One of the key indicators in ESGx (Environmental, Social, Governance) reporting is the carbon footprint. Understanding its principle, importance and how to measure it, is the basis for companies preparing ESG reports in accordance with new European Union regulations, particularly the CSRD (Corporate Sustainability Reporting Directive).
What is a carbon footprint?
Carbon footprint is a gauge of the total amount of greenhouse gases, including carbon dioxide (CO₂), that have been emitted as a result of a company’s operations. It is an indicator that measures a company’s impact on climate change through greenhouse gas emissions associated with its production processes, operations, transportation, energy consumed in offices and other activities.
Carbon footprint is most often expressed in tons of carbon dioxide equivalent (tCO₂e), a unit that allows different greenhouse gases to be unified into a single measure, taking into account their global warming potential.
Why is carbon footprint an important issue from the perspective of ESG reporting companies?
The obligation to report on carbon footprint has gained significance in the context of changing legislation and a growing emphasis on the transparency of companies’ environmental activities. It has become one of the key indicators in assessing a company’s impact on climate change and thus sustainability.
Increased environmental awareness among consumers and investors is making carbon footprint not only an environmental indicator, but also a competitive element in the market. For example, companies that reduce emissions by optimizing production processes, switching to renewable energy sources or reducing water consumption can be assured of consumer loyalty and the positive evaluation of investors, who increasingly consider sustainability in their investment decisions.
Reducing carbon footprint is also an integral part of a sustainability strategy that aims to minimize the negative impact of business activities on the environment. Companies that engage in such initiatives are seen as responsible and forward. In the long run, such actions ensure an enhanced reputation and trust among all stakeholders: from employees to business partners.
How is carbon footprint calculated?
Calculating carbon footprint is a multi-step process that requires taking into account all sources of greenhouse gas emissions in a company’s operations. Carbon footprint can be divided into three ranges to be considered when calculating it:
- Scope 1 – Direct emissions: These are emissions that come directly from the company’s operations, such as the burning of fuels in furnaces, company cars or other company-owned equipment.
- Scope 2 – Energy-related indirect emissions: Include emissions related to the purchase of electricity, heat or steam. Companies should calculate emissions related to the energy consumed in their operations, taking into account the sources of that energy (e.g., coal, gas, renewables).
- Scope 3 – Indirect emissions from other sources: These are emissions resulting from the company’s entire value chain, including transportation, production of raw materials, waste, business travel, or consumer use of products. Scope 3 is typically the most complex to calculate, as it includes emissions from the activities of business partners, suppliers and customers.
When measuring carbon footprint, companies should use appropriate tools such as carbon footprint calculators, standards and protocols (a globally recognized one is the Greenhouse Gas Protocol) to help accurately determine greenhouse gas emissions.
What carbon footprint disclosures should be reported under ESRS guidelines?
Under the ESRS guidelines, which were developed by the European Union as part of the CSRD regulations, companies are required to disclose detailed information on their environmental impact, including greenhouse gas emissions. This reporting is intended to increase transparency and accountability in managing climate impacts. Companies will have to disclose:
- Total greenhouse gas emissions: Companies must disclose total greenhouse gas emissions, expressed in tons of CO₂ equivalent, broken down into direct emissions (Scope 1), indirect energy-related emissions (Scope 2) and other indirect emissions (Scope 3).
- Emission reduction targets: Companies will be required to disclose their GHG emission reduction targets, including timelines and strategies for achieving these targets, consistent with global climate goals (e.g., the Paris Agreement).
- Strategies and actions: ESG reports should outline strategies and specific actions taken to reduce greenhouse gas emissions, such as implementing energy-saving technologies or switching to renewable energy sources.
- Sustainability indicators: Companies must provide indicators to measure progress toward emission reduction targets. This could include, for example, emissions intensity per unit of production, emissions reduction per employee or energy efficiency.
Learn more about carbon footprint.
Summary
A key element in managing carbon footprint is integrating appropriate operational activities into the company’s daily operations. Companies must focus on accurately monitoring and measuring greenhouse gas emissions throughout the value chain, which requires collaboration with suppliers, logistics partners and other stakeholders. Operational measures include optimizing energy consumption, introducing energy-saving technologies, reviewing production processes and efficient waste management, among others. In addition, it is necessary to regularly audit emissions, implement renewable energy solutions and transport efficiency. This approach not only ensures compliance with regulations, but also effectively contributes to reducing the company’s operational carbon footprint.
