Why is an LCA important?
An LCA: The numbers tell the tale
Why is an LCA important? It’s not an if-question anymore, but a how-question. One of the largest beer producers – Heineken – recently indicated that increasing resource prices are posing a serious threat to their production – and thus profit. The shortage can be explained by increased demand, but largely also by extreme weather patterns, causing soy and grain prices to explode. Not to mention all other crops and commodities.
Hence the question is: how will environmental issues affect your company? The changing global landscape — e.g. climate change, resource depletion, increased demand for transparency — are already affecting business’ stakeholders directly. But in order to know where your environmental impact – your financial risk – is, you need to know where you stand as a company. You need to assess your current position within the market you’re operating in.
One way of doing this is measuring your company’s environmental impact by using a lifecycle assessment (LCA), either by calculating your product portfolio footprint or your organisational footprint. Earlier we wrote about what a Life Cycle Assessment (LCA) is. Here’s why that’s important.
Marketing and Communication with an LCA
Sustainability – unfortunately – is still often inextricably linked with being more costly. Perhaps greener products in the supermarkets tend to be less cheap indeed, and we all know how we as consumers pick our products once we stand in front of the shelves. But not only do ‘cheaper’ prices lack reflecting the true price – emissions to the environment during production are not included – also the benefits of sustainable products are often not taken into account. It is a challenge to truly substantiate how much your product is ‘better’ than the competition. With an LCA you can measure these environmental benefits. By conducting an LCA potential benefits of the sustainable decisions you make can be mapped and compared to the costs. As a result, you can make funded claims on the environmental effect in your communication towards your customers.
Consumers demand: sustainability
Consumers are becoming more and more aware of sustainability. A recent survey performed by Deloitte among consumers shows that 32% of consumers are highly engaged with adopting a more sustainable lifestyle. Furthermore 15% of the consumers indicate they lack sufficient information to make sustainable decisions. There seems to be a demand for more transparency in order to make sustainable decisions. An LCA creates this transparency and avoids so-called greenwashing.
B2B: Sustainable procurement
For most companies the environmental impact isn’t made on their own facility. But this doesn’t mean companies are free of responsibility or possibilities. Often the environmental impact comes from the materials and resources that are purchased within the supply chain, which we call scope 3 emissions based on the Greenhouse Gas Protocol. Focusing on sustainable procurement would mean purchasing materials from suppliers with the lowest impact and putting a long-term strategy central. Inherently this means looking at your product differently and going back to the design phase of your product. This would also mean building a more in-depth and valuable relationship with your suppliers, because teamwork is key here. Hence, the LCA gives insights into the different environmental effects from materials and the suppliers and gives you the option to explore scenarios with other materials and suppliers. Subsequently, we built an Environmental Product Declaration, basically an LCA summary, which you can use to communicate the environmental footprint of your product to your customers.
Decision-making with LCA: Operational efficiency
Besides the environmental impact from your suppliers, a company’s own (production) processes need inputs as well, like energy. These inputs can probably be linked to different machines or production lines within your company. When these inputs are translated to environmental impact, a hotspot analysis can be conducted and can indicate where efficiency improvements can be made. Coca Cola was actually one of the first commercial companies conducting an LCA. In the early days (1969) Coca Cola only produced the classic glass bottles, but at a certain point it became interesting to look into other material alternatives, albeit from a cost perspective. Now we’re all familiar with Coca Cola’s aluminium cans and plastic bottles.
Within the private-public domain you also see this in the Dutch construction sector. Here, through tenders, not only the financial costs are asked in tenders, but also the environmental costs. This creates a mechanism for governmental institutions to stimulate sustainable practices and favour sustainable companies. During subscription in a public tender the tendering party requests your EPD. Based on the quality of the data and the relative environmental performance ‘fictional discounts’ are awarded. These fictional discounts are subtracted from the total price during determining the economically most valuable subscription.
Legislation: Green Deal
The European Commission has big plans. This plan is called the Green Deal. It outlines a roadmap to make the EU economy more sustainable by turning climate and environmental challenges into opportunities in different policy areas. The aim of the Green Deal is to stimulate the efficient use of raw resources and materials by transitioning to a clean and circular economy. Part of this Green Deal is that carbon intensive products will become more expensive. The Green Deal also proposes to substantiate sustainability claims made by companies by actually calculating the environmental footprint of their products, but also their organisation. The numbers tell the tale. With your LCA you are prepared for the Green Deal. It supplies the information you need to anticipate on upcoming regulations.
Sustainable Investment based on LCA
Large organisations, like investment companies, banks and pension funds also slowly shift their capital towards more green initiatives. In a report of the Global Sustainable Investment Alliance it was described that more than a third of all assets in five of the world’s largest markets is accounted as sustainable investments, with a total of $35.3 trillion. This is an astronomical number. Investors are increasingly driven by environmental, social and governance-related (ESG) factors that traditionally have not been captured in a company’s balance sheet, but that can influence future returns.
“This growth is being fuelled by rising consumer expectations, strong financial performance and the increasing materiality of social and environmental issues – from biodiversity to racial equity to climate change.” Simon O’Connor, chair of the GSIA, said.
Hence, investors are more and more feeling climate change as an investment risk. In our next blog we will dive deeper into this investment risk and the transparency in the investor’s portfolio.
With our services we support entrepreneurs in making an impact. We offer various separate services, or combine them with you into a ROADMAP2030 towards climate neutral by 2030.