From our practice: What can a carbon footprint calculation tell you?

The calculation of the carbon footprint is the absolute minimum of information in the field of ESG. Companies will need it for mandatory ESG reporting, banks, investors and business partners or customers also require it. In addition, it provides essential guidance for energy saving measures or ESG strategy and commitments. What other valuable information can you find out through emissions calculations? And what is the most common stumbling block? We bring you actual experiences from working with our clients.

What problems do we encounter

In the case of the carbon footprint, we usually encounter two kinds of basic problems:

1) Companies order a carbon footprint calculation and get a document that describes their emissions, but which they fundamentally don't understand and can't read from it what data they need to collect in the coming years. They then have a comprehensive carbon footprint calculation done from scratch every year, when, if the processes were set up correctly, all they would need to do is update the calculation. So we always help companies understand their emissions and guide them to the important areas and specific data they need to address in future reporting periods.

2) Companies often do not know what emissions information they need to include in their ESG reports. EU standards require some detail, but also limit reporting of Scope 3 data to significant categories. So if consultants can help a company figure out what those categories are and point the company to the data it needs to collect, the annual carbon footprint calculation is much easier, faster and cheaper. A company can then have a comprehensive calculation of its emissions done just once every 3 years to keep a check on it.

"In addition to the calculation itself, companies need to get the data tracking in their parts right, in line with the requirements of EU standards for ESG reporting. Therefore, beyond the calculation, we also offer them a review of the tracked data, including guidance on how to implement a carbon footprinting process and define what data should be reported and how," explains Filip Gregor, Head of Frank Bold Advisory and member of the EFRAG Sustainability Reporting Board.

We were directly involved in the development of the EU sustainability reporting standards - our team leader is a member of the EFRAG Sustainability Reporting Board, which is responsible for the development of the EU standards. Thanks to our expertise, we also collaborated on the development of a unique ESG reporting guide for the Prague Stock Exchange and the European Bank for Reconstruction and Development.

Transparency and credibility are paramount in the calculation of the carbon footprint. The report describing emissions should therefore always include methodologies and source data that allow external verification, including the emission factors used and references to the calculation tools used. We know from our experience that this information is often missing from reports.

How we helped a manufacturing company with emissions

For example, we calculated the total carbon footprint for a Czech company engaged in the production and assembly of sports equipment parts. The calculation therefore included direct emissions (Scope 1), indirect emissions (Scope 2) and other indirect emissions (Scope 3), which are the most demanding for the calculation. The main motivation for the company was the forthcoming reporting obligation under the CSRD and also the desire to identify where emissions are concentrated and which areas need more attention.

Through our outputs, the company has found that the largest amount of emissions are indirectly from steel purchases (75% of total emissions) and that the solution is to prefer suppliers that reduce the carbon footprint of steel by using renewable energy and/or manufacturing with recycled materials. In addition, it also understood what data it needed to collect and how to facilitate the process (e.g. what it needed to collect from suppliers). For example, using steel from Europe would help the company reduce business risks and monitoring costs in addition to reducing emissions, " says Olga Kurda, reporting consultant at Frank Bold Advisory, describing one possible solution.

How to issue a Scope 3

Under the EU's ESG reporting standard (specifically ESRS E1 Climate Change), companies will have to disclose GHG emissions from each significant category of other indirect Scope 3 emissions. (Newly, disclosure of emissions data will be subject to materiality assessments and smaller companies with fewer than 750 employees will have a one-year deferral for reporting Scope 3 emissions, more here). 

There are 15 Scope 3 categories in total. In order to determine which are significant, it is first necessary to calculate or at least estimate the emissions from all 15 Scope 3 categories.

Scope 3 emissions need to be published annually, but the basis for the calculation (including which categories are significant) is only expected to be updated every three years unless there are major changes. If a category is not included in the calculation, the company must explain why in its ESG report.

Transparency is therefore key to correct carbon footprint reporting.

"For each major Scope 3 GHG emissions category, the reporting thresholds considered, the calculation methods for estimating GHG emissions, and whether and which calculation tools were used, should also be provided," adds Olga Kurda.

Scope 3 carbon footprint reporting is likely to be the most challenging for Czech companies. Our latest analysis shows that companies are not ready for it - in 2021, only 15% of large Czech companies with reporting obligations under the previous NFRD were disclosing Scope 3 emissions.

Get ahead with ESG reporting

We help companies to prepare ESG reporting according to the new European legislation, thus obtaining key data for their clients, business partners and financial institutions.