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Sustainability Reporting: UK

Posted on by Laura Nodoph

Companies underlie various regulations about what they must report depending on where they are located and/or selling their products. Changing regulations for each country can be irritating and hard to oversee. In our series, we’ll give an overview of what sustainability reporting is mandatory and becoming mandatory in the following years and the most significant industries. After covering the EU in the first part of our series, today we’re following with the UK:  

In the United Kingdom, sustainability reporting is not mandatory for companies. The only exception is that UK-quoted companies (publicly traded) must report on their greenhouse gas emissions and global energy use as part of the annual Directors’ Report. While there is no stand-alone sustainability reporting, the government announced new Sustainability Disclosure Requirements (SDR) in October 2021. We explain how the new SDRs could impact your business and how they align with the Task Force on Climate-Related Financial Disclosures (TSFD) recommendations and the UK Green Taxonomy plans.  

 

Task Force on Climate-Related Financial Disclosures (TCFD)

The TCFD is the Task Force on Climate-Related Financial Disclosures. The Financial Stability Board created it in 2015 to develop international climate-related financial risk disclosures. Companies, banks, and investors are supposed to use them to provide critical information to stakeholders.  

While you could call TCFD another reporting framework, there is one key difference. Its use is not to find out about a company’s impact on the world and climate change but to reveal the effects of climate change on the company itself and the resulting financial risks. 

The final recommendations by the TCFD were published in 2017. The four recommendations relate to governance, strategy, risk management, and metrics: 

  • Governance: disclose the organization’s management of climate-related risks and opportunities 
  • Strategy: disclose the actual and potential impact of climate-related risks and opportunities on the organization’s operations, strategy, and financial planning 
  • Risk management: disclose how the organization identifies, assesses, and manages climate-related risks 
  • Metrics and targets: disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities 

The overall goal of the TCFD was to strengthen the financial system’s stability, contribute to a greater understanding of climate risks, and support financing the transition to a more stable and sustainable economy. 

 

Sustainability Disclosure Requirements (SDR)

The UK has set up the goal to be the first country to make the alignment with TCFD mandatory across the economy. They recently set out new Sustainability Disclosure Requirements (SDR) to get there. The SDRs are intended to create an integrated and streamlined framework that brings together sustainability-related reporting requirements.  

Designed to broaden the UK’s sustainability reporting, SDRs are supposed to give deeper insights into companies’ environmental and social impact, especially to investors. While SDRs are planned to be based on the TCFD recommendations, they go beyond the TCFD requirements  by looking at other environmental impacts and risks on top of climate change and requiring double materiality.  

What is double materiality? Double materiality means that disclosures should show how sustainability issues impact companies and how companies’ activities impact sustainable development in society and the environment beyond their primary operations. 

Still, SDRs are neither final nor in action yet. There’s a high probability of a long wait for legislative approval and further changes to the legislation. However, companies shouldn’t take this lightly. As soon as the SDR comes into place, enterprises will have to deal with the lack of data, especially in the deep tiers of your supply chains. Enterprises need to act now to be readily prepared for the challenges of reporting tomorrow. 

 

UK Green Taxonomy

Following the EU Taxonomy (read more about it here), the UK government is implementing a UK Green Taxonomy. Its use is to define which economic activities count as environmentally sustainable. This way, it aims to create consistency, improve understanding of companies’ contribution to environmental impact and provide a reference point for companies to develop and communicate Net Zero and capital investment plans. Same as EU taxonomy, it is supposed to improve sustainable investment and create security for investors, protect from greenwashing, motivate companies to be more sustainable, diminish market fragmentation and help shift investments to more sustainable options.  

The UK taxonomy will be compatible with international frameworks based on the EU taxonomy. To be aligned with UK taxonomy, same as EU taxonomy, company activities will need to meet three criteria:  

  • a substantial contribution to one of the six environmental criteria 
  • no significant harm to the other objectives 
  • complete a set of minimum safeguards 

Like the EU taxonomy, each environmental objective will be substantiated by detailed standards or the so-called Technical Screening Criteria (TSC). The finalization of the first two objectives, climate change mitigation, and adaptation, is planned for the end of 2022. The remaining objectives are supposed to follow in 2023.  

 

What does this mean for you?

The bottom line is that in the future sustainability reporting will be mandatory for UK companies. Trying to wait it out is a dangerous bet. Your company being accused of greenwashing will likely cost you more than investing in accurate reports now.   

The way out: invest in transparency and corporate sustainability. 

Sustainability reporting: EU

Posted on by Laura Nodoph

Companies underly various regulations about what they must report on depending on where they are located and/or selling their products. Changing regulations per country can be irritating and hard to oversee. In our series, we’ll go through the world’s continents and parts with the most significant industries and give an overview of what sustainability reporting is mandatory or becoming mandatory in the next years. We’re starting the series with the EU:  

As part of the Green Deal, the EU has committed to being the first climate-neutral continent by 2050. The European Union aims for a cleaner environment, affordable energy, smarter transport, new jobs, and a better quality of life. The first plan was presented in 2019. Today, many of the pledges have become regulatory actions. What data do companies in the EU have to report on? These are the four main reports:  

 

Corporate Sustainability Reporting Directive (CSRD)

Currently: Non-Financial Reporting Directive (NFRD) 

When talking about reporting, financial and non-financial reporting is differentiated. The NFRD, or soon to be CSRD, is a non-financial report, as the name suggests. Large and listed companies must report on how they operate and manage social and environmental challenges. While the NFRD concentrates on social factors like 

  • social matters and treatment of employees 
  • respect for human rights 
  • anti-corruption and bribery 
  • diversity on company boards (in terms of age, gender, educational and professional background) 

the CSRD, which was approved by member states in November 2022,  

  • introduces more detailed reporting requirements and a need to report according to mandatory EU sustainability reporting standards 
  • extends the scope to all large companies and all companies listed on regulated markets  
  • requires the audit of reported information 
  • requires companies to digitally ‘tag’ the reported data, so it is machine-readable and feeds into the European single access point 

Through standardizing the collection and analysis of the reported ESG data, the reporting is supposed to improve the flow of capital towards sustainable activities across the EU. At the same time, the CSRD enables civil society organizations, trade unions, and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business. Companies are first expected to report on the new CSRD in 2024.

In June 2023, the European Commission proposed changes to the European Sustainability Reporting Standards (ESRS) and the upcoming Corporate Sustainable Reporting Directive (CSRD). The proposed amendments aim to ease the burden on smaller companies and first-time reporters by extending phase-in times for certain sustainability factors and allowing companies to focus on material sustainability factors.

The Commission’s draft considers concerns about the challenging nature of reporting requirements, especially for first-time reporters, and aims to reduce compliance costs. Key proposals include allowing companies with fewer than 750 employees to omit certain data in the first year, providing an extra year for disclosing information on non-climate environmental issues, and introducing materiality assessments to focus on reporting on relevant sustainability factors.

In October 2023, the Commission announced further CSRD changes. Announced alongside the Commission’s release of its 2024 Commission Work Programme, the statement outlines their intention to postpone the adoption date for the sector-specific ESRS by two years. Additionally, it recommended delaying the adoption of rules for large non-EU companies that operate in the EU to provide sustainability reporting by 2 years.

As the Commission notes in its proposal, the postponement of these two key rules has arisen in order to allow “companies to focus on the implementation of the first set of ESRS,” “ensure that EFRAG has time to develop sectoral ESRS that are efficient,” and “limit the reporting requirements to the minimum necessary.”

 

EU taxonomy

The EU taxonomy is a classification system that was implemented in July 2020. It was designed to support the EU Green Deal objectives. The classification system defines which economic activities can be deemed environmentally sustainable, meaning actions that substantially contribute to at least one of the EU’s environmental objectives while not harming any other objectives and meeting minimum social safeguards. By classifying environmentally sustainable actions, EU taxonomy is supposed to improve sustainable investment and create security for investors, protect from greenwashing, motivate companies to be more sustainable, diminish market fragmentation and help shift investments.  

The system is built on Technical Screening Criteria (TSC), which define requirements for the EU environmental objectives. These are:  

  • Climate change mitigation 
  • Climate change adaptation 
  • Sustainable use and protection of water and marine resources 
  • Transition to a circular economy 
  • Pollution prevention and control 
  • Protection of healthy ecosystems 

Right now, only one TSC is finished and approved. It defines sustainable activities for climate change adaptation and mitigation objectives and has been applied since January 2022. The classification for the remaining objectives is supposed to follow later in 2022. All financial market participants, large companies, and listed SME businesses must report against the Taxonomy. 

 

Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation is a financial report. It requires financial market participants and advisers to state how they report sustainability risks and impacts concerning their financial products. Investment product suppliers must disclose how sustainability concerns are communicated to customers. If products are promoted to comply with ESG characteristics, so to a part sustainable, they also must adhere to the taxonomy regulation of not harming other sustainability objectives. 

 

Product Environmental Footprint (PEF)

The Product Environmental Footprint (PEF) is a planned methodology based on Life Cycle Assessment. The European Commission wants to use it to show the environmental impact of single products over their whole lifecycle. It differs from LCAs by following more stringent and product-category-specific rules, determined by the European Commission. These category rules are making sure that the aspects that matter the most in each product category are not ignored. The approach, which ran through a test phase with more than 300 companies and 2000 contributing stakeholders in different fields of activities, has the goal to provide a common way of measuring environmental performance. Right now, the PEF system is in the transition phase, which will pave the way for policy development and wider industry rollout. PEF rollout is expected by 2024.

 

What does this mean for you?

The bottom line is that you must report if you’re a big company. Trying to wait it out is a dangerous bet. Your company being accused of greenwashing will likely cost you more than investing in accurate reports now.  

Although there is no immediate threat of a fine, neglected climate risks are reputational risks for your company. The way out: invest in transparency and urgently in corporate sustainability. 

Sustainability SaaS for manufacturers: A market overview 

Posted on by Laura Nodoph

Are you a sustainability manager and have been allocated the task of finding a solution for Scope 3 reporting and Life Cycle Analysis? Inevitably you will be on Google and see: There are (too) many options. When searching for the right tool, it can be difficult to get a clear picture of what they are offering and if they fit what you and your company need. To make life easier, we prepared a table of the most prominent players in the manufacturing industry and the most used functions in sustainability tools. If you want to enter deeper into the topic, you can scroll down and drop us a message for an in-detail market overview to be sent to you.  

Scope 3 reporting

What it is:

Scope 3 emissions result from assets not owned or controlled by a company. Therefore, scope 3 emissions are a consequence of a company’s activities but occur from sources outside of an organization. Examples of scope 3 activities are purchased materials, products and services, and employee business travel.

Why it is needed:

Reporting on scope 3 allows companies to assess their entire value chain emissions and identify where to focus reduction activities. Research shows that scope 3 emissions represent up to 90% of emissions for most companies. Companies that ignore scope 3 emissions will never reach an actual Net Zero state. The SEC has also taken up on this and discusses making scope 3 reporting mandatory.

Who does what?

Vendors of scope 3 reporting solutions fall into three groups. Consultancies do the reporting manually, while software solutions do scope 3 reporting automatically. Most of the software on the market takes a spend-based approach to scope 3 calculation. That means they’re estimating the emissions by collecting data on the economic value of the purchased goods and services and multiplying it by industry average emission factors. Right now, only Carbmee, Ecochain, and Makersite can do a more accurate scope 3 reporting by joining external emission and product data with a company’s product data.

Learn more about the benefits of scope 3 reporting with Makersite here.

Life Cycle Assessment

What it is:

The life cycle analysis (LCA) of a product is precisely what the name says: A technique that assesses the impact of a product, from the materials used to make it to its ultimate disposal. The LCA method evaluates the environmental impact from extraction and processing of the raw materials to the manufacturing, distribution, use, recycling, and final disposal.

Why it is needed:

Typically, LCAs are used to identify opportunities to decrease the environmental impact of a product by changing aspects of the design or formulation – by looking at the entire value chain from cradle to grave. Still, LCAs were not used heavily in the past because the manual creation required a massive amount of time and effort to be done for one product. Unfortunately, these LCAs also did not enable actionable insights. That means that companies could see the environmental impact over the life cycle of their current product, but not how the LCA and other categories like costing, compliance, and risk would be affected when changing things.

Who does what?

The automation of LCAs changed how businesses approach their products’ sustainability. While traditional LCA software (SimaPro, iPoint) still requires experts to take over core parts of the analysis, others can do a complete LCA modeling, including the product’s supply chain, without needing subject matter experts (Sphera, Makersite). Still, without a Multi Criteria Decision Analysis (see next point), LCAs alone are of limited use to decision makers in procurement and product teams.

Find out more about how Makersite offers complete product LCA across the entire lifecycle with 100% PLM integration here.

Multi Criteria Decision Analysis

What it is:

The Multi Criteria Decision Analysis (MCDA) evaluates multiple conflicting decision-making criteria. MCDA appears in business as well as in daily life. For producing companies’ examples of measures can be cost, compliance, supply chain risk, sustainability, etc.

Why it is needed:

MCDA is essential for emission reduction. To efficiently save emissions, products must consider sustainability a critical factor when designed. Following this, the departments of product design and procurement are in the driver’s seat to deliver carbon-neutral products and reduce emissions from the supplier base. Yet, they need a multi criteria view on not only sustainability criteria but also cost, compliance, supply chain risk, etc., to make impactful decisions without including experts in every step. Sustainability will only thrive if other product factors don’t lose to it.

Who does what?

The challenge that product designers, procurement, and sustainability managers share is that no tool gives them the whole picture. They need experts in each field of sustainability, cost, risk, etc., to move forward on their topics. MCDA changes this.  It does not only help you understand your emissions and where they are coming from but provides the tools for decision-making. Makersite is currently the only SaaS-sustainability tool that offers MCDA. We are reporting on climate change impacts and across more than 40 other dimensions, e.g., cost, compliance, risk, etc.

Read more on our MCDA and how we use digital twins to enable true ecodesign and sustainable procurement here.

 

*This comparison is researched on the basis of publicly available data and assessments by market experts.

How to find the right software for your needs

The functionalities

When trying to find the right fit for sustainability software for your company, it is essential to determine what you want to use it for. At this step, consider how you want your company to evolve in the coming years and not only the current need for – for example – obligatory Scope 3 reporting. Sustainability software can be an excellent chance for your company to report on your emissions and be more sustainable and, therefore, more relevant in today’s market. Our tip: Ask across departments (sustainability, product engineering, design, procurement) what tools they would need to be more sustainable and write down all the functionalities you could use in your company and its departments.

The maturity

Once you’ve found some companies that fulfill your needs in functionalities, make sure not to forget to look at their maturity. How long have they been on the market?  Can you ask for a reference call with a current customer? How is their team built? Do they have experts in their teams that can help you with specifics? Will you be able to use the tool independently after you got an overview, or will you always need support in using it? These and more questions should be answered so you decide on a tool that is ready to be used and not one which is still in development.

Reports vs. Action

As said in the first bit: Emission reporting is the easy part. Meaningful change can be made once you get actionable insights into your product data and supply chains. Therefore, for every tool, ask yourself: Will this enable actual change, or will this tool give me reports on the current situation? Remember that allowing real change means more than showing possibilities to be more sustainable. It also means that you need to be able to evaluate these possibilities on other levels like cost and risk. This is why our MCDA is so valuable. Change happens in product and procurement-, not expert teams.

Digital twins explained

Posted on by Laura Nodoph

Digital twins: We’ve all heard of them at some point, but do you really know what’s the technology behind it? In 2018, Gartner conducted a survey about the use of digital twins from 599 organizations with annual revenue of more than 50 million dollars and a plan to deploy at least one-use case of IoT. Out of 599 participants from six countries, 13% stated that they already use digital twins. 62% reported that they’re either in the process of establishing it or planning to do so in the following year. Research shows: Digital twins are becoming more mainstream. But what exactly is a digital twin, what are their use cases and how could digital twins benefit your company?  

 

What is a digital twin?

Simply put, a digital twin is a digital representation of a physical product or system. It mirrors an object, process, or organization. The digital twin does not only show the current state of the product or system but starts with the creation and ends with the disposal of its twin – therefore shows you the entire lifecycle. It is updated from real-time data and uses things like simulation, machine learning, and artificial intelligence to help with decision-making in the “real world”. The digital twin can help to identify problems early and can be used to analyze, simulate and control an asset from design to manufacturing, maintenance, and decommissioning. 

 

The history of digital twin technology

The beginnings of digital twin technology already started in 2000. In relation to product lifecycle management, Michael Grieves of the University of Michigan invented an early stage of the digital twin in 2002. His model contained three components: The real space, the virtual space, and a linking mechanism for the flow of data between the two. Grieves named the model “Mirrored Spaces Model”. Even though the model already contained today’s idea of the digital twin technology, in 2002 the further evolution of the model was not possible due to low computing power and low to no connection to the internet.

 

The difference between digital twins and simulations

Both simulations and digital twins use digital models of products and processes. But what is the difference between the two and why is the digital twin so much more innovative than a simulation? While a simulation mostly looks at one single process, a digital twin runs several simulations in order to look at multiple processes. At the same time, simulations have a “one-time” data input, while for digital twins the data flow is ongoing and in both directions. Summarized, digital twins have far more potential to help improve products and processes.

 

What are use-cases for digital twins?

One reason why digital twin technology is hard to grasp is that it has many different ways of use. From predictive maintenance for a factory, extended reality to see inside the walls for plumbing, urban planning of a smart city, virtual stress tests on products, especially cars, and many more the digital twin technology has only started to change the way we are working.  

Right now, the most use cases of digital twin technology happen in the following industries:  

  • Manufacturing 
  • Industrial IoT 
  • Healthcare 
  • Smart cities 
  • Automobile 
  • Retail 

The greatest advantage of digital twins right now is the capability to foresee problems at any stage of a product or process. Remember? The digital twin does not only show the current state but the whole lifecycle. Therefore, Digital Twins have a substantial influence on the design of products and their manufacturing and maintenance.

 

What could digital twins do for you?

What we can grasp from this article is that digital twins are a modern use of data management. They enable industrial companies to improve operational efficiency and innovate new products, services, and business models on top of their data. From the examples mentioned above, you might have already gotten some ideas on how you could make use of digital twins for your company.  

The Makersite digital twin is based on products and their supply chain, all the way upstream. Still, our integrated databases are what make our software special. Only they enable you to make informed decisions about your product by changing materials, and suppliers in our platform and seeing the outcome in your digital twin across categories such as cost, sustainability, compliance, and risk. This way, your product data, the live digital twin, and our integrated databases work together. 

Currently, the Makersite digital twin technology is heavily used in product engineering, design, procurement, and sustainability. Because you can look at the whole lifecycle of a product (or a product design) Makersite enables improvements from the first moments of designing a product. No need for experts or never-ending feedback rounds. Instead, the time to market for products is accelerated by 10%+.  

Still, this article was not written to praise our own digital twin solution – even though we’re quite proud of it – but instead to show the variety of digital twins’ uses in all kinds of industries and forms. 

5 good reasons for sustainable procurement

Posted on by Laura Nodoph

The race to sustainability does not only start with the processes inside of a company but – surprise – already with procurement. While you might think, that knowing the environmental impact of your suppliers is enough, there is way more to sustainable procurement than the obvious sustainability factors. After giving you a short intro to the meaning of sustainable procurement and some surrounding terms, the Makersite experts have collected five good reasons why sustainable procurement is a good investment.  

 

What does sustainable procurement mean?

Sustainable procurement takes social, economic, and environmental factors into account when deciding on procurement processes. Next to compliance with environmental laws, sustainable procurement can also mean removing hazardous materials, reducing waste in the supply chain, cooperating with suppliers that chose fair labor practices, and more. 

The difference between CSR and ESG

Corporate Social Responsibility (CSR) describes the social responsibility for the sustainable development of a company on a voluntary basis and beyond legal requirements. Environmental Social Governance (ESG) is an approach to assessing the extent to which a company works for social goals that cannot be measured by financial indicators. While both CSR and ESG are concerned with a company’s impact on society and the environment, the main difference is that CSR is a business model and ESG is a criterion for investors to assess.  

Sustainable Procurement incorporates ESG-principles into procurement and therefore ensures alignment with CSR strategies. 

Legal requirements for sustainable procurement 

One example of procurement regulations is the German supply chain act. From 2023 (for smaller companies from 2024), Germany-based companies will be obliged to review the UN-guiding principles for business and human rights along their supply chain. And Germany is not an individual case: Similar laws already exist in various EU countries with the next step being a law binding for all member states.  

5 benefits of sustainable procurement

Sustainable procurement – once installed – has a lot of advantages. What are the main benefits of sustainable procurement? 

  • Improved reputation 
  • Risk management 
  • Cost reduction 
  • Revenue growth 
  • Future-proofing 

Improving the companies’ reputation

If you think about it, it’s quite obvious that a sustainable procurement strategy will have a positive impact on your company’s reputation – especially when taking fair labor rights into account. Net Zero and fair pay sounds better than your brand being associated with child labor and pollution, doesn’t it? Numbers prove that concept: Sustainable procurement practices lead to a 15-30 % increase in brand value. (Source: World Economic Forum: Beyond Sustainable Procurement) 

 

Effective risk management

Negative associations with your brand can not only hurt your reputation but also have the potential to hurt your company’s revenue. Next to the possible loss of (potential) customers to a negative image, non-compliance with environmental regulations can result in additional costs. Investing in sustainable procurement can save you from this and help you minimize risks around the topics of brand image and sustainability.  

 

Reducing costs

Next to sparing you additional costs, sustainable procurement also can help to actively reduce costs. Data by McKinsey proves that strong ESG credentials can drive down costs by 5-10 %. Examples of measures are operational efficiency, waste reduction, reduced energy costs, fewer overspecifications, lower consumption, and lower social and environmental compliance costs.  

 

Growing revenue

Next to sparing you additional costs and next to saving you money – you can also earn more by introducing sustainable procurement. Again, McKinsey proved that the top ESG-performers grow 10 – 20 % faster than competitors in their sectors. This includes additional revenue from new, environmentally friendly products and services, revenue from recycling programs, and more.

 

Future proofing

Social, economic, and environmental factors change the way supply chains work all the time. By making these factors a priority while putting up your procurement strategy you can protect your company against scarcity in supply and other changes. Some of the challenges you are prepared for are shortages in supply, economic factors like fluctuations in currency rates, environmental effects such as climate change, and more.  

Eco-design explained

Posted on by Laura Nodoph

According to a McKinsey survey, more than 25% of total revenue and profits across industries come from the launch of new products. Still, less than 1% of new products have sustainability as a design parameter. The eco-design approach together with the market demand and the following regulations are changing the way new products are designed. What eco-design really means, why doing it at scale is still a challenge for many enterprises and why it is an important concept for companies to stay relevant in today’s and tomorrow’s market will be explained in this article.  

What is eco-design?

In short, eco-design is an approach to designing products and services while considering environmental impact in every phase of the development and the life of the product. The aim is to reduce the environmental impacts through a product’s life cycle.  

Why is this already important while a product is designed? The stats tell us, that 80% of the ecological impacts of a product are defined in the design phase (Source: Joint research center, EU science hub). The design phase of a product is therefore the first and most necessary stage to successfully get more sustainable and circular goods into the world.  

Eco-design and the circular economy

Eco-design goes hand in hand with the circular lifecycle. It tries to avoid designing products that get discarded after only one use and have no further benefit after their end of life. The circular economy describes exactly that. In the ideal circular lifecycle, the end of life of products is considered the start of a new one, while the product’s entire lifecycle and its further uses were already taken into account during their creation. 

The EU eco-design directive

But eco-design is not only an approach to product design. In the EU there is an eco-design directive that sets mandatory ecological requirements for energy-using and energy-related products that are sold in the member states. Currently, it covers more than 40 product groups that are responsible for around 40% of all EU greenhouse gas emissions.  

Now the European Commission (EC) is discussing an expansion of the eco-design directive. The new directive is supposed to abandon product limitations and opens the door to the regulation of a wide range of additional product categories.  

The proposed directive is called the Ecodesign for Sustainable Products Regulation (ESPR) and is a centerpiece of the European Green Deal. In its current version, it would establish a new framework for product design, reporting, and labeling requirements. While the primary aim of the eco-design directive was to reduce energy use, other factors like materials use, water use, polluting emissions, waste issues, and recyclability now come into consideration. The directive involves all companies that manufacture, import, distribute or sell products in the European Union. Several non-EU countries (USA, Australia, Brazil, China, and Japan) have legislation like the EU’s eco-design and energy labeling directives.   

Eco-design principles

When eco-design is applied the sustainability goal is not always the same. While some products might be especially suitable for a design that lasts a lifetime, others are more suited to be designed to be disassembled, reused, or dematerialized. Overall, the strategies aim at extending or closing the lifecycle of products. Here are some examples of environmental considerations of eco-design:  

  • Materials with less environmental impact  
  • Fewer resources during the manufacturing process  
  • Less pollution and waste  
  • Products cause less waste and pollution being used  
  • Easier reuse and recycling  

Eco-design applied

In a cross-industry survey done by McKinsey in 2015, they investigated which launch capabilities correlate with success. The single most important driver behind successful commercial launches was team collaboration. This is especially true for eco-design but is hard to achieve. Different functions working with different reporting structures and incentives are responsible for different elements of the product.

Life Cycle Analysis (LCA) has proven to also be a difficult task for teams to overlook. The LCA is needed to understand how a product impacts the environment at each stage of its life cycle. It can therefore be used to understand which aspects of a product are specifically damaging to the environment.

Why is this so important, but difficult?

An analysis of the life cycle might show that one stage of a product’s life cycle is particularly harmful to the environment. Using a different material could lower the harm but increase the environmental effects later in the product lifetime.

Eco-design is therefore only feasible when designers have data about the sustainability of their product, but also about its compliance, should costing, environmental, health, and safety criteria.

A successful workaround in-between all teams can only be provided by integrating all the data. Software, like Makersite, is not only able to produce LCAs in minutes instead of months but also supports decision making with clear and actionable insights considering multiple criteria (e.g., carbon, water, etc.) and perspectives (market segments, stakeholders, etc.) simultaneously, the so-called MCDA.

If you’d like to learn more about LCA software solutions for ecodesign, read more about Makersite’s ecodesign application.

Supply chains in crisis

Posted on by Laura Nodoph

While there have always been some disruptions to supply chains, the developments of the last years have put supply chains worldwide in a state of crisis. Even before the Covid-19 pandemic and the war in Ukraine, companies were struggling to win the upper hand in dealing with supply chain disruptions. But with the ongoing strain of issues, many companies begin to rethink their strategy. So, what is it that makes a supply chain persistent? In the following article, the Makersite experts have drawn together the three biggest supply chain disrupters of the present, some examples of the most affected products, and a short guideline on making your supply chains more durable in uncertain times.  

A continuous problem: Covid-19

The pandemic has been producing a new level of supply chain crisis and exposed the vulnerability of many. During the first lockdowns large parts of the global economy had to be closed and, in some cases, continue to be. Examples of how supply chains have been affected are numerous. The fact that three-quarters of the world’s ports have experienced abnormally long turnaround times over the past two years puts the level of crisis into perspective. (Source: RBC Capital Markets)

Shanghai Port

While the Shanghai port was able to lower its ship discharge time in comparison to before the pandemic, in 2022 the port is facing deeper issues. The world’s largest container port is currently and continues to be locked down because of Covid. While the city and the port slowly begin to go back to protocol the cargo delays impacted the clothing industry to the tune of $884m, textiles $717m, and cars and people carriers $767m. (Source: Russell Group) 

But there’s more to the damages than the clothing, textiles, and automotive industries. With the help of the Makersite supply risk analyzer, Makersite experts found that one massive problem lies in the aluminum supply chain. China is not only the world’s biggest aluminum producer but also the biggest exporter of bikes. As neither the substance nor the produce was delivered in the last month, Makersite’s experts forecast a massive disruption in the bicycle and aluminum markets. The delays will be felt in Europe in about two months.  

Also, the end of lockdown must be taken with caution. While the Shanghai port is very modern and will probably go back to normal in a short time, the backlog build is massive. The capacities of other ports will be overloaded when the Shanghai port suddenly goes back to work and there will likely be more disruptions.  

An individual problem: The war in Ukraine

The war in Ukraine is constraining the short-term supply of natural resources and other raw materials vital to businesses around the world. Especially wheat prices are potentially rising, as Russia and Ukraine are under the biggest five exporters worldwide.

Also natural resources like iron and neon will likely be highly affected as both Russia and Ukraine are important to the world’s supply. While one will increase the price of steel, the other is mostly used in semiconductors, vital to all kinds of electronics, among other things to the automotive industry.  

An increasing problem: Nature

In the last two years, it was easy to state the pandemic as the main reason for supply chain disruptions. Still, the growing impact of climate change on the supply chain thematic must not be ignored. Extreme weather events happen more frequently and more heavily and pose a serious threat. In 2021 only, hurricanes, typhoons, freezes, floodings, and tornadoes impacted supply chains globally.  

Port Kelang, mentioned earlier in the first graph, was severely damaged by flooding in Malaysia. The impact: A break in the semiconductor supply chain and global semiconductor shortages.  

 

What you can do to be prepared

Assess your risks

To be able to find out how resilient your company’s supply chain is, you need a data-driven risk assessment. Manufacturing enterprises have to fully understand the risk in the deeper tiers of their product supply chains to stay competitive. As of today, most risk and non-compliance take place in tier 2+ suppliers, yet 65% of companies have no visibility there. Getting transparency across entire supply chains at scale is extremely hard. Done manually, it takes months to years to find and evaluate the necessary information while being dependent on the suppliers will and capability to provide information about their supply chains and risks. To solve this for procurement professionals, Makersite partnered with Beroe Inc., a global SaaS-based procurement intelligence and analytics provider, delivering the first multi-tier supply chain risk assessment at scale.

Create mitigation strategies

Once you have a data-based analysis of your deep-tier supply chains and areas of risk, you can start to investigate and implement mitigation options. These can go beyond procurement and include the product design, finding alternative sources for your materials, adding strategic buffers to your supply chain for more capacity, identifying alternative routes for your logistics, and more. By doing this and having already evaluated the impact of these changes you will be able to act fast in the case of disruption. Still, figuring out how changes to your supply chain and product will affect the rest of your processes, like staying profitable, is an extremely hard task to do manually. Utilizing Makersite’s Multi Criteria Decision Analysis, companies can see the impact of every change made to the lifecycle of a product and take informed decisions based ondata.  

Supply chain disruptions are not a single occasion anymore. They need to be prepared for, especially as climate change will make weather extremes more frequent and intense. Companies that have mitigation strategies in place will be at an advantage when the next unforeseen events hit the world and will be able to stay ahead of the competition.  

New SEC-regulation proposal

Posted on by Laura Nodoph

Note: 6th March 2024 update.

The US SEC met to vote on the proposed regulation on Wednesday 6th March 2024, with SEC Chair Gary Gensler saying that he expected companies and investors to benefit from the new rules that formalize a system that has allowed companies to produce climate related information on their own terms.

He stated: “Our vote today is on rules, not just guidance like we had in 2010 but on actual rules and ones that require disclosures. Bringing them into such filings I think will help make them more reliable.”

Gensler continued: “I’m pleased to support this adoption because it benefits investors and issuers alike. It would provide investors with consistent, comparable, decision-useful information, and issuers with clear reporting requirements.”

Previously, companies only disclosed their climate impact information on a voluntary basis. There has been no standardised way to report climate data, and many companies used different metrics or chose not to report at all.

SEC documents show that the disclosure will require companies to share how climate conditions affect their business strategy, operations, and financial condition.

Their reported information must include direct emissions like manufacturing and indirect emissions like energy use, but companies will not be required to report emissions from supply chains and product consumers (which we were part of the original proposal, but not adopted).

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The United States Securities and Exchange Commission (SEC) has been encouraging companies to disclose their climate-related risks since 2010. However, publishing this data has been voluntary, making it easier for companies to either avoid it or also to palliate their data, for example when stating ambitious Net Zero goals. With their newly proposed regulation, the SEC takes a big step towards more accountability and transparency in the market.

What does the regulation entail?

The regulation proposal released by the SEC on March 21st would require U.S.-listed companies to disclose a range of climate-related risks and greenhouse gas emissions. In more detail, companies would have to reveal their scope 1 and 2 emissions with an auditing requirement. But it does not stop there: The proposal would additionally oblige companies to disclose the greenhouse gasses generated by suppliers and partners, known as scope 3 emissions. The latter only being the case if the emissions are material or included in emission targets the company has set.

Whom will the regulation affect?

All public companies with an existing SEC reporting requirement would have to follow the new regulation. While private companies are normally exempt from SEC filing rules, many of them are already on the path to an initial public offering (IPO). They often already begin filing in preparation and will therefore likely be asked by their investors to include this data.

When will the regulation come into place?

The SEC is planning a phased implementation. Larger organizations would have to comply with the regulation by 2023, while smaller ones would have time until 2024 to follow. The SEC knows that certain parts of the regulation are a great challenge for many listed companies, especially when reporting scope 3 emissions. That’s why their current proposal does not oblige companies to calculate their scope 3 emissions by Greenhouse Gas Protocol (GHG) standards. Instead, companies are asked to choose a methodology that fits their portfolio and financing activities best. The methodology must be part of the filing.

Challenging times ahead

Complying with the new SEC regulation proposal could cause some serious challenges for big and small companies. Makersite’s experts listed the four most striking problems the ruling could cause.

Free methodology: It’s a trap

As mentioned earlier, the SEC, in an attempt to make things easier, leaves open the methodology for reporting scope 3 emissions. While this is in good intention, it likely makes life even harder for the affected companies. Without a clear map of what and how to report these emissions, the already hard to manage scope 3 topic gets even more complicated. (read more on the most common mistakes with scope 3 here)

If you’re doing it wrong there are legal consequences

Even companies that already published their emission data voluntarily will be put under a lot more pressure if the regulation comes into place. If the reported data is incorrect, companies are in active danger of facing legal consequences. While companies might be confident about their scope 1 and 2 reports, they are dependent on their supplier’s data when it comes to scope 3. And while the SEC claims that they included a safe harbour for liability for incorrect scope 3 data received by suppliers, claiming and defending a safe harbour exemption occurs only after a lawsuit has been filed.

It’s expensive – for all parties

Implementing compliance and more accurately measuring emissions will not come cheap. Reporting on scope 3 data is likely uncharted territory for many companies. To be able to publish the requested data and to validate scope 1 and 2 data, companies will have to consider working with outside providers. The costs for companies, as well as to the SEC itself, will be in the tens of millions.

If you’re thinking you won’t be affected, you might be wrong

Normally the proposed rule would only affect companies regulated by the SEC. But, the transparency requirements for scope 3 emissions might also affect a lot of private companies. As SEC-regulated companies will have to report their own scope 3 emissions, the emission data of suppliers will become more important to them. Private companies might feel more pressure or could even be required by their business partners to report their scope 1 and 2 emissions as a result.

What’s important now

While it is still unsure how exactly the SEC regulation will come into place after being discussed, companies would be foolish to wait it out. More and rigorous emission regulations are coming into place all over the world. It is only a question of time until scope 3 reporting, for example, will be mandatory for companies. Countries worldwide have committed to emission targets and their effects will, sooner or later, reach the industry. Companies that already take voluntary action will thrive alongside compliance with solid regulations, while companies that didn’t will be left behind.

But what steps can companies already take to be prepared for the future? Makersite’s experts put together four steps:

Find out what you’re missing

The so-called gap assessment will help you to find out what data you’re missing to comply with the regulation. The first step is to check what data is available in-house and if the data is easily accessible for stakeholders. At the end of the assessment, you should be able to put an inventory of climate-related data you can already collect against what data the rule requires and act on the differences.

Find out what you’ve been doing wrong (and right)

In the process, it is not only important to check what data you’re missing, but also to re-evaluate the approach of data collection and the way you’re using it. Is your sustainability reporting scalable and cost-effective? Did you put up Net Zero goals and can they be backed up with trustworthy data? How long will it take to have a full scope 3 reporting across all products?

Find your internal stakeholders

Within the team’s procurement, product management and product design sit your key stakeholders for reduction initiatives. To be able to move forward with the emission goals you need to identify these stakeholders and find out what they need to work efficiently. Understanding your companies’ ability to cost-effectively oversee a robust Environmental Social Governance (ESG) reporting requirement while ensuring compliance and progress is an essential first step.

Find the fitting external support

Scope 3 reporting is special: The vast majority of data you need does not sit within your company. Tools are invaluable for saving time, increasing credibility for auditors and most importantly, critical to doing something meaningful with the data you are collecting. That’s why it is important to find out now how the fitting tools can help you to report on existing and future products at scale.

The reporting obligations of the future are a complex issue that will take companies a long time to solve. Starting now will put your company ahead of others and help you prepare for prospective challenges.

If you’d like help getting ready for the new regulations. Speak to our sustainability experts today.

Scope 3: The top five mistakes

Posted on by Laura Nodoph

The Corporate Climate Responsibility Monitor recently published that the Net Zero climate pledges of 25 of the world’s largest companies in reality only commit to reducing their emissions by 40%. The underestimation of scope 3 emissions plays a big role in this issue. Scope 1 and 2 represent all emissions that are company-owned, while emissions that occur upstream and downstream are referred to as scope 3. For manufacturing companies, these can account for as much as 90% of their total environmental impact.

Today, a lot of capital is deployed to emission reduction and therefore, companies are eager to set highly ambitious goals. By underestimating scope 3 emissions, companies risk that many of these goals will never be achieved. This will not only worsen the global climate crisis, but waste capital, slow down innovation and eventually make companies lose market competitiveness. Regulators, investors, and customers demand more.

Makersite’s experts put together five of the most common mistakes companies make dealing with scope 3 emissions, as well as how to avoid them.

 

1. Thinking it’s just business travel

Rather than measuring what matters, we’re often measuring what’s easy to do. Since scope 1 and 2 data is easily accessible, these emission factors have come to be relatively well understood. For scope 3 emissions, however, companies often take only employee commuting, business travel and sometimes, logistics, into account. In reality scope 3 consists of 15 emission categories. For manufacturing companies, nearly all emissions come from the categories ‚purchased goods‘ or‚ use of sold products‘. But because for these categories it is hard to collect data and to find quick solutions, companies often skip some of their most important emission drivers.

2. Sacrificing depth for coverage

Some companies are going to great lengths to estimate all scope 3 categories, while the results are only of use in sustainability reports – not for any meaningful mitigation plan. If you don’t know the impact of raw material X from supplier Y, you won’t be able to benchmark and make changes. If you don’t quantify, in detail, the impact of product use, how do you plan to enable engineers to make trade-offs during design? Given limited time and capacity it is important to focus on what matters and what can be changed. This will help you free up resources to get beyond reporting and increase granularity, identify opportunities, exploit them, and measure progress.

3. Believing you’re set up for change

Quantifying scope 3 emissions is actually the easy bit. Many companies don’t realize that large parts of their organization need to work differently to make the necessary changes. In manufacturing companies, for example, the research and development and the procurement teams are at the heart of change. These teams decide the kind of products to make, materials and processes to use and where to buy. Providing them with the tools and data they need to make granular decisions at speed will determine if a company progresses towards its targets or not. Modern technologies are of aid when it comes to enabling them.

4. Thinking your teams want change

You might consider this mildly cynical, but most successful companies don’t want to change. Today buying green electricity and investing in carbon sequestration projects are the two main levers used to reduce a company’s impact. It enables companies to demonstrate reductions, without improving. Change is a threat to the status quo and therefore needs robust incentivization for it to happen. Internal carbon prices and targets are an effective way of repurposing current incentive models to drive decarbonization at all levels of the company.

5. Expecting suppliers to cooperate

The time and effort spent on collecting data about the emissions of suppliers are often underestimated. Carbon footprints are increasingly becoming a differentiating factor in procurement, which is good news. However, suppliers fear that transparency on carbon will inevitably expose intellectual property or disadvantage them against other suppliers. Many suppliers are therefore hesitant to be transparent and even those who want to cooperate are lacking expertise in generating this kind of data.

 

While dealing with Scope 3 emissions is certainly a challenge, it is key for companies and especially manufacturers to solve these complexities and understand scope 3 as a business opportunity and not as another reporting requirement. Only then will they be the winners of the next decades’ competitive innovation race and lead their industry.

Get to Net Zero with Makersite

Posted on by Laura Nodoph

Net-Zero is an ambitious goal. It involves reducing carbon emissions associated with your business, as well as removing carbon from the atmosphere to balance out remaining emissions. The great thing is that the more you work on the first part, the less you need to invest into the second.

Beyond demonstrating leadership an increasingly crucial global problem, reducing carbon emissions can have a positive impact on your bottom line through energy savings and material efficiencies. It can also lead to new services that drive revenue. The transparency you create in the process will directly help you make your supply chains more resilient and mitigate business risk. If done right, it is a great framework to use to understand and improve your business.

Getting to Net-Zero the right way can seem unattainable with today’s approaches and shortcuts like carbon-offsets may seem like a pragmatic approach. However, this need not be the case. We put together a guide to help expose some of the key challenges and propose ways to avoid or overcome them successfully.

From materiality assessments to baselining and monitoring, this is how we help companies worldwide to get to net-zero.

 

Step 1: Find what is material to your business

The first step is to find out what is relevant to you. Actually, Scope 3 emissions include 15 categories designed to help companies create a systematic framework to measure, manage, and reduce emissions across their value chain, regardless of their industry or activity. Based on your business activity, you can already exclude the categories that don’t apply to you. Typically a screening project will help here – with the back of the envelope calculations based on readily available procurement data. Make a list of high priority areas and address these in greater detail in the next step.

How we help: Our experts have experience in what to typically focus on vs what are the red-herrings. We can help you navigate this step quickly and avoid time-consuming, potentially costly sidetracks.

Source: GHG Protocol

 

Step 2: Identify data sources

Map the activities you need to quantify with sources of information already existing within your organization. We’ve shown you some examples below. The key is to only use data that you already have and not setup new data collection processes. Where you lack information, approximate first and elaborate later. Create a table where every Scope 3 category is connected to its data source within your organization alongside a plan to extract and map the relevant data. The goal is to create a system that will not only give you your carbon footprint but also provide an ongoing monitoring system based on established business processes. This will enable you to set targets, monitor progress in detail, and relate that progress directly to business activities.

How we help: Our platform is designed to ingest large amount of inhomogenous data from different systems, and to create digital twins of your organization which can be used for lightening fast environmental calculations. Data can be protected at a granular level – ensuring that highly confidential information is only accessible to authorized team members. Tens of AI-powered APIs are available to integrate with your systems and make this process simple and fast. Data cleanups can be done on Makersite which eliminates the need to make changes to your existing systems – typically one of the most costly steps of integration projects.  Integrated collaboration features enable your teams to work simultaneously on the same data model – so the impacts of changes can be seen immediately. Makersite also provides access to most Life Cycle databases within a single subscription.

 

Step 3: Establish a baseline and set a target

One of the most important aspects of setting a baseline is being able to track progress against it. Without a system-based approach as described above, monitoring progress is prohibitive from a cost and effort standpoint.  This is where most scope 3 projects fail to deliver value to the business.

In order to set ambitious targets that are also realistic, a clear understanding of the available opportunities for reduction is also crucial. This becomes possible when your baseline calculations are based on raw business data. You can quickly identify low-hanging fruit and develop a robust plan to achieve more challenging goals down the road.

How we help: Your data is always up-to-date and accurate, without ongoing efforts. Makersite gives you access to the latest Life Cycle data so you can re-baseline your data when new information becomes available, without any effort. BI tools can connect directly with Makersite’s APIs to deliver meaningful dashboards and share progress across the organization.

Step 4: Identify and assess opportunities to reduce emissions

Reducing carbon impacts is a collaborative effort. Different teams will need to work together to identify and evaluate opportunities. Different functions within the organization will have different perspectives such as feasibility, costs, risk, etc.  By making these evaluations easy and transparent, you can accelerate progress towards your goals.

How we help: Makersite is the only platform in the world that supports multi-criteria analyses. In addition to the environmental perspective, opportunities can be evaluated from their cost, risk, and supply chain dimensions. Our Artificial Intelligence will analyze your operational data and automatically identify carbon savings opportunities. Engineers can easily compare components to their alternatives and quickly see the impacts of design changes on the company objectives, alongside the perspective of their regulatory compliance, supply risk, and cost of production, simultaneously. Analyses, decision making, and reporting are considerably sped up, to up to 100x faster than with traditional systems.