgehog guides
Are you interested in getting started with LCA or a Carbon Footprint? At Hedgehog, you find everything in the same house! Our CSRD, LCA, and Carbon Footprint experts have already assisted many companies in setting up a good sustainability reporting system, data collection, and advice.
We also help develop a customised sustainability strategy to achieve your goals. If you want to know what such a report looks like, check out the Impact Report of our client and electronics manufacturer, Trust. They wrote this report with the help of our LCAs and Carbon Footprint.
We follow these three steps:
Step 1: The Start Plan your consultation, activate our collaboration, and together we determine the goal and scope based on your specific needs.
Step 2: Data Collection We help you collect the data with our custom templates and guidance.
Step 3: Review Our experts review the data, and you then receive a report and an online CO2 dashboard for your organisation.
