How to measure your company’s ESG impact, lesson 101

Nina van Rijn

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6 minutes

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Knowledge

Measuring your company’s impact can be hugely complex. Especially for large companies or companies with an extensive supply chain. In this guide, we boil it down to the basics. So you know everything you need to know to get started.

July 11, 2022
Image: 
Oleg Laptev

More and more companies want to report on their impact. Salacia Solutions exists to help them with this. But while we promote automating and standardizing the whole process – making manual work and exploding Excel-files a relic of the past – some companies want to try it out themselves first. This guide is for those companies.

Measuring your company’s impact can be hugely complex. Especially for large companies or companies with an extensive supply chain. In this guide, we boil it down to the basics. So you know everything you need to know to get started.

Impact, what is that?

When we talk about impact, we talk about ESG. Environment, Social, Governance. There are many different standards and frameworks out there telling companies what and how to report on their ESG impact. We recommend companies – especially when they’re active in the EU – to use the reporting guidelines described in the new EU regulations called the Corporate Sustainability Reporting Directive (CSRD). These guidelines will replace all previously existing reporting standards for large EU companies (500+ employees), and are therefore the new ‘gold standard’.

What to decide on before you start?

Before you can start measuring, you need to make a few decisions.

  1. What is your goal? Do you want to get a first idea of how you’re doing, then it’s okay to keep your project simple. Do you need to comply or do you want to publish your results? Then you’ll need to be very precise in your work.
  2. What impact topics do you want to include? If you don’t need to be CSRD compliant, you can choose yourself what topics are important to you. If you want or need to be CSRD compliant, the answer is: all of the topics mentioned below, except those that are not ‘material’ for your organisation (more on that later). For those organisations who can choose, we recommend the following:
    E: There are five environmental topics in the CSRD. Each topic has its own reporting standard document, which are called ESRS (European Sustainability Reporting Standard). We recommend to start with climate change, and include any other topic(s) that are relevant to your organization (pollution, water and marine resources, biodiversity, resource use and circular economy). We’re headed towards biodiversity crisis, so why not choose for that one?
    S: From the five social topics, we recommend to start with own workforce and include any other relevant topic (workers in the value chain, affected communities, consumers and end-users)
    G: We recommend to include both governance topics: governance, risk management and internal control, and business conduct.

    What could help in choosing where to start, is figuring out your material topics. Under the CSRD, ‘double materiality’ becomes the standard for identifying your most important disclosure topics: both the impact of sustainability topics on the company’s value (financial materiality), and the entity’s impact on the economy, the environment, and people (impact materiality). Companies that need to be CSRD compliant, will have to justify any excluded topics or data points using a materiality analysis.
  3. What year to measure? If your goal is to reduce your impact compared to a base-case year, then choose a representative year. Skip the COVID-years if COVID had a large impact on your business. And don’t go back in time more than 5 years. If your goal is to start measuring periodically, then start with last year.

How to get started with measuring your impact?

Now it’s time to collect data. For ‘S’ and ‘G’ this is fairly straightforward. S includes indicators such as division between genders and nationalities within different groups of employees (permanent, full-time, part-time, temporary, etc.), access to family-related leave, and recorded injuries. And G includes indicators such as gender and age division in managing positions, and percentage of people with mental and physical disabilities in managing positions. Should be doable right?

Well, the E is a bit more complex. Let’s only focus on climate change here. We recommend you to follow the GHG Protocol for calculating your greenhouse gas emissions. If you’re doing a one-off study, using Excel for your calculations is fine. If you truly want to set reduction targets, identify reduction levers and track progress towards your targets, call us :)

1. Choose your organizational and operational boundaries

Which departments and locations do you want to include in your study?

2. Identify GHG emission sources

What activities at those departments and locations are generating greenhouse gases? This can be direct emissions, originating from facilities and vehicles owned by your company (called scope 1 emissions). But they can also be indirect. Originating from purchased energy (scope 2) or from upstream and downstream activities (scope 3). See the image below for all activities you should include if applicable and if generating significant emissions (for example, over 1% of your total emissions). All exclusions should be justified.

Scope 1, 2 and 3, as defined by the GHG Protocol

3. Collect activity data

Activity data is data that specifies how much of a certain product or service is used upstream, by the reporting company or downstream. For company vehicles or for upstream transportation and distribution, activity data can for example be litres used per fuel type – if this information is not available – kilometres travelled per transport mode. In some cases, you depend on your suppliers or clients for data.

Collect this data in your Excel-file, or ask us to make live connections with your existing databases to automate the process of data collection.

4. Collect supplier-specific emission data or emission factors

In order to calculate your impact, you need to know how much your activities emitted. So how many GHG’s were produced per litre of fuel per fuel type, or per km travelled per transport mode. For high-impact activities, it is worthwhile to ask your suppliers or clients for specific emission data. So if you purchase a lot of plastic, ask your supplier what their emissions per kg or tonne plastics are. Or if you generate a lot of waste, how much is emitted while treating a kg or tonne per waste stream. For lower impact categories, you need to find the relevant emission factors in any of the available databases, such as EcoInvent.

‘Relevant’ means: technologically, temporal and geographically representative of your activity, complete and reliable. This means it’s not easy to select the right emission factors.

Also collect the emission factors in your Excel-file. Or, when you work together with us, you don’t need to worry about gathering the right emission data. We’ve got you covered.

5. Calculate GHG emissions

Then it’s time to make the calculations. For each activity – or sub-activity – choose the formula you will use from the list of 172 formulas the GHG formulas given by the GHG Protocol. The right formula depends on the data you’ve been able to gather.

Connect the dots and calculate.

If you want to track your progress periodically, you either have to repeat the above five steps periodically – which is quite time consuming – or have your impact tracking automated by Salacia Solutions.

How to set your target?

Now that you know your impact, it’s time to start reducing it. You can choose your own reduction target, but if we really want to save our planet, every company must operate in line with the Paris Agreement, and work towards limiting our temperature rise to maximum 1.5 degrees Celsius.

If you want a target in line with ‘Paris’, then we suggest to set a Science Based Target, following the principles designed by the Science Based Targets initiative. You can read how this works in our previous blog.

Want to know more about measuring your ESG impact? Send us a message or give us a call.

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