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What are scope 3 emissions and why are they important?

Scope 3 emissions is the third emission category of the GHG protocol. The GHG protocol (Greenhouse Gas Protocol) is the most used standard for measuring and reporting greenhouse emissions, where emissions are divided into three different categories: scope 1, scope 2 and scope 3. 

A large part of the company’s climate impact consists of greenhouse gas emissions, of which the most significant are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) emissions. Reducing greenhouse gas emissions and sustainable development are increasingly central goals for companies around the world. Companies operating in the EU region are also obliged by various directives, according to which companies must report on the environmental impacts caused by their business activities annually. 

What do Scope 3 emissions include?

Scope 3 emissions cover all indirect greenhouse gas emissions that occur because of the company’s operations, but the emission sources are not directly owned or controlled by the company. These emissions include, for example, emissions caused by the supply chain, emissions from transport, emissions from the use of sold products and emissions from waste treatment. 

These emissions are the broadest and most complex part of the calculation of greenhouse gas emissions, and the emission sources can vary significantly between different companies depending on their industry and operating models. 

The emissions therefore consist of indirect greenhouse gas emissions from the company’s value chain. These emission sources can be divided into upstream and downstream emission sources, depending on where they are located in the production chain – before or after the company’s own operations. 

Upstream emission sources include all indirect emissions that occur in the company’s value chain up to the moment of handing over one’s own product or service. 

The GHG protocol divides these emission sources into eight different categories: 

  • Purchased products and services 
  • Fixed assets 
  • Activities related to fuels and energy that have not been taken into account as part of the scope 1 & 2 calculation 
  • Upstream transportation and distribution 
  • Handling of waste generated in operations 
  • Business trips 
  • Property leased by the company 

Downstream emission sources include all indirect emissions that occur after the product or service is delivered to the customer. 

The GHG protocol divides these emission sources into seven different categories: 

  • Downstream transportation and distribution 
  • Processing of sold products 
  • Emissions from the use of sold products 
  • Emissions from the final processing of sold products 
  • Downstream leased property 
  • Franchise Business Emissions 
  • Emissions from investment activities 

Monitoring and reporting of Scope 3 emissions

Monitoring and reporting of Scope 3 emissions is important because it provides a comprehensive picture of the company’s climate impacts. Although a company can quite easily manage and reduce its direct (scope 1) and indirect emissions related to energy consumption (scope 2), scope 3 emissions typically make up a significant part of the company’s total emissions. 

Monitoring and reporting help companies identify the most significant sources of emissions and set appropriate goals to reduce emissions in the entire value chain. 

Challenges and opportunities of Scope 3 emissions 

Calculating and reporting Scope 3 emissions is a challenge for companies, as determining scope 3 emissions requires cooperation with the entire value chain and data collection from several different actors. In addition, estimating emissions can be complex when considering different industries and different geographical areas. 

However, the investigation of Scope 3 emissions offers opportunities for companies. Their effective management can lead to cost savings, improved resource efficiency, better value chain cooperation and the discovery of new business opportunities. For example, evaluating the environmental impacts during the products’ life cycle and eco-design can help reduce environmental impacts in the supply chain. 

Scope 3 emissions are a significant part of companies’ environmental impact

Monitoring and reporting of Scope 3 emissions is an important part of companies’ sustainable development strategy. Although scope 3 emissions can be challenging to manage, they also offer opportunities to improve efficiency and find new business opportunities. Companies can take advantage of expert help and cooperation with various actors in the value chain to achieve their goals. 

Ecobio’s team of experts will be happy to help you with all questions related to greenhouse gases and their monitoring and reporting. 



    What are scope 2 emissions and why are they important?

    Scope 2 emissions form a significant part of the climate impacts of the company’s own operations. They cover the indirect emissions of energy production, which arise because of purchased and consumed energy production. The emissions are part of the greenhouse emissions inventory according to the GHG Protocol (Greenhouse Gas Protocol) measurement and reporting standard. The GHG protocol is the most used standard for measuring and reporting greenhouse emissions, where emissions are divided into three different categories: scope 1, scope 2 and scope 3.

    What do Scope 2 emissions include? 

    Emissions include all greenhouse gas emissions that arise from the production of energy purchased from another party. This includes emissions from the production of purchased electricity, heat, steam or cooling.  

    Electricity and heat purchased for most companies are the main sources of scope 2 emissions. However, it should be noted that for some companies, the separate procurement of steam and cooling can also cause scope 2 emissions. On the other hand, if the company produces some or all its own energy, the emissions from production are taken into account as part of the calculation of scope 1 emissions. 

    Why is monitoring and reporting of scope 2 emissions important?

    Monitoring and reporting of greenhouse gas emissions is an important part of companies’ environmental responsibility. Emissions calculation helps companies understand the climate impacts of their own operations and set goals for reducing emissions. The GHG protocol unifies emissions calculation and reporting, which ensures uniform implementation of companies’ emission calculations and, to some extent, enables comparison of results. In addition, monitoring greenhouse gas emissions provides transparency to stakeholders such as customers, investors, and authorities. 

    Reporting of greenhouse emissions 

    Since 2014, the European Union’s NFR Directive (Non-Financial Reporting Directive) has required all companies employing more than 500 people to report on their social and environmental impacts. This obligation also applies to the reporting of greenhouse gas emissions. 

    From 2024, the reporting obligation according to the new CSRD (Corporate Sustainability Reporting Directive) will enter into force, and with it, the reporting will move to an approach in accordance with the new guidelines. The new directive aims to expand the scope of reporting and establish more uniform reporting standards. In addition, the reporting obligation will gradually extend to all listed companies. 

    Reducing emissions and optimizing energy

    It is important that companies understand the importance of scope 2 emissions and take them into account in their environmental strategy. Emission reduction measures and optimization of energy procurement can help companies reduce their carbon footprint and promote sustainable development. 

    Ecobio’s team of experts are ready to help companies with issues related to greenhouse gas emissions, monitoring, and reporting, so that they can fulfill their reporting obligations and act responsibly towards the environment. 



      What are Scope 1 emissions and why are they important?

      Scope 1 emissions are part of the greenhouse emissions inventory according to the measurement and reporting standard of the GHG protocol (Greenhouse Gas Protocol). 

      A large part of the company’s climate impact consists of greenhouse gas emissions, of which the most significant are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) emissions. The most used standard for measuring and reporting greenhouse emissions is the GHG protocol, where emissions are divided into three different categories: scope 1, scope 2 and scope 3. 

      GHG protocol

      The GHG protocol is a global standard for measuring and managing greenhouse emissions. The GHG protocol unifies the calculation and reporting of emissions, which ensures uniform implementation of companies’ emission calculations and to some extent enables the comparison of results.  

      According to the Greenhouse Gas Protocol, emissions are divided into three different categories:  

      • Scope 1 includes all direct greenhouse emissions from the company’s own operations 
      • Scope 2 includes greenhouse emissions caused by the production of energy (electricity, heat, steam and district cooling) purchased and consumed in the company’s operations 
      • Scope 3 includes other indirect greenhouse emissions related to the company’s operations, such as business travel, waste handling and primary production of purchases. Scope 3 contains 15 different emission categories. 

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      What about Scope 1 emissions? 

      Scope 1 emissions consist of the company’s direct emissions caused by resources owned or controlled by the company. Scope 1 class emissions are generated directly because of the company’s operations, and these are the easiest ones for a company to control.  

      Scope 1 emission sources

      The emission sources are direct emissions from the company’s own operations: 

      1. Process emissions. Process emissions refer to direct greenhouse gas emissions, such as methane emissions from anaerobic fermentation or natural gas flaring, generated in the company’s operations. 
      1. Own energy production. If the company produces operational energy either for its own use or that of other operators, the emissions resulting from energy production are included in the scope 1 emissions of the reporting company. 
      2. Fuel consumption. Emissions caused by fuel consumption in machines, equipment and vehicles owned or managed by the company. 
      3. Fugitive emissions. Fugitive emissions are so-called leak emissions, which are caused, for example, because of pipe and equipment leaks. Fugitive emissions occur not only in industry but also in ordinary home and office conditions, such as, for example, malfunctioning refrigerators and air conditioners. Fugitive emissions can be reduced or completely avoided by taking care of the equipment’s condition and maintenance appropriately and by repairing or replacing malfunctioning equipment. 
      4. Scope 1 emissions therefore include greenhouse gas emissions directly caused by the company’s own operations. Since emissions are generated because of the company’s own operations, it is also the easiest to influence them. 

      Calculation of Scope 1 emissions

      When calculating Scope 1 emissions, it is essential to identify the direct emissions of one’s own operations. In terms of identifying emissions, it is important to define the organizational boundaries of the reporting company.  

      The organizational boundary determines which emissions are the company’s own and indirect (scope 1&2) emissions related to energy consumption, and which are value chain (scope 3) emissions. Organizational demarcation is done in accordance with the GHG protocol either based on the company’s capital share or management. 

      After identifying the Scope 1 emission sources, the consumption figures for the reporting year necessary for the calculation are collected. If direct consumption figures, such as liters of fuel consumed during the year, are not available, the calculation can be made based on secondary data sources, such as kilometers driven during the year. 

      In terms of calculation, it is also essential to identify and determine the appropriate emission factor for each emission source. The most accurate calculation result is achieved by using supplier-specific emission coefficients, but if emission data is not available from the supplier, emission coefficients available from public or commercial data sources can also be used in the calculation. 

      Ecobio’s experts are happy to help you with all questions related to greenhouse gases and their monitoring and reporting.  



        What does scope 1, 2 and 3 emissions mean?

        The most internationally used standard for measuring and reporting greenhouse emissions is the GHG protocol (Greenhouse Gas Protocol), where emissions are divided into three different categories: scope 1, scope 2 and scope 3. 

        When reporting on the climate impacts of business operations, it is customary to classify emissions into scope 1, 2 and 3 categories in accordance with the GHG protocol. Classification of emissions reduces the risk of double counting between emission calculations of different companies and helps the company and the company’s stakeholders to understand the most significant emission sources of the company’s business in its own and value chain operations. 

        Many companies also report value chain emissions in more detail, broken down into fifteen different emission categories. By utilizing emission data, the company is able to identify the most relevant emission sources for its operations and optimize its business to reduce the burden on the environment. 

        Greenhouse gas emissions caused by the company’s operations, such as carbon dioxide (CO2), methane (CH4) and nitrogen oxide (N2O) emissions, are a significant environmental aspect related to the business. 

        Growing reporting obligations, such as the CSRD sustainability reporting directive, now and in the future require companies to report in detail the environmental impacts of their business operations  

        Scope 1, scope 2 and scope 3 classification

        In accordance with the Greenhouse Gas protocol, emissions are classified as follows: 

        • Scope 1 includes all direct greenhouse emissions that are formed as a result of the company’s operations 
        • Scope 2 includes greenhouse emissions caused by the production of purchased and consumed energy 
        • Scope 3 includes all other indirect greenhouse emissions that are formed as a result of the company’s operations, but the emission sources themselves are not owned or controlled by the company. Such emission sources include, for example, emissions from the primary production of purchases and emissions caused by travel and transport. Scope 3 emissions are broken down into fifteen different emission categories. 

        Scope 1: direct greenhouse emissions 

        Scope 1 emissions consist of direct emissions from resources owned or controlled by the company. Emissions are created as a direct result of the company’s operations, and these emission sources are typically the easiest to control. 

        Scope 1 emissions can be divided into four groups: 

        Process emissions 

        Process emissions refer to direct greenhouse gas emissions, such as methane emissions from anaerobic fermentation or natural gas flaring, generated in the company’s operations. 

        Own energy production 

        If the company produces operational energy either for its own use or that of other operators, the emissions resulting from energy production are included in the scope 1 emissions of the reporting company. 

        Fuel consumption 

        Emissions caused by fuel consumption in machines, equipment and vehicles owned or managed by the company. 

        Fugitive emissions 

        Fugitive emissions are so-called leak emissions, which are caused, for example, as a result of pipe and equipment leaks. They occur not only in industry but also in ordinary home and office conditions, such as, for example, malfunctioning refrigerators and air conditioners. These emissions can be reduced or completely avoided by taking care of the equipment’s condition and maintenance appropriately and by repairing or replacing malfunctioning equipment. 

        Scope 1 emissions therefore include greenhouse gas emissions directly caused by the company’s own operations. Since Scope 1 emissions are generated as a result of the company’s own operations, it is also the easiest to influence them. 

        Scope 2: indirect greenhouse emissions of energy consumption

        Scope 2 emissions include all greenhouse gas emissions that arise from the production of energy purchased from another party. This includes emissions from the production of purchased electricity, heat, steam or cooling. 

        Electricity and heat purchased for most companies are the main sources of scope 2 emissions. However, it should be noted that for some companies, the separate procurement of steam and cooling can also cause scope 2 emissions. On the other hand, if the company produces some or all of its own energy, the emissions from production are taken into account as part of the calculation of scope 1 emissions. 

        By identifying the most essential scope 2 emission sources, the company can develop its energy consumption and procurement in a more sustainable direction and reduce the emissions of its business. 

        Scope 3: indirect greenhouse emissions of the value chain 

        Scope 3 emissions cover all indirect greenhouse gas emissions that occur as a result of the company’s operations, but the emission sources are not directly owned or controlled by the company. These emissions include, for example, emissions caused by the supply chain, emissions from transport, emissions from the use of sold products and emissions from waste treatment. 

        In most companies, the majority of greenhouse gas emissions are generated in the company’s value chain, either upstream or downstream in relation to the company’s own operations. 

        Upstream emission sources include all indirect emissions that occur in the company’s value chain up to the moment of handing over one’s own product or service. 

        The GHG protocol divides these emission sources into eight different categories: 

        • Purchased products and services 
        • Fixed assets 
        • Activities related to fuels and energy that have not been taken into account as part of the scope 1 & 2 calculation 
        • Upstream transportation and distribution 
        • Handling of waste generated in operations 
        • Business trips 
        • Business trips 
        • Property leased by the company 
        • Downstream emission sources include all indirect emissions that occur after the product or service is delivered to the customer. 

        The GHG protocol divides these emission sources into seven different categories: 

        • Downstream transportation and distribution 
        • Processing of sold products 
        • Emissions from the use of sold products 
        • Emissions from the final processing of sold products 
        • Downstream leased property 
        • Franchise Business Emissions 
        • Emissions from investment activities 

        Why is monitoring the company’s emissions important? 

        Carbon footprint monitoring and reporting is an important way for companies to take responsibility for their environmental impact. Since 2014, all companies employing at least 500 people have been obliged to report on their social and environmental impacts in accordance with the European Union’s NFR (Non-Financial Reporting Directive). 

        With the Corporate Sustainability Reporting Directive (CSRD), responsibility reporting will become even more precise and demanding for companies. 

        With the new CSRD directive, it was intended to expand the scope of the corporate reporting guidelines and more uniform reporting standards. In addition, the reporting obligation will gradually extend to all listed companies. 

        Scope 1, 2 and 3 emissions included in responsibility reporting  

        In the EU, various directives oblige companies to report on the environmental harm and social impact of their business operations. 

        Since 2014, the European Union’s NFR Directive (Non-Financial Reporting Directive) has obliged all companies employing more than 500 people to report on their social and environmental impacts. This obligation also applies to the reporting of greenhouse gas emissions. 

        From 2024, the reporting obligation according to the new CSRD (Corporate Sustainability Reporting Directive) will enter into force, and with it, reporting will move to an approach in accordance with the new guidelines. 

        The CSRD directive aims to expand the scope of reporting and establish more uniform reporting standards. CSRD requires companies to ensure that the company’s operations are in line with the goals of the Paris Climate Agreement. Meeting this requirement requires companies to monitor greenhouse gas emissions even more closely and to achieve ambitious and goal-oriented emission reductions. 

        Management of climate effects particularly responsible business activities

        Finding out the sources of greenhouse gas emissions that are relevant to the company’s operations and calculating the emissions is the first step in managing the company’s climate impacts. By identifying the most significant emission sources, the company can set appropriate and effective emission reduction targets for its own operations. 

        Timely and targeted measures make it possible to reduce emissions in the company’s business in the short and long term. In the future, it will no longer be enough to manage the emissions of one’s own operations (scope 1&2), but it is also necessary to apply emission reduction measures to the emissions of the value chain (scope 3). 

        It is important to include the management and planned reduction of climate impacts as part of the company’s responsibility strategy, because the company’s climate responsibility is an inseparable part of sustainable business operations. The stricter requirements and expectations of stakeholders and legislation regarding responsibility require ambitious and effective climate measures. 

        Although not all small and medium-sized companies are necessarily under the same pressure in terms of emission reductions, the emission reduction measures and targets of large companies trickle down the value chain to smaller companies as well. For this reason, it is also time for SMEs to include climate issues as part of their responsibility strategy and to prepare well in advance for possible future claims. 

        Ecobio’s team of experts are happy to help you with all questions related to greenhouse gases and their monitoring and reporting. 

        Submit your question via the form below and we’ll get back to you shortly. 



          New interpretation and guidance on screening criteria and reporting

          On Monday 19.12 the EU Commission published two draft Commission Notices, one providing interpretation and implementation guidance on the EU Taxonomy Climate Delegated Act and one providing interpretation and implementation guidance on the Disclosures Delegated Act.

          The Commission Notices complements previous guidance provided on reporting of Taxonomy-eligible economic activities and an earlier Commission Notice on the Disclosures delegated act. While the previous guidance focused attention on Taxonomy-eligible activities, the new drafts focus on the application of the technical screening criteria and reporting Taxonomy-aligned economic activities. The aim of the new documents is to clarify the existing provisions, but do not expand or add additional requirements.

          Draft Commission

          Draft Commission Notice on the interpretation and implementation of certain legal provisions of the EU Taxonomy Disclosures Delegated Act

          The Commission Notice on the Disclosures Delegated act answers FAQs and aims to assist non-financial companies with the reporting requirements under the Disclosures Delegated Act. Topics covered include general questions and questions on the turnover KPI, the capex KPI and the opex KPI specifically. General questions cover for example reporting on activities under the Complementary Climate Delegated Act (nuclear energy and fossil gas), the impact of CSRD, accounting for “double-counting”, and consolidation of KPIs on group level.

          Do you want to learn more about the EU Taxonomy?

          Read our FAQ about EU Taxonomy here.

          The European Sustainability Reporting Standards set the minimum level of corporate sustainability information to be reported

          The EU sustainability reporting standards (European Sustainability Reporting Standards, ESRS) specify the disclosure obligations of companies in the Corporate Sustainability Reporting Directive (CSRD). CSRD changes corporate sustainability reporting from voluntary to mandatory and at the same time expands and specifies what corporate sustainability information needs to be reported. The CSRD will apply from 2024, after which corporate sustainability data needs to be reported in accordance with the defined elaborate standards. Read more about CSRD here.  

          European financial reporting advisory group EFRAG, who prepared the standards together with experts from various stakeholders, finalized the first set of EU sustainability reporting standards in November (2022). Based on the 12 standard drafts, the European Commission will publish the final standards by summer 2023 at the latest.

          Cross-cutting, topical and sector-specific standards

          The EU’s sustainability reporting standards define the minimum disclosure level of mandatory corporate sustainability information for companies. All companies need to report on general principles related to sustainable business operations, such as:

          • Strategy and business model

          • Sustainability impacts

          • Sustainability risks and opportunities.

          In addition, relevant ESG information is reported in accordance with subject-specific sustainability reporting standards related to:

          • Environment,

          • Social,

          • Governance.

          Sector-specific sustainability reporting standards are also being prepared. These standards will to describe which ESG matters are relevant for certain industries to report on.

          Prepare for reporting according to ESRS 

          Corporate sustainability data will eventually be more transparent and easier to compare. It is good to note that several existing sustainability reporting standards and frameworks, such as GRI, SASB, TCFD and CDP, have been taken into account in preparing the ESRS.

          This enables reporting companies to utilise their existing practices and more easily standardise the reporting of their sustainability data in accordance with the EU reporting standards. 

          The EU’s sustainability reporting obligations and standards are new for everyone, regardless of whether your company is an experienced operator in the field of sustainability or just starting corporate sustainability reporting for the very first time. Ecobio’s experts helps your company to find a suitable road forward taking the new corporate sustainability obligations and sustainability reporting standards into account. 

          If you have any questions, please contact our consultant Terhi Valtonen.

           

          Terhi  Valtonen

          Email: terhi.valtonen@ecobio.fi

          Phone: +358 (0)207656144

           


          GRI = Global Reporting Initiative  

          SASB = Sustainability Accounting Standards Board  

          TCFD = Task Force on Climate-Related Financial Disclosures  

          CDP = Carbon Disclosure Project 

          Mitigation of climate change requires actions from companies and individuals

          The third section of the sixth assessment report published in April by the International Climate Panel IPCC focuses on climate change mitigation and adaptation measures. As presented in the report on the effects of climate change published at the end of February, the time window for curbing the effects of climate change is closing. The increase in greenhouse gases in the atmosphere caused by human activities has been faster and stronger than predicted. Limiting warming to 1.5 degrees is starting to look even more unreal.

          Mitigation of climate change in different sectors

          The IPCC presents a number of ways to mitigate the effects of warming in different sectors and the emission reduction potential of these ways on an annual basis in different scenarios. For example, in industry, the capture and storage or use of carbon dioxide elsewhere could be useful when the carbon dioxide released from production plants could be directly collected. Carbon dioxide produces use elsewhere or it stores an alternative in the soil or long-lived materials of the trot. Large-scale recovery does not have a very high emission reduction potential on an annual basis and it is, at least for the time being, quite expensive. Better opportunities to reduce emissions are by changing very fossil fuels to bio-based, hydrogen and its derivatives or completely electric alternatives. Energy and material efficiency measures are also fairly inexpensive ways to reduce large amounts of emissions.

          In energy production, agriculture and at the individual level, emission reduction is the most effective

          According to the IPCC, the biggest emission reduction opportunities are related to energy production with wind and solar power. Increasing these production methods would reduce emissions by several gigatons annually, and the solutions would be quite inexpensive compared to almost all other solutions from different industries presented in the report.

          In addition to energy production, solutions in agriculture and forestry are particularly effective in terms of mitigating climate change: sequestering carbon in the soil in agriculture, sustainable forest management, afforestation and restoring ecosystems would reduce emissions substantially every year. If farming were to be enhanced, for example, through arable forestry or farming methods that bind carbon to the soil, many natural forests would not need to be converted to agricultural use, and as the surface area in agricultural use decreases, previously used areas could be restored and thus improve their carbon sequestration capacity.

          A decrease in the area of ​​land used for agriculture would be possible not only by making cultivation more efficient. It could also be possible by globally changing the diet to be more sustainable. The report emphasizes that the mitigation of climate change is surprisingly largely also dependent on individual choices. By 2050, effective measures on the demand side between different sectors could reduce emissions by up to 40–70% of what emissions have been predicted to be in 2050 with current measures.

          A plant-based diet can effectively reduce greenhouse gas emissions. Buying more material- and energy-efficient consumer products and using public transport would also have effects.

          The electrification of public transport can reduce emissions. Improvements on the public transport infrastructure can also lead to more usage.  Increasing remote work or recycling also curbs climate change. Although their emission reduction potential is clearly lower than other measures, especially sustainable dietary changes.

          “Several means of controlling climate change not only reduce greenhouse gas emissions, but also improve air quality and human health, increase biodiversity and can also at best, for example, increase equality and improve food security”

          Co-benefits can be obtained from containment measures

          The report also highlights construction-related emission reduction opportunities, such as the construction of new buildings from low-carbon and long-lasting materials. Renovating existing buildings and adding carbon-sequestering materials and surfaces such as green roofs would reduce emissions. Increasing green surfaces and areas, especially in cities, mitigates the urban island phenomenon, where city centres heat up more than the surrounding areas due to many reflective and heat-trapping surfaces. In addition, green areas curb flooding during heavy rains.

          Several measures to control climate change are needed. We need to reduce greenhouse gas emissions to stop the climate change. We also have to improve air quality and people’s health, increase biodiversity. By doing this it could lead to an increase in equality and improve food security. The report emphasizes that it is possible that the mitigation of climate change through various ambitious goals and measures may cause a positive chain reaction, in which emission reductions feed each other. The actions of individual people and a change in attitude are also of great importance.

          REDUCE EMISSIONS TOGETHER WITH ECOBIO

          Together with Ecobio’s experts, your company can develop the best and most suitable means of reducing emissions.

          Ecobio can for example help with:

          • reducing company-level emissions with the help of carbon footprint calculations and various low-carbon road maps
          • increasing material efficiency with the help of life cycle calculations
          Contact us below!



            CSRD reporting – the new obligations accelerate companies’ sustainable business activities

            The negotiations regarding the Corporate Sustainability Reporting Directive (CSRD reporting) were concluded at the EU level just before Midsummer in 2022. Large companies are already obliged to annually publish information on how much of their operations are in line with the taxonomy’s climate and environmental goals.

            With CSRD reporting, a larger part of companies operating in the EU will be covered by taxonomy reporting, and in addition, companies must publish more detailed information in connection with their activity report, e.g., about the environmental and social impacts of their business.

            CSRD reporting is gradually affecting different sized companies The scope includes:

            • Starting from 1 January 2024, listed companies employing more than 500 people (i.e. those that are already covered by the NFRD and are obliged to prepare a statement of non-financial information and to publish information according to the EU taxonomy).
            • From January 1, 2025, listed and unlisted companies with more than 250 employees and more than €40 M in turnover.
            • SMEs listed from 1 January 2026.

            The reporting is carried out in accordance with the European sustainability reporting standards, which are still being prepared. To ensure reliable information, sustainability reports must be certified by an independent inspector in the future.

            CSRD reporting

            CSRD reporting increases companies’ sustainability requirements

            Sustainability will in the future have a bigger role in the evaluation of companies. In addition to the reporting obligations, CSRD sets other requirements for companies. For example, in the future companies must plan how to take climate and other sustainability risks into account in the business model and strategy, as well as the transition to a climate-neutral economy.

            The role of the company’s management and board of directors must now be strengthened in accordance with sustainability goals. The interest of customers and investors in responsible and environmentally sustainable business has grown. This contributes to the financing companies receive for sustainable and responsible projects.

            The direction is clear even for those who have not yet been able to participate in creating responsible businesses. Common sustainable development rules accelerate the market, creating new growth opportunities for companies.

            Ecobio’s experts help your company with strategy preparation and sustainability reporting

            Pioneering companies find value instead of costs in production that puts less strain on the environment. Your company should start with a materiality assessment. This allows you to draw up a sustainability action plan and focus on the most relevant sustainability factors.

            We help your company draw up a strategy that makes sustainability an essential part of the core of the business model and strategy. With our help, your company can find risks and opportunities, take goals to a practical level in good time, and be among the first to report on sustainable operations.

            Read more about our services here!

            Contact us using the form below and we will get back to you as soon as possible!



              EU taxonomy in a nutshell

              EU taxonomy is part of the EU Green Deal, which aims to promote the EU carbon neutrality targets by 2050. EU taxonomy requires companies to classify their environmentally sustainable activities and investments. The aim of the Taxonomy is to get the financial market to direct investments towards more environmentally sustainable solutions.

              EU taxonomy raises uncertainty because the Taxonomy Regulation and its obligations as well as the classification system and reporting are constantly evolving. Therefore, possible effects on your business may change every year.

              EU taxonomy – frequently asked questions

              What?

              EU taxonomy is a classification system for sustainable economic activities. It lists economic activities that significantly contribute to the climate and environmental goals and their evaluation criteria. In practice, EU taxonomy is EU’s sustainability tool based on the Taxonomy Regulation. This allows companies to plan their activities in preparing for the green transition. In addition it also enables them to get financing when moving to a low-carbon and resource-efficient economy.

              EU taxonomy is gradually developing, and it increases companies’ transparency as it requires companies to disclose their sustainability information. Sustainability reporting will be an integral part of companies’ annual reporting in the future, in addition to the traditional financial reporting.” says Terhi Valtonen, Senior sustainability consultant at Ecobio.

              To whom?

              In addition to financial market participants, the Taxonomy Regulation applies to large companies that annually publish a non-financial statement as part of their management report in accordance with the NFRD (Non-Financial Reporting Directive).

              EU taxonomy is constantly developing. Because of this the classification system and reporting requirements will cover many other companies in the future. This will happen when the corporate sustainability reporting directive CSRD becomes applicable and replaces the NFRD.

              How?

              Companies must identify which of their own economic activities can be classified as sustainable according to EU taxonomy. Companies must screen each activity in accordance with the do-no-significant-harm principle.

              A company’s activities can only be sustainable if it does not harm other environmental goals or human rights at the same time. Companies must annually report on how much of their operations are in line with the EU taxonomy’s climate and environmental goals and also disclose the key performance indicators.

              Large, listed companies already publish a non-financial statement, but the relevant sustainability information on company’s operations and its impacts can easily get lost in the pile of annually published reports, unless you know where to search for them. With the help of CSRD we will clearly talk about corporate sustainability reporting in the future.” says Terhi.

              When?

              The Taxonomy Regulation and its technical criteria for climate goals have been applied since January 2022. Companies affected by this must annually disclose the share of sustainable activities in their turnover, capital expenditures and operating expenditures.

              As of January 2023, companies must assess the sustainability of their economic activities. This must happen in accordance with the technical screening criteria for the EU taxonomy climate goals. The EU Commission will publish the remaining environmental objectives and their technical screening criteria in the fall of 2022.

              Companies are advised to start preparing for the EU taxonomy classification and reporting of their sustainable activities in time, because it is a time-consuming process to finally be compliant with EU taxonomy requirements. Your company should also start preparing now.” says Terhi.

              Why?

              EU taxonomy is a companies’, investors’ and financiers’ sustainability tool, which strict technical screening criteria are based on science. It provides methods that can be used to assess how much of a company’s economic activities that have a significant impact on the climate and environmental goals of the EU Green Deal.

              The taxonomy also provides common definitions that allow companies and investors to communicate credibly through their financial numbers about their green and sustainable operations and plans to transition to a low-carbon economy. A common language in sustainability matters is necessary to be able to compare the data and set sustainability goals.

              EU taxonomy is not only the reporting obligation, but companies can use the taxonomy in integrating the the climate and environmental goals into company’s sustainability strategy and ESG goals.”

              -Terhi Valtonen, Senior sustainability consultant, Ecobio

              Additionally EU taxonomy serves as a basis for many actions of the EU sustainable finance strategy. For example green bonds, companies’ sustainable business and strategy targets, and reporting of material sustainability data.


              Ask Ecobio experts – Contact us below:



                Corporate sustainability reporting requirements – Five steps to prepare

                Five steps to prepare for Corporate sustainability reporting requirements

                Corporate sustainability reporting requirements are taking a big leap forward and more detailed sustainability reporting will become obligatory in the EU for large and medium-sized companies.

                Corporate sustainability reporting directive (CSRD) reporting is gradually affecting different-sized companies. With CSRD reporting, a larger part of companies operating in the EU will be covered by taxonomy reporting, and in addition, companies must publish more detailed information in connection with their activity report, e.g., about the environmental and social impacts of their business.

                More and more companies are already now highlighting sustainability in their strategy and in their everyday business practices. Companies are aware that customers and investors are increasingly interested in sustainable products and responsible business, which makes them more willing to report about their sustainability goals and achievements.  

                To be able to effectively measure environmental and social impacts and to reach climate goals, companies will soon be provided with European sustainability reporting standards. Companies can already now start to prepare for the new sustainability requirements, hence making it easier to be compliant with reporting in due time.  

                Five steps to prepare for the Corporate Sustainability Reporting Directive (CSRD)  

                1. Make sure your business is ready to be transparent. The legislation sets the minimum requirements, but responsible companies aim further than just to be compliant. There is no reason to wait until sustainability requirements are obligatory. Instead, commit to the climate goals and update your company’s due diligence also in other environmental, social and governance (ESG) areas. A good starting point is to recognise the material topics in sustainability and identify those that are the most relevant and important to your company. Understand how sustainability matters affect your business and what impacts your business has on people and the environment (double materiality principle).  
                2. Top management commitment. Companies should prepare to mainstream sustainability in their strategy and targets and be ready to provide the information in their annual reports. CRSD will require to provide information on the role of the company board and management, and the resilience of the business model and strategy to risks and opportunities related to sustainability matters. Companies are expected to look forward in its impacts on sustainability matters, and appropriately consider the whole value chain, including its own operations, products and services and its business relationships and its supply chain.  
                3. Connect your risk management and financial experts in sustainability topics. Companies’ risk management plays an important role in evaluating how sustainability matters, such as climate change, can affect the business in the short or long-term. Experts in risk management will be able to understand the business value based on the results of a comprehensive materiality assessment. On the other hand, as sustainability reporting must be in line with the financial data, the financial experts have the skills and experience to create a link between financial and non-financial (sustainability) information.  
                4. Invest in reliable reporting. The EU Taxonomy requires companies to disclose certain KPIs (indicators) about their activities’ level of sustainability. The sustainability reporting standards will ensure that the reporting requirements and indicators are consistent with the EU Taxonomy. The standards will most likely facilitate the assurance of sustainability information which is also becoming a requirement for companies. High-quality preparation for reporting guarantees that company’s sustainability report passes the assurance, and the company can be trusted for what it informs about its impacts on people and the environment.  
                5. Digitalise. In a few years, companies are required to disclose their EU Taxonomy disclosures and other financial and sustainability information in a digital, machine-readable format. There will be an EU-wide digital access platform for the company data. The common reporting standards will facilitate digitalisation, but before the standards will apply, companies are encouraged to digitalise the reporting. Companies and data users save time and money when sustainability data is easily available in a digital format.

                Read more: CSRD reporting – the new obligations accelerate companies’ sustainable business activities

                We can assist you in preparing for the upcoming CSRD reporting requirements. Our sustainability experts can help you guide your organisation towards sustainable development goals. Please contact our consultancy services:  



                   

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                  For EU-Taxonomy eligible companies, our newest whitepaper: EU-Taxonomy classification and reporting in 2023 – Eight steps to compliance whitepaper is a must-read.


                  Sources:

                  https://eur-lex.europa.eu/legal-content/FI/TXT/PDF/?uri=CELEX:52021PC0189&from=FR

                  https://data.consilium.europa.eu/doc/document/ST-6292-2022-INIT/fi/pdf

                  https://www.globalreporting.org/standards/standards-development/universal-standards/

                  https://www.globalreporting.org/standards/standards-development/universal-standards/