Having Life Cycle Assessment in your Toolbox for Reporting Under CSRD

As part of its sustainable development ambitions under the European Green Deal, the European Union (EU) has introduced a new disclosure framework for corporate sustainability matters under the Corporate Sustainability Reporting Directive (CSRD). The directive replaces and consolidates the Non-Financial Reporting Directive and makes key amendments to other artifacts including the Accounting Directive and the Transparency Directive. The CSRD requires large corporations and listed companies to provide transparency of their non-financial performance to stakeholders by reporting how environmental, social, and governance issues not only create risks and opportunities for the company itself but also impact communities, people, and the environment through the company’s own operations and its value chain.

The European Sustainability Reporting Standards

The specific disclosure requirements envisaged in the CSRD are laid out in the European Sustainability Reporting Standards (ESRS). The ESRS covers cross-cutting requirements and defines a double materiality assessment as the starting point for various topical disclosures under CSRD. Sustainability matters identified as material from an impact or financial materiality lens, will need to be disclosed. Each topical standard is constructed in a similar manner and requires disclosure of impact, risk, and opportunity management, including assessment processes, policies, and actions, as well as the company’s metrics and targets for the respective sustainability matter.

Identifying, assessing, and quantifying impacts, risks and opportunities, and in turn setting and measuring progress for metrics and targets, requires companies to have proven methodologies, good data management, and effective analysis processes in place. In this regard, Life Cycle Assessments (LCA) can be an integral part of the ESRS reporting toolbox. 

Life Cycle Assessments in the Context of Topical Disclosures

LCA is a standardized methodology, based on ISO 14040 and ISO 14044, to assess the potential environmental impacts of a product or service across different impact categories during its life cycle. Typically, LCA consists of four main phases:

1. Defining the goal, scope, and boundary of the system to be studied
2. Conducting an inventory analysis of all inputs (e.g., resource use) and outputs (e.g., emissions) associated with the product or service
3. Assessing environmental impacts based on a variety of characterization models and impact categories (e.g., climate change, eutrophication, acidification, human toxicity, water use, etc.)
4. Interpreting, reviewing, and summarizing the results of the LCA study to help drive decision-making and identify opportunities for reducing the environmental impacts of the studied system

LCAs can be conducted at a product or service level, and at a project level or organizational level. This is also reflected by the EU’s Environmental Footprint (EF) methods, which, based on the ISO 14040 series of standards on LCA methodology, regroup Product Environmental Footprint and Organization Environmental Footprint methods to measure and communicate the life cycle environmental performance of products and organizations. While LCA-based methods can be leveraged to assess materiality, they also have the potential to support reporting for the following requirements under CSRD and ESRS for material sustainability matters:

ESRS E1 — Climate Change aims at disclosing how companies impact and are impacted by climate change. While this standard focuses more on corporate-level impacts, understanding and quantifying product-level carbon and environmental footprints through LCA methodologies could provide levers to identify hot spots and mitigation areas down to the product portfolio and product level.

ESRS — E2 Pollution includes emissions to the air, water, and soil, and potential impacts from substances of concern and very high concern, and could be assessed by looking at LCA impact categories such as ozone depletion, acidification, eutrophication, and human toxicity. 

ESRS — E3 Water and marine resources covers disclosures of consumption, withdrawal, and discharge from and into water and marine resources. A variety of impact categories (such as eutrophication, acidification, freshwater use) can be studied using LCA to provide information on the impact of the company’s operations, products, and its value chain on water resources. In addition, LCA methodologies are currently being developed to include assessments of the impact from microplastics.  

ESRS E4 — Biodiversity and ecosystems emphasizes the consideration of biodiversity loss, impact on species and dependencies on ecosystems through a company’s business activities. While there are various potential impacts related to biodiversity and ecosystem change, LCAs can provide an assessment of land use-related environmental indicators.

ESRS E5 — Resource use and circular economy requires disclosures of resource utilization, waste management, and resource optimization as well as the material impacts, risks, and opportunities associated with a transition to a circular economy. Leveraging LCAs, companies can assess impacts associated with resource depletion and waste generation at a product and/or organizational level, identify hot spots across the product life cycle, and compare changes in impact through eco-design and other circular economy approaches. 

ESRS S3 — Affected Communities describes disclosures of the impact of a company’s operations and value chain on communities with a particular emphasis on indigenous, civil, social, and economic rights. LCA could shed light on impacts from the company’s products and services related to water, waste, and human health in particular.

ESRS S4 — Consumers and end-users requires disclosures of the material impacts of a company’s products and services on consumers and end-users with emphasis on business practices around product design and marketing. LCA can play a key role in identifying the potential impacts, and comparing how design changes can mitigate or shift those impacts, and provide the foundation for product marketing and labels.

How to Get Started

In alignment with the ESRS framework, LCA, EF methods, and other related methodologies can provide an assessment process to determine materiality of a sustainability matter, and then, more specifically, the related impacts, risks, and opportunities, by analyzing potential environmental impacts of a company’s products and services, and even its organizational footprint. 

As a first step, companies should identify the systems and products to be studied, using defined selection criteria such as volume, spend, supply chain criticality, consumer pressure, operational vulnerability, or other risk-based factors. Grouping products together at the product portfolio level based on similarity of ingredients and/or manufacturing processes can help decrease the number of studies to be conducted. Using parameterization approaches in LCA tools adds flexibility of investigating various combinations of inventory inputs and outputs, and allows a comparative analysis of the environmental impacts of similar products being manufactured in different geographies or with different raw materials or processes. The results of the LCA can provide a holistic view of the impacts associated with the system studied, while opportunities can be determined through hotspot analysis by highlighting particular areas of significant impacts across the life cycle. Lastly, through comparative assessments following ISO rules, the effectiveness of actions can be tracked to report progress against sustainability targets and metrics. 

This article is authored by Melanie Kuhn, Ph.D., with contributions by Leo van der Westhuijzen.