ESG STRATEGY – CREATION

1. WHERE WE ARE - Start by defining baseline
2. WHERE WE NEED TO GO – Identify requirements (regulatory and Industrial)
3. WHERE ARE WE GOING – Define ambition

The European Union (EU) and world financial markets are currently experiencing an explosion of sustainability reporting standards, most notably the International Sustainability Standards Board (ISSB, established by the global accounting standard-setter International Financial Reporting Standards, IFRS) and the European Sustainability Reporting Standards (ESRS, an outcome of the Corporate Sustainability Reporting Directive, CSRD). Both link financial reporting statements with sustainability disclosures to strengthen investor protection, reduce greenwashing and ensure reliable and comparable disclosures that meet the information needs of investors and other stakeholders.

Following is a summary of how to approach and implement reporting systems to meet your obligations under these new standards.

Your direct path to expert knowledge and essential EU Taxonomy insights for well-informed, sustainable business decisions.

The EU Taxonomy

Introduction

Assessing and managing greenhouse gas (GHG) emissions across Scope 1, 2, and 3 is vital for companies committed to sustainability and reducing their environmental footprint.

Why Conduct a Scope 1-3 Emissions Assessment?

• Regulatory Compliance: Ensure compliance with local and international environmental regulations.
• Operational Efficiency: Identify opportunities to improve efficiency and reduce costs by minimizing energy use and waste.
• Stakeholder Trust: Enhance transparency and build trust with stakeholders, including customers, investors, and regulators.
• Risk Management: Mitigate risks associated with climate change and regulatory pressures.
• Competitive Advantage: Position your company as a leader in sustainability, attracting socially responsible investors and customers.

Understanding Scope 1, 2, and 3 Emissions

Scope 1: Direct Emissions

These are emissions from sources owned or controlled by your company, such as fuel combustion in company-owned vehicles and on-site manufacturing processes.

Scope 2: Indirect Emissions from Energy

These are emissions from the generation of purchased electricity, steam, heating, and cooling consumed by your company.

Scope 3: Other Indirect Emissions

These include all other indirect emissions that occur in your value chain, both upstream and downstream. Scope 3 emissions cover 15 categories, including purchased goods and services, business travel, and waste disposal.

Steps to Conduct a Scope 1-3 Emissions Assessment

For any business, major operational changes can be challenging – especially when these changes are specifically mandated for compliance with new regulations. This is exactly the case for organisations that intend to manufacture or sell physical products within the EU over the next decade as they grapple with how to prepare for DPPs.

In December 2023, the EU Commission reached a provisional agreement on a new Ecodesign for Sustainable Products Regulation (ESPR), which will set design and performance standards for specific product groups, intended to improve their sustainability, energy performance, and overall circularity.

Recognising the need for up-to-date and accessible product information to enforce the legislation, the ESPR will require affected product groups to contain Digital Product Passports. For some industries such as Textiles, DPPs must be in place by 2030, with many other industries like Consumer Electronics and ICT to follow suit.

While penalties for non-compliance haven’t yet been specified, they may include fines, confiscation of assets, and business sanctions, leaving organisations to ponder over how to prepare for DPPs and implement them effectively before their respective industry deadlines.