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How procurement can spearhead the transition to Net Zero

Procurement is one of the essential puzzle pieces for the transition to Net Zero.

Most procurement teams are in the process of setting up their sustainability strategy. But a lack of experts, the non-availability of data, the business context, and the difficulties of working with suppliers to measure and reduce emissions make it a challenge. 

Makersite’s VP of Sales and Marketing, Julian Weitz, talked about challenges and their possible solutions at the Synergy Showcase Event and interviewed Geert Behets, Sustainable Procurement and Risk Lead for UCB, Dario Kulic, Global Director Procurement for Elanco, and Magdalena Shakallis, Head of Procurement for British American Tobacco, on their experiences in the field. 

 

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Top three takeaways

Takeaway 1: One of the biggest challenges in procurement right now is the knowledge gap in supplier collaboration

Big corporations have by now invested in sustainability enough to have stakeholder buy-in and resources. What poses the challenge for procurement now is the knowledge gap around tools, challenges, and how to collaborate with suppliers and with other functions internally. Education within procurement is needed for the next steps. 

Takeaway 2: Procurement has to work together with product design on sustainability

Only if procurement understands why they’re buying what they’re buying can they make reasonable change requests. If supply chain managers understand what parts they buy for a product, they can think of sustainable adaptations. Paired with good supplier knowledge, they approach product engineers with ideas on how to save emissions by changing out materials, etc. 

Takeaway 3: Change management is crucial

As an expert on sustainability, you easily think everyone understands sustainability and its urgency. But it is essential to remind yourself that people often don’t. Explaining what sustainability is about, why it’s needed, what data is needed, and what to do with it takes time. Still, without incorporating this step into the beginning of the sustainability process, there will be repercussions. 

Interview with Karsten Schischke, Group Manager Policy, Ecodesign, and Circular Materials

“Many target a design for better disassembly, but in reality, something like “design for shreddability” is needed because this is how end-of-life for, e.g., electronics waste looks like: Shredding! […] It is extremely complex to understand all facets of technology, the environment, markets, and the user alike and to take these into account when designing a product. This is definitely a team sport.”

What are your initiatives to make design more sustainable?   

Karsten Schischke: Technological progress provides ample opportunities to develop more sustainable products – or the opposite: To come up with product ideas and concepts which do more harm to the environment. To judge the potential of technology regarding potential positive or negative effects is, in many cases, not a straightforward exercise. A thorough view of the whole product life cycle is needed, which typically involves quite some assumptions. This is, in particular, true for products and technologies in a development stage, where the later user perception and behavior are not yet known. We at the Fraunhofer Institute for Reliability and Microintegration do research in this instance on electronics products. An example is the modularity of mobile products. This is typically seen as a pre-condition for repairability and, thus, lifetime extension. So far, so good. Our research, however, has shown that more modularity initially also means more environmental impacts, as the components enabling modularity – connectors are the most obvious example – have to be produced with additional environmental impacts. If the user, later on, does not repair a defect despite the simplicity of the repair process, then this product is even worse than a conventional one. Similar trade-offs can relate to reliability and repairability or recyclability and robustness. Finding here the optimal engineering solutions is key. That’s why we are also undertaking a lot of research based on Life Cycle Assessments: Quantifying, e.g., the carbon footprint of a product, process, or supply chain is a great starting point to discuss targeted measures to reduce greenhouse gas emissions. Currently, I’m coordinating one such project where we do pilots on greenhouse gas accounting in electronics enterprises to get the basic figures right to decide on a climate policy and targets next. Measures are then either design-related or further supply chain interaction or changing internal processes. Just to take an example, for an electronics manufacturing service, it is an eye-opener that the energy consumption of the in-house assembly and soldering processes is relevant but dwarfed by the upstream impacts of producing the printed circuit board and the electronic components. Without influencing the supply chain, such companies will hardly reduce overall greenhouse gas emissions related to their products significantly. 

  

What role do you think design plays in sustainability? 

KS: Design is crucial to reduce the environmental impacts across the product life cycle. Bad design choices can hardly be corrected later in the product life cycle. If the product is difficult to repair, this is a huge economic barrier for an extended lifetime once the device breaks. If I don’t know which parts are most likely to fail and my strategy for a repair-friendly design does not target the most critical components or just tries to maximize reparability, this will not be the optimal solution. Same for reliability: I need to know the weak spots in my design to reduce the likeliness of failures. 

  

What are the challenges you face when working on ecodesign? 

KS: Ecodesign has to be understood as a process, including trial and error: Improvements are made over time with repeated design iterations and process adaptations. To take an example, it is easy to talk about using more recycled plastics. Still, it is a complex undertaking to implement it: For high-tech products, frequently, there are no recyclates, which can be used as drop-in solutions where you just exchange virgin polymers with a recycled polymer. You need to test the variability of material characteristics, including the processability of the material. You might need to adapt product and tool design to allow for recycled plastics. You also should make sure you secure a sufficient supply of this material over time if you want to use it for consumer products in large amounts. The same is true for design for recyclability: You need to understand how a recycler works and if he really appreciates the nice little features you implement in your design, which you think will ease recycling. Many target a design for better disassembly, but in reality, something like “design for shreddability” is needed because this is how end-of-life for, e.g., electronics waste looks like: Shredding! These are only some of the examples you need to consider for ecodesign; it is extremely complex to understand all facets of technology, the environment, markets, and the user alike and to take these into account when designing a product. This is definitely a team sport. 

  

What would you rate as your most successful measure for more sustainability in the last years, and why? 

KS: Success comes in many flavors, so I will tell you about three very different measures: The lessons we learn from research projects directly feed into the process of assisting policymakers and stakeholders, in general, to put in place sound legislation to advance the sustainability of information and communication technology: Most recently we supported the European Commission to develop eco-design legislation and an Energy Label for mobile phones and tablets. It took almost three years to go through the analytical and political process, but now we are almost there. The legislation will be adopted in the next few weeks and will be a step forward in terms of reparability and reliability of, e.g., smartphones in the years to come. 

In general, we are working with many companies in the information and communication technology sector, from start-ups to large multinationals. They are all in the race toward climate neutrality currently. I don’t want to discuss here if “climate neutrality” is actually the right term and achievable at all. Still, the main point is that the companies have a more or less visionary goal and work honestly on achieving this goal. With our research and analytical insights, we are supporting these companies on their journey. This really changed a few years ago: The industry is now much more serious about environmental targets. And it is great that they are listening and eager to learn from us.  

Sometimes we accept the challenge of explaining our findings to laypersons: At the IFA in Berlin last year, we confronted kids with a backpack filled with the weight of carbon emissions of manufacturing a smartphone. A 150 or 200-g smartphone means 35 kg of released CO2 before you even switch on the device for the first time. Just to see how the kids tried to lift this 35 kg backpack – and most of them failed – was fun for us and an eye-opener for them about what they really carry around in their pockets. We are also going to Repair Cafés to provide extra motivation, explaining that repair is good for the climate if you keep this 35 kg backpack “alive” instead of upgrading to a new one, releasing 35 kg of carbon emissions again. This work “on the ground” might not be a huge lever, but it is important nevertheless. 

  

What do you think companies lack to become better at sustainability?  

KS: Sustainability is such a complex topic that it is difficult to identify a starting point and not to get lost in details, which do not matter much in the end. Getting started and setting at least some of the priorities right from the beginning is important. Success stories from thought leaders can help. In 2021, we organized a series of online seminars to let leading companies share their story on how they approach circular design with iNEMI, the International Electronics Manufacturing Initiative. The approaches and solutions were so manifold that this series of events really serves as a pool of ideas on how to go green. It was also evident that many of these companies went through some Life Cycle Assessments of their products to gather evidence for further action. Getting started with Life Cycle Assessments, however, first and foremost, involves a lot of data crunching, which can be time-consuming. But at the end of the day, it is a great tool to get the baseline right for action. 

  

What do you do to make your own life more sustainable? 

KS: In a large city like Berlin, where I live, you can easily rely on public transportation and the bike, so I don’t have a car. During the pandemic, people flew much less, so the question is whether flying less frequently is feasible now. It is. Despite being involved in quite a bit of international projects, my last flight so far was on November 13, 2019. Since then, I have relied on ground transportation and online conferences. It works, and research is at least as efficient as before! Guess I need to take off again one day, but I see it as my private challenge to push this day as far as possible. Eating delicious vegetarian food, streaming on handheld devices instead of switching on the TV set, and turning down the heating until the lower limit of my thermal comfort zone is reached, which is surprisingly low. Laziness to transfer all my data and settings from an old device to a new one and consequently being more tolerant with the glitches of my five years old smartphone. Buying regional beer, having in mind the large number of beer trucks just bringing each and every sort of beer from numerous breweries into each and every other village in Germany. Drink locally. Going more frequently to restaurants, because I’m sure this is more energy efficient, than everybody cooking on his own at home. Many things can be done, and surprisingly once habits are changed, it doesn’t feel like a loss of comfort. And still, I went skiing recently, so there are definitely some aspects where I can still reduce my environmental footprint further. 

  

What do you think the world needs most to fight global warming and pollution?  

KS: We have talked about designing better products, but actually, what is needed is designing fewer products. Technology solutions are important, but without de-growth, this will not work out. Our lifestyle is just too energy and resource intensive. There is still a lot of growth potential in the repair, reuse, and refurbishment sector, this is sustainable growth with little energy input required, but the production of new products needs to go down significantly as long as the world is not running fully on renewables.  

How can manufacturers know the implications of design and purchase choices

Knowing the impact of your cost and environmental choices is hard to evidence.

To understand the trade-offs you need to make on cost, sustainability, compliance is made even more difficult when shortening product innovation cycles. Supply chain visibility and resilience to risk remains a challenge for many in a post-COVID world.

How do you overcome these challenges?

Our Founder and CEO, Neil D’Souza discussed these topics and more on Let’s Talk Supply Chain show hosted by Sarah Barnes-Humphrey.

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Top three takeaways:

Takeaway 1: Get a deeper understanding of your supply chain so you can assess the cost and environmental impact of different materials and processes

One of the challenges manufacturers face when trying to make better products is the sheer complexity of their supply chains. In many cases, a single product can involve dozens or even hundreds of different suppliers and materials, each with its own set of environmental and social impacts. This complexity can make it difficult for manufacturers to get a clear picture of the environmental impact of their products, let alone make informed decisions about how to improve them. Makersite can help address this challenge by providing a centralized platform for visualizing and analyzing the supply chain.

Takeaway 2: Collaboration between teams is key – but it requires a harmonized data set

One of the challenges manufacturers face in collaborating effectively is the siloed nature of many organizations. Different teams within a company may have different priorities and goals, and may be working with different sets of data. This can make it difficult to get everyone on the same page and make informed decisions about the supply chain. Makersite can help break down these silos by providing a shared platform that allows all stakeholders to access the same data and collaborate more effectively.

Takeaway 3: Transform visibility into action – have a plan to measure, report and improve

To be successful in implementing sustainable practices in the supply chain, it is important to have a comprehensive understanding of the environmental impact of each material and process. Makersite’s data analysis capabilities can help businesses identify areas where they can make the biggest impact on sustainability, such as reducing carbon emissions or minimizing waste. One of the challenges manufacturers face when trying to implement sustainable practices is the lack of visibility into the environmental impact of their products. In many cases, manufacturers may not have access to detailed information about the materials and processes they use, or may not have the tools to analyze this information effectively. Makersite can help address this challenge by providing a way to analyze and visualize data about the supply chain, and identify opportunities for improvement.

Three opportunities for sustainable procurement 

Companies that have set decarbonization goals have increasingly started to look at procurement to drive reduction targets. Most procurement teams that we’ve spoken to are not equipped for this. Working with suppliers to measure and reduce emissions is easier said than done, and while, for many organizations, there is no alternative, for others, there are a few low-hanging fruits that you could capitalize on. 

 

Sourcing locations 

Geography has been shown to be one of the greatest sources of variability in carbon emissions for energy-intensive products. The opportunity can be as large as 80% for certain materials like aluminum and its derived products. The reason is that electricity grid mixes are different around the world – from some being solely reliant on fossil fuels to others that have a more diverse fuel mix. These mixes are also changing at varying rates determined by national energy strategies and climate change commitments. Consequently, the products manufactured using electricity from these grids have vastly different climate change impacts. The more energy intensive or complex the supply chain is, the more influence the grid has on the product’s carbon footprint.  

Knowing the impact of your current sourcing location and the opportunity to relocate supply is not trivial. It has traditionally required intensive supplier engagement and experts spending months, if not years, to determine these scenarios for a specific product. This targeted, expert-led approach is not scalable, and when everyone is scrambling to find such experts, it is not even tenable.  

It is, however, crucial to get it right when trying to make the business case for changing the sourcing location, which could inevitably mean – changing your supplier and everything that has to do with it.  

With Makersite, this is simple and was used by Schäffler to do just that for their battery raw material supply. On average, we have seen projects that identify 40% or more in savings being implemented successfully.  

  

Recycled materials 

Using recycled materials is a popular approach to reducing the environmental impact of your products. Its benefits go beyond just carbon and help alleviate neighboring problems of resource extraction and waste. Unfortunately, most of the products we make today were never designed with recycling in mind. Collecting, disassembling, separating, and recycling require attention to product design and supporting the waste collection and management systems. Consequently, most of the materials used in products today cannot be reclaimed with high enough purity and volume at a reasonable cost.  

There are, however, success stories in the aluminum, steel, paper, and glass industries, and there are enormous savings to be made. In aluminum-based products, this can be up to 90%. Regulations and technical requirements may preclude using recycled materials in your products, but these applications are well known. In all other cases, it’s prudent to understand where recycled materials can be used instead of primary materials and where to source them. 

Makersite will be releasing a new feature in Spring 2023 that will allow customers to understand the potential for increasing the recycled content in the products they buy and make more easily.  

  

Collaboration with Product Development 

Procurement professionals often have little insight into why they’re buying what they’re buying. They typically get specifications, go into the market and try to get the best price and quality with the shortest delivery time.  

Without background information on the specifications, there is little to no room to find alternatives that may also be fit for the purpose. One of our customers once joked: “A customer says: I want a car. The engineer designed a tank. Procurement bought bicycle parts.” Parallels can be drawn to the unnecessary environmental impacts that result from this inability to collaborate effectively.  

None of today’s systems enable the trade-off decisions that need to happen between product development and procurement. These trade-offs involve understanding how technical specifications affect the cost, environmental performance, regulatory compliance, and other aspects of the final product. It is crucial to do so in real time and without the need for experts to drive these conversations forward.  

This is why we built the MCDA or Multi-criterial Decision Analysis application with our customers. It solves this problem by enabling expert-supported (rather than expert-driven) trade-off conversations between product development and procurement teams. 

Interview with Ulrike Penz, Chief Sustainability Manager at Gruner + Jahr

“The real change is in the supply chain and product development”

What does sustainability mean for you?

Ulrike Penz: When it comes to the more theoretical part, it’s environmental, economic, and social dimensions. But that is clear. For me, sustainability means long-term thinking and questioning ideas, processes, projects, and actions. Awareness of what any action could mean to the dimensions of sustainability is the key to improvement.

What motivates you to work in sustainability?

UP: There lies a big beauty in using less and getting more out of it. For me, one fundamental principle of sustainability is the efficiency of resources. It’s essential to think about how we can build structures, processes, and products in a way that we need less and get more.

 

What would you rate your most successful measure for sustainability in the last years and why?

UP: I started working at Gruner + Jahr as a sustainability manager four years ago. One of my first but ongoing projects is our theme weeks. We do sustainability weeks every year, combining our journalistic and business approaches. During these weeks, we inform our readers, listeners, users, and viewers about sustainability topics via our media, TV, magazines, podcasts, audio, radio, etc. As a publishing house, it is our responsibility to inform people and build awareness of sustainability.

The theme weeks became one of our best business cases in the sustainability context. They are now so well established with both colleagues and business partners that we no longer have to solicit participation but are asked months in advance when it will start and how to join in.

On a corporate level, sustainability has become a strategic topic for G+J. There is no area in the company that has not yet dealt with sustainability – on its own initiative, in internal discussions with each other, or in meetings with business partners from all sectors. By now, we can see some change both internally and with partners. One example is the regular dialogues between our paper purchase department, production department, and editorial teams. Sustainability factors like energy, waste, or carbon emissions are now critical when deciding where a magazine should be printed and which paper should be used.

Since 2022, we have been able to count the product carbon footprint of our magazines, and we do it with our own methodology, which is externally verified. We have already reduced our carbon emissions by 30% for the magazine GEO while setting up the process. By now, GEO is produced climate-neutral. I want to emphasize that the reduction part to us is more important than the offsetting part. You can compensate from now to the next second, but the real change lies in the supply chain and product development.

 

How did you become a sustainability manager?

UP: It started when I was working on business models for GEO as a sustainability project manager. But with every idea I came up with, I asked myself: Can we do this if we don’t know exactly where we stand and what we, as a company, need to do? It became clear to me quite fast that the answer was no. So I came up with a pitch and presented the idea to our executive board that we should set sustainability as a corporate strategy topic on the highest level, including a person officially responsible for it. And I added: I have time, and I’d love to do it.

 

With what measures do you make your own life more sustainable?

UP: There are common things like I’ve been vegetarian for over 20 years, and I try adding more vegan alternatives. I prefer going by bike. One thing which has developed more within the last years is that I try to buy second-hand or high-quality long-life clothing.
There are also some energy-saving measures regarding working in the office or home office, like switching off the screen. It’s not that I haven’t done that before, but since I advised my colleagues to do it, I remember it even more myself.

 

What’s something new you learned in the past year?

UP: Currently, I’m working on benchmarks regarding gender diversity and gender equality. I realized that benchmarks are a good way to determine where you stand. But in the end, you have to define by yourself what company you want to be. You should ask yourself: What resources, purpose, and values do we have? What does that mean for our targets and our measures? Your inner values should tell you where you want to go instead of only looking at what others are doing.

 

What do you think companies lack to become better at sustainability?

UP: One of the questions that need to be asked is: Should economic growth be the only goal we all aim for? If you ask me, I would say no. There won’t be any growth if you don’t have your resources, the basis on which you build your business. And sustainability means holding and keeping this basis.

What is the biggest thing hindering you from implementing changes for more sustainability?
UP: Many people making decisions on sustainability are still questioning if those measures are necessary. That’s a problem. And even though sustainability is in the mind of people and clients and customers, it is still not as important as economic growth, and that’s hindering lots of things. Because in the end, when you have good ideas or measures to implement, the question is always: What does it cost?
People need to start seeing sustainability measures as an investment, making the future easier and better.

 

If you had one wish from a legislative point of view to make your job easier – what would you wish for?

UP: Regulations should focus on forward management more than on backward reporting. I

understand why they are about reporting what companies have or haven’t done in the past. But nowadays, they should be more about the future, like the EU taxonomy which regulates the investment part of sustainability.

 

If you had one wish from your manager and your colleagues – what would you wish for?

UP: I’m going to say something that sounds like a PR claim: I wish all stakeholder groups to have sustainability in mind to make our company fit for the future. Everyone in the company should feel responsible for sustainability. Yes, my colleagues and I are the sustainability department, but that does not mean everybody else doesn’t have to care about it. It’s the opposite.

One positive example is a meeting with our event management team I had last year. They have been thinking about sustainability and collected some measures. In our meeting, we gathered our knowledge and rated the possible measures on how big the impact would be, how much it would cost and how many resources it would take up. We agreed on prioritization, and the team decided to integrate the list of measures into their fixed organizational processes so that sustainability will always be considered in the future. Those kinds of changes make a big difference.

When my colleagues say: let’s try to jump a little higher than we were planning to, let’s develop, improve, and get better – those are the moments I love my job the most.

Thank you for the interview.

New climate and resilience law in France

Sustainability is becoming more and more important to customers and is influencing buying decisions. On average, more than one-third (34 percent) of the population is willing to pay more for sustainable products or services, and those willing to pay more would accept a 25 percent premium on average. (The Global Sustainability Study 2021, Simon-Kucher & Partners) Next to being a motive for companies to invest in sustainability, it also, unfortunately, promotes greenwashing. In states like the U.S., Great Britain, Norway, and the Netherlands, regulators have already sued companies making false environmental claims for millions of dollars. Now France is next in putting a law that prevents greenwashing: The French climate and resilience law, going into effect in 2023.  

 

What does the French climate and resilience law contain? 

The French climate and resilience law does, of course, not only contain greenwashing but covers all areas of (French) life. It contains laws that aim to encourage insulated housing, less polluted cities, increased train usage instead of flying, vegetarian menus, less packaging, less concrete, support of renewable energy, jurisdictional support for the environment, supervised advertisement, and better-informed citizens. Because the laws about supervised advertisements and informed citizens are the ones that influence manufacturing companies the most, we will cover them in more detail below.  

 

Net Zero claims need to contain evidence 

One of the most used claims by companies is the one of carbon neutrality or “Net Zero.” After the French law, this now has to be proven for companies to be able to advertise with it. To prove carbon neutrality, companies need to provide a GHG emissions report integrating the direct and indirect emissions of their products or services, meaning they will need to include Scope 3 emissions. Furthermore, they must provide the process by which the GHG emissions of their products or services are either avoided, reduced, or offset and a plan for GHG emissions reduction; the methods for offsetting residual GHG emissions need to comply with minimum standards. The emission data must be provided annually and cover the product’s entire life cycle, from production to disposal or recycling. 

This means that companies will only be able to claim a product is sustainable if they disclose the impact of the entire life of the product, from raw material to end of life. Evidence will need to be collected from suppliers at every stage of a product’s life, including from the companies that provide recycling and remanufacturing services at the end of it. 

 

Environmental labels for products 

But even for companies that don’t want to make use of sustainability claims in their advertisements or on their packaging, the new law means a lot more emission reporting. The new French climate and resilience law also makes environmental labeling mandatory for several categories of products. The label needs to contain information on the environmental impact of the product and the compliance with social criteria across the product’s entire lifecycle.  

While at this stage, clothing and footwear are obliged to follow the law, the current phase is considered a test phase to be rolled out for all product categories.  

 

Environmental impacts in advertisement 

As companies will have to label the environmental impact for customers, they will also need to include this information in advertisements. With the French climate and resilience law, it will be mandatory to indicate the climate impact of products in advertisements. Same as above, this law doesn’t come into place for all companies at once. The automotive and household appliances sectors are the ones that need to comply from 2023 with other product categories following.  

 

What does the French climate and resilience law mean for my company? 

The French climate and resilience law is only one example of environmental regulations and laws coming into action all over the world. Europe’s Product Environmental Footprint (PEF), the ISSB recommendations, Germany’s new supply chain law, and the SEC regulation are only some examples of climate laws worldwide. There’s one thing they all have in common: They oblige companies to look at their product’s whole lifecycle. Reporting and improving Scope 1 and Scope 2 emissions that happen inside of your own company is not enough anymore. Scope 3 emissions in manufacturing companies make up to 80% of overall emissions. It’s about time that reporting on these emissions becomes mandatory. In the case of the French climate and resilience law, non-compliance comes at a great cost and even prison sentences. 

If you want to find out how Makersite can help you provide the information requested by the climate and resilience law, automate full Scope 3 reporting and run LCA of your products at scale in order to properly report on their carbon footprint, book a demo with us.

Product Environmental Footprint vs. Life Cycle Assessment

If you’re working with LCAs, you have probably heard of the PEF, the Product Environmental Footprint. The PEF is a new methodology for environmental measurements. It was brought into place to generate a new, leveled standard. But how do PEF and LCA differentiate, and what do you need to apply when? The Makersite experts have collected all information you need.  

 

What is a Product Environmental Footprint (PEF)? 

The PEF was invented because the EU wanted to develop a common way to create product footprints. The footprint is generated by measuring the environmental performance of a product throughout its entire lifecycle – the so-called “from cradle to grave.” When calculating a PEF, products are put into different categories, which ensures that the environmental aspects that matter most for this specific product group don’t get overlooked. The PEF method also provides a database that was specifically developed to support it and functions as a new standard environmental database for EU industries.‍ 

 

What is a Life Cycle Analysis (LCA)? 

The definition of LCA software is quite similar to the one of PEFs. LCA is a method to identify the environmental impact of a product or organization throughout its lifecycle. Similar to the PEF, an LCA includes all essential information about the product or organization, from raw material extraction to disposal. LCAs are a widely used tool to identify environmental hotspots in the life of products or organizations and are already driving sustainable improvements for many companies.  

 

Differences and Similarities 

LCAs and PEFs are part of the lifecycle approach, which takes the entire lifecycle of a product into account and gives a holistic view. Like LCA, PEF takes a life cycle perspective but follows further product-specific requirements and standardized specifications that create greater comparability of results. While LCAs quantify all kinds of environmental impacts like greenhouse gas emissions, energy use, and water consumption, PEFs are a methodological framework with specific guidelines on how to perform an LCA. A PEF study, therefore, is a somehow standardized LCA study. 

 

Do you have to do PEFs? 

The PEF methodology is not yet put into action. The active pilot phase is planned to be completed by the end of 2024. Using the PEF methodology for your business is, therefore, not mandatory yet. 

On implementation, the PEF will likely have a significant impact on companies, creating standard environmental measurement rules for everyone. While it is yet unclear where the PEF will be mandatory, it is likely that some LCA reporting methods will become obligatory for most companies in the coming years. France, for example, already has a mandatory LCA in place.  

So why is it important to start preparing for mandatory climate reporting now? PEF, and other reporting methods, like the one discussed by the ISSB right now, will need companies to report on Scope 3 emissions. To be able to do this, you will need to look at the whole lifecycle of products. But most companies lack insights into the deep tiers of their supply chains. Organizations, therefore, need to focus on technology that measures the environmental impact of its entire supply chain instead of restricting it to its own four walls. The more downstream and complex your products, the more of your impact will sit in the supply chain. 

If you’re planning to invest in software to help you report on environmental data and give you actionable insights, choose one that can produce automated LCAs and extend your LCAs to different formats, like the PEF one. If you want to read more about how Makersite makes sustainability reporting easy, click here.

Interview: Understanding a product across its lifecycle

How can manufacturing companies truly enable change? If you ask Makersite founder Neil D’Souza his answer will be: “Only by looking at products from their cradle to their grave!” In this interview, we asked him everything about Scope 3, the lifecycle of a product, the challenges that lie in finding, evaluating, and making decisions based on data, and more.
Why is it important to look at the whole lifecycle of a product? 

Because up to 80% of emissions of a company come from its supply chain, organizations need to focus on technology that measures the environmental impact of its entire supply chain instead of restricting it to its own four walls. The more downstream and complex your products, the more of your impact will sit in the supply chain. But it is not just about the supply chain – for energy-consuming products like automotives, electronics, and others, the major impact most often comes from their use. Therefore, understanding a product across its lifecycle is key to identifying and reducing environmental impacts. 

 

What is the main challenge of gaining insight and acting on Scope 3 data? 

Understanding that this is a business opportunity rather than another report is one way to mobilize the resources that are needed. The framework provides an opportunity to understand your value chain, find cost reductions and hidden risks and build resilience in your supply chains. With almost $44 trillion deployed in ESG-related funds, this is becoming an increasingly important factor in access to capital. As deadlines for national climate targets approach, regulations are already catching up. All-in-all, besides being crucial to mitigate the extent of damage from climate change, it just makes good business sense.  

Measurement is hard, but action is harder. A company is its product, and a product is its supply chain. To reduce the Scope 3 impact of a company, you must address its products and supply chains. This responsibility sits squarely in product development and procurement – not sustainability. These teams need access to carbon information within the tooling environments that they use daily. High-level dashboards or expert tools are unhelpful in regard as they do not integrate into standard workflows. 

 

How granular does the insight need to be? 

Granularity matters, and not just because of accuracy. Change can only happen when you have actionable information in the hands of decision-makers. In manufacturing industries, this is the product development and procurement teams. For product teams, granularity means having information at the part or material level to give them the ability to compare alternative designs. For procurement teams, you need to increase that granularity to become supplier specific to give them the ability to compare materials from different suppliers. Granularity means vast amounts of information need to be managed, and this is not possible without modern technologies.  

 

Why should you never look at one isolated criterion? 

A multi-criteria approach is one more requirement to enable change. Decisions are never based on a single criterion, let alone having that criterion being an environmental impact. Information about criteria such as cost, risk, and regulatory compliance is crucial to enable the jump from having an insight to affecting change. Multi-criteria simulations are computationally intensive and rely on complex models with the need for vast amounts of background information, which means heavy reliance on modern technology architectures and data ecosystems. 

 

How can AI help with looking at the lifecycle of a product? 

The biggest barriers to scale eco-design are the speed of the process and expertise in sustainability. One cannot compromise accuracy for speed. Otherwise, it defeats the purpose of doing the exercise in the first place, which is to provide actionable data to enable change.  

One of the most time-consuming tasks for experts is collecting data from different sources – internal PLM, ERP, procurement systems, external data from suppliers, and third-party data that enable the calculation of the impacts themselves – and then connecting them to create models of the products or processes they are evaluating. Certain kinds of AI are relatively good at automating these tasks, and this can tremendously reduce the amount of time for calculating impacts, but also, more importantly, reduce the dependence on experts for this unenjoyable step. 

Data is also never complete and consistent – supporting decisions from the early stages of developing an idea, where you have very little detail on the product or process, is crucial in guiding the development in the right direction. Filling gaps and identifying outliers quickly are also other areas where we have found a good use for AI. 

Another area where AI is immensely useful is finding patterns in data to identify improvement potentials. Developing insights is one of the most valuable tasks of experts, and AI can amplify their impact by, for example, identifying similar cases where their insight could have value.  

 

How can one make sure that the data quality is appropriate? 

Firstly, work with emissions data from leading providers and ensure that information is updated automatically and regularly. Data that is regularly updated will allow you to not just take advantage of information about newer technologies and improved electrical grid mixes etc. Still, more importantly, it enables you to design products that are optimized for the current understanding of the environmental impacts associated with products and processes. Transparency in your data model is crucial to validating accuracy and completeness. Being able to see what assumptions were made by the AI enables a certain level of automation in the quality control process. Spot-checks based on known information are another common approach to test if the AI model is trained sufficiently.

Interview: Scope 3 as a disclosure standard by ISSB

In 2021 the International Financial Reporting Standards Foundation (IFRS) announced the creation of the International Sustainability Standards Board (ISSB). The ISSB was then tasked with developing mandatory corporate ESG disclosures. The goal is to find a global baseline of sustainability disclosure standards by the end of 2022. The intention behind it is to standardize sustainability disclosures for investors. 

In October 2022, the IFRS Foundation stated that it had made significant progress on its draft requirements. The ISSB agreed that companies should disclose Scope 1, 2, and 3 emissions but will potentially have more time to report on Scope 3 disclosures and be supplied with “relief provisions” to help work out these disclosures. 

A mandatory Scope 3 disclosure is challenging for many companies. While Scope 1 and 2 emissions are company-owned and relatively easy to report, Scope 3 emissions occur upstream and downstream and are challenging to report on and even harder to improve. We talked to Sophie Kieselbach, Senior Implementation Engineer for Sustainability at Makersite, about the implications of the new requirements.  

How do you feel about the ISSB including Scope 3 into a global baseline for disclosure standards? 

I am happy that the ISSB includes Scope 3 reporting into their baseline for disclosure. Up to 90% of emissions are Scope 3 emissions. Any other decision would have been a drawback to GHG reporting and would not have given enough insights to investors to base investments. 

 

What companies will have to comply? 

The IFRS Foundation Trustees are committed to the International Sustainability Standards Board (ISSB) building on the work of existing investor-focused reporting initiatives—and ultimately becoming the global standard-setter for capital market sustainability disclosures. This effort includes further developing the Integrated Reporting Framework, which the International Accounting Standards Board (IASB) and the ISSB assumed responsibility for when the Value Reporting Foundation merged with the IFRS Foundation in August 2022. An integrated report is concise communication about an organization’s strategy, governance, performance, and prospects. Right now, the IRFS refers to the GHG reporting standard, so this is the first source to understand what to comply with (Standards | Greenhouse Gas Protocol (ghgprotocol.org))

 

In your opinion, how will the trend toward Scope 3 reporting continue? 

I find the word “trend” a bit unlucky as it implies that tracking and reporting on your Carbon footprint are only necessary now but might get less critical in the future. Companies must understand that it is not just an annoying task to tick off your checklist but a tool to optimize your products along the supply chain, which always comes with other, also financial benefits.  

I hope that with IFRS including it in the financial reporting standards, it gets once more the recognition it should get: Scope 3 reporting is a necessary tool to see if your company is future-proof and worth investing in.  

  

Are there companies that are already one step ahead? 

Yes. Several companies worldwide have employed sustainability teams for years and had the time to crunch their data and work on their goals. It isn’t easy to catch up with them, as they have already implemented knowledge and internal structures to comply with their plans. Companies still tend to underestimate the efforts behind a solid sustainability/GHG strategy. Nevertheless, it is never too late to join the party. 

  

And is it too late to be one of these companies? 

No, of course not. The good news is that the market to support you is growing, and getting the right help is easier and easier.  

Still, I cannot suggest pushing that task further down the timeline. It will be a standard task in your reporting, similar to reporting profit- and loss statements.  

  

How do you start reporting on Scope 3 emissions? 

  1. As already stated, the  GHG protocol is referred to by the IFRS, so this is the best start to understanding what should be reported.  
  2. I would always recommend asking for help to speed up the process: there are many consultants in the market with experience you can learn from 
  3. Crunching these numbers within Excel files is very old-school (and also slow, error-prone and horrible to update). To support reporting, I would always recommend using software applications to help make this task easier. 

 

What does this mean for suppliers? 

Questions about carbon footprint or, more generally, social, economic, and environmental impacts of products will increase.  

One can only advise that – if not already done – companies start now to get to know their product portfolio and to be able to provide these figures and set up their roadmap. It is a fact that if these figures cannot be provided and it cannot be credibly presented how they will be improved over time, companies will be at a competitive disadvantage.  

 

What are the seen and unseen benefits of reporting Scope 3 

There is a clear competitive advantage if one knows the numbers. 

Also, as soon as one starts digging deeper into the supply chain, it enables optimizations and is financially beneficial. Another benefit – most companies haven’t looked at their data in the way it is necessary for Greenhouse Gas reporting, so a company will likely gain new insights into their mechanisms.  

 

Any thoughts on the relief provisions? 

I hope these relief provisions will not lead to another delay in reporting Scope 3. Even though I understand the struggles with GHG reporting, the advantages outweigh the disadvantages. And as I said – one might be surprised by what insights can be gained. Wouldn’t you be curious about your impacts and the subsequent potential to perform better? 

New supply chain law in Germany

Das Lieferkettensorgfaltspflichtengesetz

Around 80 % of world trade is based on global value chains. (Source: https://unctad.org/press-material/80-trade-takes-place-value-chains-linked-transnational-corporations-unctad-report) Still, companies mostly fail to meet their obligations with regard to supply chains. Because enterprises have massive supply chains for their products, it’s easy to lose track and insights into human rights and environmental risks in the supply chain. While this is hardly compatible with modern companies’ self-image and ESG criteria, they are often unaware of how much of an influence they have on changing these conditions. In Germany, legislation has now reacted to this: In 2023, the Supply Chain Sourcing Obligations Act (Lieferkettensorgfaltspflichtengesetzor short LkSG) will come into force in Germany.  

What is the new LkSG (German supply chain law)? 

The LkSG aims to improve the protection of human rights and the environment in the supply chain. The law states that companies must identify risks of human rights violations and environmental damage in their direct suppliers and partly even with deep-tier suppliers. If they discover irregularities, they must take countermeasures and document them to the German Federal Office of Economics and Export Control (BAFA). The law outlines reporting, prevention, and countermeasures.  

 

What companies have to comply with LkSG? 

The LkSG affects all companies based in Germany with more than 3,000 employees. The law comes into place in January 2023. From January 2024, the threshold will drop to 1,000 employees.  

 

Human rights and sustainability in the LkSG 

The new German LkSG is primarily about identifying human rights risks in the supply chain. While there is no explicit climate-related due diligence obligation, the LkSG does allow it to be interpreted that way. Environmental protection is taken into account insofar as companies have to report on environmental risks that can lead to human rights violations. The decisive factor here is how the concept of air pollution, mentioned in the LkSG, is interpreted. Companies must ensure that air pollution from their suppliers can neither impair the natural basis for the preservation and production of food nor cause damage to human health. This is broad wording, and companies will likely interpret this very differently.  

 

Plans for a European supply chain law 

While other European countries already have a supply chain law in place, the EU Justice Commission is also planning a European supply chain law. The interesting thing here is that the draft of the European version looks at human rights and the environment in equal parts. The European Parliament’s draft of the EU supply chain law clearly states that the duty of care should also cover a company’s environmental impact, including its contribution to climate change. In the best case, the European supply chain law will combine the best of the due diligence laws of the member states, e.g., the definition of the entire value chain from the Netherlands, strong regulatory enforcement from Germany, and civil liability from France. 

“The fact that companies slowly become responsible not only for what happens behind their own doors but also for the actions of their suppliers is a good thing through and through. What most of them don’t suspect right now is how much they will profit from it. Providing transparent information about ALL business activities is a competitive average and will be liked by customers and partners. In my opinion, the German LkSG should have been stronger on the environmental side, but I’m confident that the European supply chain law will make up for that. In any case, I would refer enterprises to get a good overview of what’s happening in their supply chain, even in the deep tiers. If not, the supply chain law will make this obligatory; other laws about compulsory reporting on Scope 3 emissions are soon to be expected. I’d recommend everyone to start investing in this now.”

Fabian Hassel

Fabian Hassel

VP of Services at Makersite