Companies across the globe have set environmental, social, and governance (ESG) goals and are identifying ways to best achieve them. Increasingly, investment decisions are being made based on sustainability, meaning how they measure and report their progress is of increased importance.
Over the coming months, Canada will be consulting on a harmonization of reporting standards with other jurisdictions. The Canadian Sustainability Disclosure Standards Board (CSDS) has released its first set of draft standards, which is open for consultation from mid-March to June 2024. The intent is for Canadian specifications to be more aligned with the global baseline for ESG reporting and carbon accounting, but with modifications to serve the Canadian market. Consultation will take place on three key documents: Canadian Sustainability Disclosure Standards (CSDS) 1 and 2, and a discussion paper, which introduces changes for use in Canada. While Canadian firms should be looking at all three pieces, CSDS 2 specifically proposes that climate related disclosures will now focus on physical risks (e.g., natural disasters), transitional risks (e.g., techno-economic, and socio-economic), and climate related opportunities.
What are the implications for Canadian companies? Businesses will need to be increasingly aware of sustainability; but all of this cannot happen without the right “yard stick” for which to measure progress. For instance, we are familiar with metric and imperial units, but counting carbon emissions is a bit different. To quantify carbon, private and public stakeholders must implement increasingly complex life cycle assessment models that are able to offer calculations in standardized, comparable units.
Life cycle assessment, or LCA, refers to the evaluation of environmental impact across the entire life cycle of a product or service – including production, distribution, end-use and end-of life phases. From a sustainable value chain perspective, the use of LCA methodologies is gaining momentum given its reputation as a trusted quantitative tool to assess the most complete impact associated with a product within a given value-added sector.
To support sustainable investment and environmentally conscious growth, companies must continue to develop in-depth greenhouse gas (GHG) reporting and data analytics to identify emissions reductions opportunities, track performance, and engage suppliers. This will provide the ability to better understand indirect emissions at both the corporate and product level. Ultimately, life cycle assessment will be the tool to evaluate the environmental impact of a supply chain and enable valuable results needed to support reporting under the forthcoming CSDS reports 1 and 2, as well as other international standards.
The Catch-22
To meet the reporting requirements of more stringent regulations and standards – not only in Canada but around the world – investments into LCA resources is needed. Companies may need to build their internal capacity or outsource and compete within the niche pool of LCA resources available.
It cannot be overstated how important data is to the quality of an LCA study to produce robust results. Current databases cannot keep up with the pace and demand for life cycle analysis. Companies may choose to begin to build independent life cycle inventory databases to begin tracking its product flows and data for input and output flows for emissions within a product system. However, in an ideal world, everyone would work together to find opportunistic ways to disclose their data so that the current life cycle inventory databases are well supplemented. In other words, it would be great if we all agreed on one metric moving forward.
Central to the LCA conundrum is that to meet our global climate targets, companies are being ushered along by upcoming regulatory reform, international and domestic standards for reporting, and sustainable finance initiatives. Now more than ever, businesses are investing in data to build proper life cycle inventories, as well as the personnel to conduct valuable life cycle assessments that will show the environmental worth a company has to investors, buyers, and consumers. The path forward is no longer linear. But the common denominator is that companies need to invest in the life cycle assessment approach to remain competitive.