New guidelines on corporate reporting, extension of the GHG reporting to scope 3... The hunt for carbon is on and companies are now under increasing pressure for transparency from their consumers and investors. Such measures are particularly welcome with the recent release of the IPCC's 6th report, which highlights the delay in national and international actions to reduce greenhouse gas (GHG) emissions.
But where does the carbon footprint regulation stand in all this and what changes will companies be required to make by 2023? Carbonapp explains everything.
WHAT IS A CARBON FOOTPRINT?
The Greenhouse Gas Emissions Assessment ("BEGES in french"), as its name suggests, is an evaluation of an organization's emissions over a year of activity, distributed by direct and indirect emissions, also called scopes. This document serves as both a balance sheet and an environmental diagnosis with the aim of identifying reduction levers.
The scopes play an essential role in the realization of a GHG assessment as they allow to categorize the emissions of a company and thus facilitate their calculation and analysis. There are currently 3 scopes used throughout the world:
Scope 1, which covers direct greenhouse gas emissions. For example, if the manufacture of a product required the burning of fuel or, more globally, if it generated carbon emissions.
Scope 2, which includes indirect energy-related emissions. These emissions are generated outside the company's perimeter - hence their indirect nature - and relate solely to the production of energy (for example, the electricity consumed to power the company's premises).
Scope 3, which includes the rest of the indirect emissions linked to the organization. They can represent emissions generated by its suppliers, the transportation of its employees, the end of life of its products, and so on.
Made mandatory for the first time for certain organizations by the Grenelle II law of 2010, this regulation has since considerably evolved. Today, to which organizations does it apply?
GHG ASSESSMENT: WHO IS INCLUDED?
In France, Article 173 of the Energy Transition for Green Growth Act requires companies to include in their annual management report the carbon emissions generated by their activity.
In law, not all companies are automatically concerned by the mandatory GHG assessment, also called regulatory GHG assessment. Article L.229-25 of the Environmental Code specifies that providing a GHG balance sheet is a legal obligation only for actors with one of the following characteristics:
In metropolitan France, private companies with more than 500 employees;
In the overseas departments, private companies with more than 250 employees;
State services;
Public law structures with more than 250 employees;
All local authorities with more than 50,000 inhabitants.
Yes, you are not mistaken, even the government is obliged to calculate its greenhouse gas emissions. This assessment must be renewed every 4 years for companies and every 3 years for local authorities.
However, a lack of involvement of organizations, a growing pressure to reduce GHG emissions and a growing awareness of the weight of scope 3 have required the updating of the Carbon Footprint regulation.
WHAT WILL CHANGE IN 2023
With an enforcement date of January 1, 2023, the decree of July 1, 2022 has modified the regulatory part of the Environmental Code and has made significant changes to its scope.
Expansion of the scope of emissions: emissions from scope 3 must now be included
Until 2022, the mandatory GHG emissions assessment only covered scopes 1 and 2, leaving scope 3 as optional and often left out. An omission that is environmentally costly and gives organizations the right to paint a picture that is far from reality when we know that this scope often represents the majority of their environmental footprint.
With the BEGES decree, since January 1, 2023, the emissions balance sheet must now include the significant indirect emissions (scope 3) for companies subject to the extra-financial performance declaration (DPEF). In other words:
Listed companies (with more than 500 employees and a balance sheet of more than 20 million euros or turnover of more than 40 million euros)
Non-listed companies (with more than 500 employees and a balance sheet or turnover of more than 100 million euros)
For other companies not concerned by these criteria but still assigned to the BEGES, their emissions report may be limited to scope 2.
This obligation to scope 3 will also apply to the organizations mentioned above, with as a reminder :
Companies with more than 250 employees in the overseas territories
Regions, departments and EPCIs with more than 50,000 inhabitants
State services
Other legal entities under public law employing more than 250 people
While the DPEF is currently formalizing its reporting through the application of the new CSRD, no GHG reporting format is not yet mandatory, although the GHG Protocol format is predominant.
This report will have to be renewed at the same intervals (4 years for companies, 3 years for local authorities) and published on the ADEME website.
Changes in nomenclature
In order to gain precision and cover a larger scope of emissions, the nomenclature of the reporting perimeter is now classified into 6 categories with 4 sections for scope 3:
1. Direct emissions (scope 1 equivalent)
2. Indirect emissions associated with energy (scope 2 equivalent)
3. Indirect emissions associated with transport (scope 3 equivalent)
4. Indirect emissions associated with purchased products (scope 3 equivalent)
5. Indirect emissions associated with products sold (scope 3 equivalent)
6. Other indirect emissions (scope 3 equivalent)
Accompanying the report with a transition plan to cut GHG emissions
Following the signing of the decree, the GHG emissions report must now be accompanied by a "transition plan" which replaces the "summary of action plans". This will require organizations to specify the means, actions and targets they plan to implement.
Companies must present quantitative objectives for two time frames:
The medium term, i.e. the period of their next assessment
The long term, i.e., for example, by 2030 and 2050, in line with the milestones of the National Low Carbon Strategy ("SNBC").
It is recommended to position these targets in coherence with the goals of the SNBC and the carbon budgets for 2030 and 2050:
Reduce GHG emissions by 40% between 1990 and 2030,
Divide by 6 the GHG emissions between 1990 and 2050.
Risks of sanctions in case of non-compliance
Despite its mandatory nature, a majority of companies have so far refused to submit to their GHG reports, with 65% of reports missing in 2017 and 60% in 2018. Faced with these failures and recurring offences, the fines have had to be increased.
Where organizations used to risk 1500€ in case of non-compliance, since January 2023 this fine can now reach 10 000€, or even 20 000€ in case of recurrence.
The purpose of this report is not only to be coercive, but also to allow companies to take an active part in the energy transition - the cost of a GHG report being much lower than the amount of the fine -, hence the request for the transition plan explained above.
And if carrying out a GHG assessment becomes an obligation for a growing number of organizations, its creation can lead to many positive externalities.
CARRYING OUT ITS GHG REPORT, MORE THAN JUST A CONSTRAINT
Faced with a worsening global warming and its escalating consequences, consumers have developed new expectations from companies: an environmental responsibility. Today, price and quality are no longer enough; an organization that faces up to its part and commits to reducing its emissions contributes to its brand image.
Furthermore, providing clear and transparent information on GHG emissions and the reduction measures implemented can help guide the choice of consumers and other stakeholders according to their values, particularly among young people.
Carrying out a GHG assessment can therefore satisfy the expectations of many stakeholders, engage employees in the reduction of their emissions, meet the new standards in force... And finally save money. Because beyond being a costly chore, carrying out a carbon footprint is above all an investment that allows organizations to identify the most energy-intensive areas of expenditure, and which are not always the most essential.
In short, although carbon footprints are not yet mandatory for all, they are strongly recommended. For an organization to engage in a process of ecological transition, it requires concrete actions with high impact. But it is impossible to reduce carbon emissions without first quantifying them.
Moreover, it is very likely that the regulations will change again by 2025 and define new thresholds for entities subject to the CSRD approved in November 2022 and explained by Carbonapp in a previous article. With these changes, the carbon footprint would become mandatory for every company with more than 250 employees.
So don't wait to get started!
Article written by Axelle Rimpot