The growing use of digital services is now affecting the global evolution of energy consumption and greenhouse gas (GHG) emissions. Between 2013 and 2017, the sector’s energy consumption grew by 50% <a class="footnoteLink" href="#footnote-1"><a class="footnoteLink" href="#footnote-1">[1]</a></a>, now representing between 6% and 10% of the world's carbon-intensive electricity consumption<a class="footnoteLink" href="#footnote-2"><a class="footnoteLink" href="#footnote-2">[2]</a></a>. Data centers are essential links in the digital value chain for data use and storage and are growing in an exponential way <a class="footnoteLink" href="#footnote-3"><a class="footnoteLink" href="#footnote-3">[3]</a></a>. However, the servers that make up these centers require a significant amount of electricity to operate. <a class="footnoteLink" href="#footnote-4"><a class="footnoteLink" href="#footnote-4">[4]</a></a> Their manufacture also requires a high consumption of raw materials with numerous environmental impacts. As digital giants, do the hyperscalers, Amazon, Google and Microsoft take these environmental issues into account? How can we understand and analyze their communication on climate?&nbsp;&nbsp;Historically hosted in the companies’ headquarters that use them (on premise solutions), data centers have been pooled by dedicated operators to whom companies and organizations now rent computing power and storage space.The specificity of cloud services, compared to ‘traditional’ data center digital services, is the ability of client organizations to apparently free themselves from physical server needs. To put it simply, we can distinguish between:<ul><li>on-premise data centers, where the servers are owned by their users,</li><li>traditional data centers for which customers rent physical machines that are dedicated to them,</li><li>cloud data centers.</li></ul>In the cloud, the machines in the different sites of the same operator are shared. The operator &nbsp;optimizes its physical machines by exploiting them to their full capacity. Customers’ uses are not attached to identified physical machines but are based on virtual machines allowing a greater variety in the range of services from which the uses of the Cloud benefit.&nbsp;Customers pay for their service on a per-use basis, which provides them flexibility and prevents them from having to anticipate their needs. These advantages explain the popularity of cloud services, which should continue in the coming years.

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Annual evolution of data center energy consumption in the European Union (projection between 2019 and 2025)[5] [TWh/year].

As the cloud grows and becomes dominant in the growing digital data management market, it is important to understand whether cloud providers are controlling the carbon footprint of their services and contributing to the goal of global carbon neutrality.The three largest cloud providers, which are also known as hyperscalers due to their size and growth, are: AWS, Azure, and Google Cloud <a class="footnoteLink" href="#footnote-6">[6]</a>. Are the communication and strategy of these companies on climate issues relevant to the objective of keeping global warming below 2°C?<h3>‘Net Zero’ objectives create the illusion of a carbon neutral company concept persist&nbsp;</h3>The first observation is that the three parent companies of the cloud providers analyzed communicate widely on "net zero" objectives, over various time horizons. More generally, this climate communication strategy (based on the achievement of immediate or future carbon neutrality by an individual company) is used by many firms However, these statements reflect realities that are more or less relevant regarding the climate crisis.&nbsp;<ul><li>Google, renamed Alphabet in 2015, has considered itself carbon neutral (for all its activities) since 2007<a class="footnoteLink" href="#footnote-7">[7]</a>, thanks to the purchase of carbon credits for its operational emissions <a class="footnoteLink" href="#footnote-8">[8]</a>. It recently decided to extend this objective to its entire carbon footprint by 2030, considering the upstream and downstream emissions of its operations.</li><li>Through The Climate Pledge, Amazon wants to reach the ‘Net-Zero Carbon’ goal by 2040 <a class="footnoteLink" href="#footnote-10">[10]</a>. This objective would correspond to removing from the atmosphere, in 2040, as much GHG as the company has emitted in the year.</li><li>Microsoft is committed to being ‘carbon negative’ <a class="footnoteLink" href="#footnote-12">[12]</a>, i.e. removing more carbon than it emits <a class="footnoteLink" href="#footnote-13">[13]</a>.</li></ul><figure class="image"><img src="https://carbone4.com/files/Cloudgraphs04.png"></figure>The terms ‘neutrality’, ‘net zero’ and ‘carbon negative’ suggest that if a company generates as many emissions as it absorbs, it simply cancels its carbon footprint, as if the greenhouse gas emissions linked to its activity had disappeared. That amounts to considering that the activity of these companies no longer contributes to the acceleration of the climate shift, and therefore that all climate impacts and transition risks have disappeared. Unfortunately, this view has no scientific basis and does not support climate action.From a scientific point of view, carbon neutrality cannot be defined at a company level <a class="footnoteLink" href="#footnote-14">[14]</a>, and even less at a product or service level. Only on a global scale can the balance of physical carbon flows (in emission and absorption) be observed, resulting in a stabilization of the atmospheric concentration of GHG.&nbsp; In practice, it is impossible to transcribe this global objective to the scale of a company by a simple set of additions and subtractions.Therefore, with the help of several dozens of partner companies, Carbone 4 has steered the development of the <a href="https://www.carbone4.com/projet-nzi">Net Zero Initiative framework</a>, which enables a company or organization to understand how to maximize its contribution to achieving global carbon neutrality. Sequestered carbon is obviously taken into account, but it is considered to be non-fungible with induced emissions.Thus, Microsoft, Alphabet or Amazon cannot be carbon neutral, even less carbon negative, regardless of the organizational or operational perimeter. Nevertheless, they can - and should - contribute to global carbon neutrality, in several ways.Behind the neutrality objectives, the three parent companies have decided to act on increasing carbon sinks:&nbsp;<ul><li>By purchasing carbon credits: in 2020, Google purchased 1.2 MtCO2e of carbon credits <a class="footnoteLink" href="#footnote-15">[15]</a>. Since the beginning of the fiscal year, Microsoft has contracted for nearly 1.5 MtCO2e <a class="footnoteLink" href="#footnote-16">[16]</a>.</li><li>Or by financing non-labeled projects like Amazon, which has committed $10 million to help forest owners sequester CO2 <a class="footnoteLink" href="#footnote-17">[17]</a>.</li></ul>To achieve global carbon neutrality, the development of sequestration will be essential. Thus, the three cloud giants are putting resources, of varying degrees of importance, into what the <a href="https://www.carbone4.com/projet-nzi">Net Zero Initiative</a> has called ‘increasing carbon sinks’, or Pillar C. However, contributing to global neutrality also requires acting very strongly on the other two pillars, which aim towards the reduction of global emissions.<figure class="image"><img src="https://carbone4.com/files/Cloudgraphs005.png"></figure>The company must first reduce its own direct and indirect emissions (pillar A), then help others reduce their emissions (pillar B). The second category corresponds to the sale of decarbonizing products and solutions (i.e., those that reduce - in absolute terms - the emissions of customers) and, under certain conditions, the financing of low-carbon projects outside the firm’s value chain.&nbsp;However, for the time being, the efforts undertaken by Google, Amazon and Microsoft do not lead to a sustainable reduction of their emissions in absolute terms <a class="footnoteLink" href="#footnote-18">[18]</a> (pillar A), and these companies have not published a convincing demonstration of the reduction of their customers' emissions, also in absolute terms, thanks to the services provided (pillar B).As a first step, it would be necessary for these companies to develop and implement an ambitious action plan to reduce their emissions in absolute terms. Currently, their reduction strategy is based mainly on the use of renewable energy.<h3>Reduction targets are mainly based on low carbon electricity, which is obscuring the range of possibilities</h3>At both the parent company and cloud service provider levels, electricity procurement is a major issue for Alphabet, Amazon, and Microsoft. Indeed, data centers require a lot of energy to run the servers and to cool them. Naturally, these three companies are seeking to use low-carbon and renewable energy sources (RE) to cover their own consumption <a class="footnoteLink" href="#footnote-19">[19]</a>.Three methods are traditionally used to claim the use of renewable electricity to power the company's operational activities:<ul><li>the purchase of RE Guarantees of Origin (GO) via a market system</li><li>financing additional RE capacity via a long-term contract (Power Purchase Agreement - PPA) with a producer of RE electricity (without necessarily having a physical link between the financing company and the location of the new capacity)</li><li>the creation of its own renewable energy production fleet.</li></ul>In the first two cases, the company continues to be supplied by the same physical network as before. Therefore, it contractually claims to be purchasing low-carbon electricity, but physically, the CO2 emissions associated with its consumption actually depend on the electricity mix of the network that supplies its facilities <a class="footnoteLink" href="#footnote-20">[20]</a>.Although cloud providers are among the main buyers of "renewable" electricity, such claims are not grounded in any real physical basis.

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Purchase of certified renewable electricity in 2020 from the 3 hyperscalers (own fleet, PPA and GO combined)[21] [GWh]

To purchase these volumes of electricity labeled as renewable, the 3 players are increasingly resorting to PPAs <a class="footnoteLink" href="#footnote-22">[22]</a>, which allow them to develop additional renewable energy production capacities. However, there is no guarantee of spatial and temporal consistency <a class="footnoteLink" href="#footnote-23">[23]</a> between the green electricity purchased and the electricity consumed by the infrastructure. There is no guarantee that these additional RE capacities will systematically replace fossil fuel capacities. It can be added to fossil fuel capacities or replace other low-carbon capacities.Moreover, market-based reporting <a class="footnoteLink" href="#footnote-24">[24]</a> allows Amazon, Alphabet and Microsoft to reduce their scope 2 emissions by ‘neutralizing’ the emissions of the kWh consumed <a class="footnoteLink" href="#footnote-25">[25]</a>. It is no longer necessary to monitor energy consumption and to activate energy efficiency and sobriety levers to reduce emissions. The need to reduce energy consumption cannot simply be concealed by a methodological trick that is based on the same scientifically flawed reasoning as ‘neutrality’ in terms of emissions. These companies have even more reasons to work on the efficiency of their energy use since it represents a major cost item for them.

Google’s carbon-free electricityBy 2030, Google wants to be (contractually) supplied with carbon-free electricity 24/7 to cover its own consumption. Google defines ‘carbon-free’ as follows: ‘We define carbon-free power as any type of electricity generation that does not directly emit carbon dioxide. This includes renewables like solar, wind, geothermal, hydro and biomass, as well as nuclear power.’ However, these means of production emit GHGs, whether at the time of their construction, their installation, or their end of life. Rigorous accounting must consider the emissions induced by renewable energies. This makes it possible to really measure the physical impact of energy use. For instance, in 2019, Google's electricity consumption was approximately 12 TWh <a class="footnoteLink" href="#footnote-26">[26]</a>. Even if this electricity were to come from 100% solar photovoltaic energy <a class="footnoteLink" href="#footnote-27">[27]</a> via installations physically connected to Google's servers, which is not the case, this consumption would represent 530 ktCO2e, or roughly the emissions of a country like the Seychelles in 2016.

Furthermore, by focusing on their direct electricity consumption, these players forget a significant part of their carbon footprint: the manufacturing and operation of the equipment that is necessary for the service to be provided. Servers are necessary of course, but not sufficient. Indeed, there is no cloud service without an Internet network (which must be built and powered), without terminals (connected screens, computers, smartphones) at the customer's locations.However, few cloud players publish figures for these other items that are essential for the system to work, which by construction prevents them from thinking more globally about its role. Just by limiting themselves to their own fleet of machines, these companies could communicate on their progress concerning the extension of the life of servers, reconditioning or reuse, limiting redundancy, R&amp;D projects with server manufacturers...Finally, it seems that these companies above all consider their contribution to carbon neutrality via the financing of external projects concerning electricity or the development of forests, rather than through an in-depth transformation of their activity and their organization.Regardless of their potential need to reduce energy, raw material and resource consumption, cloud providers claim that the cloud is inherently more efficient than traditional solutions. But is this really the case?&nbsp;<h3>A supposedly better carbon performance of the cloud</h3>The three firms studied rely on several publications <a class="footnoteLink" href="#footnote-28">[28]</a>,<a class="footnoteLink" href="#footnote-29">[29]</a>,<a class="footnoteLink" href="#footnote-30">[30]</a> to justify that, for a comparable use, the use of their cloud platforms emits less than the use of on premise servers, i.e. hosted within the companies. The arguments put forward are the following:&nbsp;<ul><li>By sharing machines, hyperscalers use them almost constantly at their maximum capacity. However, in the on-premise reference situation, the servers are used much more frequently under their nominal capacity. The cloud would therefore lead to a material savings (fewer machines needed for the same requirement) and energy savings (because the machines do not necessarily consume much more if they are working at full capacity).</li></ul><figure class="image"><img src="https://carbone4.com/files/Cloudgraphs07.png"></figure><ul><li>Specialized in data center management, the three cloud giants claim to manage the energy consumption of their infrastructure more efficiently than on-premise solutions. In fact, they display the lowest PUE (Power Usage Effectiveness, which compares the total energy consumption of the data center to the energy consumption of the servers only) in the market. Especially Google, which was the first to post a record PUE of 1.1<a class="footnoteLink" href="#footnote-31">[31]</a>.</li><li>They use more renewable energies to power their servers (this point having been discussed above, we will not discuss it further here).</li></ul>While the arguments of cloud providers are based in reality, they are not sufficient to conclude that moving to the cloud necessarily leads to a lower digital carbon footprint in absolute terms:<ul><li>The use of the cloud creates a rebound effect: by paying a posteriori according to usage, cloud customers are under the impression of having unlimited capacity while no longer having as much control over their data consumption as they no longer manage capacity a priori. More generally, the cloud is as much a response to firms’ digital strategy, which is based on a strong inflation of processed data, as it is a response to limit the impact of this inflation.</li><li>Redundancy on the cloud is probably more important than in traditional solutions. This redundancy is partly driven by cloud providers who want to improve the quality of their services.</li></ul>In order to meet their customers' expectations in terms of controlling their emissions, cloud providers are making information available - as well as visualization platforms - that allow their customers’ to understand some of&nbsp;the greenhouse gas emissions of the services used. Not only do the coverage and calculation methodologies vary greatly from one player to another, but above all they lack overall relevance because they are based on a partial coverage and/or use an inappropriate emission factor (market-based, see above) for the electricity used.

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Coverage of carbon footprint measuring tools provided by the 3 cloud operators (situation in December 2021)

Google Cloud and Azure (Microsoft) offer tools for (partially) managing the carbon footprint of their services. For example, they give or will soon give their customers the possibility to choose the location of their servers according to the carbon intensity of the local electricity. Microsoft allows its customers to schedule the startup and shutdown of their machines. Google Cloud, via an application called Active Assist, identifies underused modules to help customers optimize their resources.&nbsp;Amazon's, Microsoft's, and Google's purchases of labeled renewable energy and energy efficiency efforts will not be enough to reduce emissions from their operations. To be aligned with the Paris Agreement, these companies should be leaders in creating a new business model that does not encourage overconsumption of resources. This approach would be part of a new global strategic positioning to contribute to global neutrality. However, their customers also have a role to play to implement sufficiency measures, in an effort to bring their digital carbon footprint in line with a 5% annual decrease in global emissions.

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France Strategy, 2020, Controlling digital consumption: technological progress is not enough. Energy consumption concerns consumption during the use phase and consumption linked to the production of equipment and infrastructure. This scope is defined in the document: On global electricity usage of communication technology: trends to 2030 Anders S. G. Andrae and Thomas Elder, April 30, 2015.

<a href="https://lejournal.cnrs.fr/articles/numerique-le-grand-gachis-energetique">https://lejournal.cnrs.fr/articles/numerique-le-grand-gachis-energetique</a> | This electricity consumption only concerns the operation of the appliances. To this, it is possible to add the energy consumption for the manufacture of the latter.

Anders S.G. Andrae, 2020, New perspectives on internet electricity use in 2030.

Servers require electricity both to power them and to maintain them in a temperature-controlled environment.

Edge data centers, which are not covered by this article, are small intermediate data centers between the user and the data centers, which limit the load on the networks.

AWS (Amazon Web Services) is a service of Amazon and has a 32% market share, Azure a service of Microsoft (20% market share) and Google Cloud a service of Alphabet (10% market share).

<a href="https://sustainability.google/intl/fr/commitments/carbon/#leading-at-google">https://sustainability.google/intl/fr/commitments/carbon/#leading-at-google</a>

Scope 1 and 2 as well as the part of Scope 3 concerning employee travel and telecommuting.

In principle, this new scope should cover a significant part of scope 3, but perhaps not all of it: will the carbon footprint of the excess activity generated by advertising on Google be taken into account?

<a href="https://www.aboutamazon.com/news/sustainability/we-are-all-in-on-the-climate-pledge-net-zero-carbon-by-2040">https://www.aboutamazon.com/news/sustainability/we-are-all-in-on-the-climate-pledge-net-zero-carbon-by-2040</a>

Scope 1, 2 and 3 (does not include the use of non-Amazon branded e-commerce products).

<a href="https://news.microsoft.com/fr-fr/2020/07/21/empreinte-carbone-negative-2030-microsoft-transform-to-net-zero/">https://news.microsoft.com/fr-fr/2020/07/21/empreinte-carbone-negative-2030-microsoft-transform-to-net-zero/</a>

ADEME shared this view: https://presse.ademe.fr/2022/02/lademe-publie-un-avis-dexperts-sur-lutilisation-de-largument-de-neutralite-carbone-dans-les-communications.html

Google, 2021, Environmental Report.

Microsoft, March 2022, "Microsoft Carbon Removal.

<a href="https://sustainability.aboutamazon.com/about/the-climate-pledge/nature-based-solutions">https://sustainability.aboutamazon.com/about/the-climate-pledge/nature-based-solutions</a>

The extra-financial reporting of these companies is often market-based (i.e., it does not take into account the physical reality of the emissions associated with electricity, see definition below) and/or has sometimes changed its methodology, which makes it difficult to analyze the reduction dynamics.

This electricity consumption does not cover the energy needs of the networks and terminals of the digital system.

<a href="https://www.carbone4.com/files/Publication_Electricite_verte.pdf">https://www.carbone4.com/files/Publication_Electricite_verte.pdf</a>

Amazon sustainability 2020 report, Alphabet FY2020 Envrionmental Indicators assurance letter, Microsoft 2021 Environmental Sustainability Report.

Google has for the past 10 years been among the top buyers of APPs globally. Amazon and Microsoft are also in the top 10 buyers of APPs over the past few years.

The means of electricity production can be located thousands of kilometers from the place of consumption or produce electricity in the middle of the day for consumption at night. The energy produced is therefore not physically linked to the energy consumed.

Market-based reporting combines electricity consumption with the emissions factor of the energy purchased on the market (via GOs, PPAs or via the supplier's mix). Location-based reporting, on the other hand, is based on the emission factor of the network to which the company is physically connected.

In the NZI benchmark, PPA purchases are valued as a financial contribution to the emission reduction of others, in this case the electricity grid (pillar B).

Google, 2020, Environmental Report.

Photovoltaic panel manufactured in China: 44gCO2e/kWh according to ADEME .

Microsoft, 2020, “The carbon benefits of cloud computing”.

Google, 2012, “Energy-efficiency in the cloud”.

AWS, 2021, «&nbsp;Saving Energy in Europe by Using Amazon Web Services”.

<a href="https://www.google.com/about/datacenters/efficiency/">https://www.google.com/about/datacenters/efficiency/</a>

Cloud carbon footprint: Do Amazon, Microsoft and Google have their head in the clouds?

The year 2023 marks a major change in environmental reporting in Europe, with the arrival of the Corporate Sustainability Reporting Directive (CSRD).The CSRD replaces the previous European climate reporting standard, the Non-Financial Reporting Directive (NFRD), which had been adapted in France to create the DPEF (“Directive de Performance Extra Financière'').The CSRD, adopted by the European Commission at the end of 2022, substantially expands the number of companies covered, as well as the information they will be required to disclose on various environmental and social indicators, including climate. &nbsp;

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This article, written by Carbone 4's Regulatory Expertise team, appears after the publication of the CSRD’s delegated act by the European Commission<a class="footnoteLink" href="#footnote-1">[1]</a>. This delegated act, which specifies the information to be reported, substantially reduces the scope of this law compared to the ambitious standard proposals published by EFRAG<a class="footnoteLink" href="#footnote-2">[2]</a> in November 2022<a class="footnoteLink" href="#footnote-3">[3]</a>. The content of the CSRD are deciphered <a href="https://www.carbone4.com/en/article-csrd-opportunity">in a second article.</a>

This article comes after an amendment by the European Commission, modifying the thresholds and timetables for certain companies (large companies not yet subject to the NFRD and listed SMEs). Adopted by the Commission on October 17, 2023, but not yet final at the time of writing. This amendment is taken into account in this article.

In this first article, we focus on the who and when: which companies will be subject to CSRD in Europe, and by when? We zoom in on French companies.

<h3>1. Who is affected by the CSRD? What changes will take place?&nbsp;&nbsp;</h3>The implementation of the CSRD and its transposition into national laws will shake up the European regulatory landscape in terms of climate reporting. Prior to this new regulation, 11,700 European companies were subject to non-financial reporting obligations. This figure will rise to around 50,000 once the CSRD comes into force (depending on the thresholds adopted)<a class="footnoteLink" href="#footnote-4">[4]</a>. So, who are these new companies or legal entities subject to the regulations? How do these new obligations fit into the regulatory context of EU countries? How can we anticipate these changes? We will examine these questions through the prism of French regulation. As the EU's second largest economy<a class="footnoteLink" href="#footnote-5">[5]</a>, France also has its own particularities in terms of extra-financial obligations, which we will decipher in this article.&nbsp;Application of the CSRD will begin in fiscal 2024 and extend over time. The Council of the European Union, the European Parliament and the European Commission<a class="footnoteLink" href="#footnote-6">[6]</a> have established the following timetable:&nbsp;<ul><li>Declarations in 2025 regarding the 2024 financial year for companies already subject to the NFRD;</li><li>Declarations in 2026 regarding the 2025 financial year for other large companies;</li><li>Declarations in 2027 regarding the 2026 financial year for listed SMEs, with a 2-year deferral option;</li><li>Declarations in 2029 regarding the 2028 financial year for foreign companies with a European subsidiary.</li></ul>The diagram below shows whether a company (or legal entity) is concerned by the CSRD and from when. &nbsp;

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<h3>2. France: pioneer in the publication of extra-financial and climate data by companies</h3>In France, the culture of extra-financial data transparency goes back a long way. Since as early as 2010, Article 75 of the Grenelle II law introduced a tool for measuring and monitoring the greenhouse gas emissions of organizations and local authorities, the Bilan des Émissions de Gaz à Effet de Serre (BEGES). Companies with over 500 employees in mainland France are required to report their direct emissions (scope 1 and 2), and for certain companies, significant indirect emissions<a class="footnoteLink" href="#footnote-7">[7]</a>. France is thus the only country in the world to require reporting of both direct and indirect emissions (Scopes 1, 2 &amp; 3)<a class="footnoteLink" href="#footnote-8">[8]</a>. France is therefore one of the most advanced countries in terms of climate reporting regulations<a class="footnoteLink" href="#footnote-9">[9]</a>. Furthermore, many French and international companies have taken the lead, and not waited for regulations to start sharing their climate strategies.In 2017, France transposed the European NFRD into national law through the DPEF (Déclaration de Performance Extra Financière). The transposition includes the obligation to report Scope 3 greenhouse gas emissions, thus going beyond the requirements of the initial European directive, the NFRD. Today, the CSRD, which replaces the NFRD, will further flesh out and structure climate reporting, and significantly increase the number of companies concerned.&nbsp;The diagram below describes the differences and complementarities in application between the BEGES<a class="footnoteLink" href="#footnote-10">[10]</a> (reporting standard in force in France, in green) and the upcoming&nbsp; CSRD, over the next few years (dates in blue).&nbsp; While some 5,000 private and public-sector companies are currently required to publish a regulatory BEGES, it is estimated that a total of some 8,000 companies will be subject to reporting following the introduction of the CSRD and its transposition into French law (variable depending on the final company thresholds adopted)<a class="footnoteLink" href="#footnote-11">[11]</a>. &nbsp;

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In conclusion, the new European climate reporting standard, CSRD or "Corporate Sustainability Reporting Directive", not only brings significant changes to the information to be disclosed, but also extends the number of companies required to share (and therefore collect) their climate data.&nbsp;According to the adopted thresholds, around 50,000 companies in Europe will have to disclose climate information, compared to around 12,000 at present.&nbsp;Our next article will focus on the content of the standards - analyzing the nature of the substantive changes brought about by the CSRD, and particularly on the climate aspect. Indeed, European companies will be required to better understand their impact on the climate, as well as the impact that climate change will have on their operations. &nbsp;

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<a href="https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/corporate-sustainability-reporting-directive_en">European Commission. (2023, 31 juillet). Implementing and delegated acts - CSRD.</a>

European Financial Reporting Advisory Group

<a href="https://www.efrag.org/lab6">EFRAG. (2022, novembre). First Set of draft ESRS</a>

<a href="https://www.europarl.europa.eu/news/en/press-room/20221107IPR49611/sustainable-economy-parliament-adopts-new-reporting-rules-for-multinationals#:~:text=New%20EU%20sustainability%20standards&amp;text=The%20CSRD%20introduces%20more%20detailed,of%20standards%20by%20June%202023.">Yasmina Yakimova. (2022, 10 novembre). &nbsp;Sustainable economy: Parliament adopts new reporting rules for multinationals. European Parliament</a>

<a href="https://donnees.banquemondiale.org/indicator/NY.GDP.MKTP.CD?locations=EU&amp;most_recent_value_desc=true">La Banque Mondiale. PIB ($ US courants) - European Union | Data</a>

&nbsp;<a href="https://www.europarl.europa.eu/legislative-train/theme-a-european-green-deal/file-review-of-the-non-financial-reporting-directive">European Parliament. Corporate Sustainability Reporting Directive (CSRD) | Legislative Train Schedule</a>

<a href="https://www.ecologie.gouv.fr/sites/default/files/methodo_BEGES_decli_07.pdf">Ministère de la transition écologique, ADEME. (2022, juillet). Méthode pour la réalisation des bilans d’émissions de gaz à effet de serre.</a>

Scope 1: direct greenhouse gas emissions | Scope 2: indirect greenhouse gas emissions linked to energy consumption | Scope 3: indirect greenhouse gas emissions

<a href="https://www.carbone4.com/analyse-reporting-carbone-entreprises-faut-il-augmenter-les-exigences">Juliette Decq et Hélène Chauviré. (2022, 9 mai). Crise des approvisionnements et du climat. Carbone 4</a>

&nbsp;Ministère de la transition écologique, « Méthode pour la réalisation des bilans d’émissions de gaz à effet de serre ».

&nbsp;Clarelis, « La directive CSRD »

Corporate Sustainability Reporting Directive (CSRD): Who is affected, and when?

The European Union is stepping up its efforts on environmental reporting with its new Corporate Sustainability Reporting Directive (CSRD). Adopted at the end of 2022, this demanding regulation will come into force in 2024, with the first reporting due at the beginning of 2025 for concerned companies<a href="https://www.carbone4.com/en/article-csrd-who-is-affected">, as we mentioned in our first article on the subject.</a>In this article, Carbone 4 takes a closer look at the regulation, to help you make sense of it and understand the benefits of following the CSRD. In particular<ul><li>What is the CSRD?</li><li>What does the CSRD require? Particularly when it comes to the climate!</li><li>What do companies need to do to prepare? What's in it for them?</li></ul>&nbsp;While many companies haven’t waited for regulations to come into force to communicate on their environmental strategy, this new legal obligation will make reporting an unavoidable requirement.&nbsp;<h3>Background: What is the CSRD? Why does it exist?</h3>The CSRD requires companies to share information on their risks, opportunities and impacts on various environmental (climate, biodiversity, water, etc.) and social (employees, workers in the value chain) issues.&nbsp;Compared with previous regulations <a class="footnoteLink" href="#footnote-1">[1]</a>, the CSRD concerns a larger number of companies, and requires more detailed and comprehensive reporting: it specifies precise information and indicators to be disclosed, on a larger number of subjects.&nbsp;The first objective of the CSRD is to help external stakeholders (notably investors, but also customers and the general public) gain a clearer understanding of the risks faced by companies, and to compare companies with each other in terms of their vulnerability and readiness for the transition. This information enables investors to protect themselves against the risk of <a href="https://www.lse.ac.uk/granthaminstitute/explainers/what-are-stranded-assets/">"stranded assets".</a>&nbsp;The CSRD also aims to create a more environmentally-virtuous economy. By requesting information on the environmental impact of companies, the regulation aims to create favorable conditions for good performers (i.e. companies that are less emissive and more compatible with a low-carbon world - or prepared to be). It should, in reverse, complicate conditions for low performers, for example through more costly access to capital or debt. &nbsp;In simple terms, the CSRD uses a double materiality approach to :<ul><li>understand the company's impact on planetary limits (e.g. climate, biodiversity, water) and social issues;</li><li>understand and "monetize" the impact of ecological upheavals on the economic sustainability of companies.</li></ul>Another major benefit of CSRD is that it enables companies to better understand their risks and opportunities with regard to environmental and social issues, and thus better prepare for them.&nbsp;&nbsp;<h3>What does the CSRD require? In general and on climate</h3>The CSRD is comprised of 12 standards: the ESRS (European Sustainability Reporting Standard)<a class="footnoteLink" href="#footnote-2">[2]</a>. These include :<ul><li>2 transversal standards (mandatory)</li><li>10 thematic standards on various sustainability topics (conditionally mandatory)</li><li>sector-specific standards (to come) &nbsp;</li></ul>

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CSRD Content: European Sustainability Reporting Standards (ESRS)

All companies subject to the CSRD must report on the two mandatory cross-functional topics, and must identify which of the 10 thematic topics they are concerned with. To do this, companies are asked to identify the double materiality of each of the 10 topics on their business: i.e. whether they have an impact on the topic, and/or whether it is likely to have a financial impact on the company. It should be noted that, for the climate topic, companies must justify their finding of non-materiality. &nbsp;

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If we zoom in on the climate topic, the CSRD asks companies to understand and report on their governance, strategy, risks and opportunities, and metrics in the face of climate change. These rigorous demands are an opportunity for any economic player to ask themselves vital questions. What is the company’s relevance and likelihood of durability in a world already facing the physical impacts of climate change; and within a society seeking to rapidly mitigate its environmental impact to maintain a habitable world.&nbsp;An overview of the important information requested by the CSRD on climate is presented below. &nbsp;

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The content of the CSRD is largely inspired by the philosophy of the TCFD <a class="footnoteLink" href="#footnote-3">[3]</a> and incorporates best practices for defining a climate strategy, on which Carbone 4 has relied for many years to support its corporate clients. Europe has sought to harmonize reporting requirements to a large extent with existing standards, including the TCFD but also the ISSB <a class="footnoteLink" href="#footnote-4">[4]</a>. The main difference lies not in content, but in the dual materiality approach: the ISSB recommends an analysis of simple materiality (i.e., financial materiality).&nbsp;<h3>How to prepare?&nbsp;</h3>To respond to the CSRD on climate, companies need to :&nbsp;<ul><li>Better understand their current impact and dependence on greenhouse gas emissions, by carrying out a carbon footprint,</li><li>Understand how <a href="https://www.carbone4.com/en/publication-strategy-scenario-analysis">to adapt their business model </a>for a low-carbon world, by projecting themselves into trajectories that limit temperature rise to 2°C, and</li><li>Identify their physical risks and adaptation needs in the face of current and future climate change.</li></ul>&nbsp;While the CSRD requires transparency, and guides reflection on the definition of a climate strategy, the relevance, ambition and success of this strategy depends heavily on the level of engagement within the company. Responding to the CSRD is therefore not just another extra-financial reporting gesture, but an opportunity to re-define one's strategy in the face of climate change, rallying management teams, in-house climate experts, as well as operational teams trained on these issues.&nbsp;The CSRD can therefore be seen either as an additional constraint for economic players (and therefore an additional transition risk), or as a fantastic tool to improve the relevance of their corporate strategy and make it compatible with a low-carbon world. &nbsp;

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NFRD, Non-Financial Reporting Directive, adoptée en 2018.

The CSRD is the framework directive that obliges companies to report, and the ESRS are the standards that define the 'what', i.e. what to report.

Task Force on Climate-related Disclosure

International Sustainability Standards Board

The CSRD: an opportunity to build a robust environmental strategy

The Science-based targets Initiative&nbsp;(SBTi) was founded in 2015 by the World Resources Institute&nbsp;(WRI), the Carbon Disclosure Project&nbsp;(CDP), the United Nations Global Compact and the World Wide Fund for Nature&nbsp;(WWF), with the intent of "develop[ping] standards, tools and guidance which allow companies to set greenhouse gas (GHG) emissions reductions targets in line with what is needed to keep global heating below catastrophic levels and reach net-zero by 2050 at latest."<a class="footnoteLink" href="#footnote-1"><a class="footnoteLink" href="#footnote-1">[1]</a></a> (i.e. 5% reduction in emissions per year).&nbsp;For almost 10 years, this initiative has helped increase the number of climate commitments made by companies, and contribute to bridge the gap between business and science. On April 9th, however, the organization's Board of Trustees&nbsp;&nbsp;issued a statement authorizing the use of "Environmental Attribute Certificates", including carbon credits, to achieve scope 3 carbon footprint reduction targets. The Board's decision is in line with the position of historical offset players such as the Voluntary Carbon Market Initiative&nbsp;(VCMI), with which SBTi recently formed a partnership<a class="footnoteLink" href="#footnote-2">[2]</a>. While the organization's&nbsp;employees and Technical Council&nbsp;have criticized this statement as “undermining [their] government processes”<a class="footnoteLink" href="#footnote-3">[3]</a> , this stance by the board is&nbsp;first and foremost scientifically questionable. Final validation of this intention, which could take place in July, would mark a clear step backwards in the ambition historically carried by the initiative, and would dangerously delay the collective action required for the ecological transition.<h2>Taking the easy way-out</h2>Since its creation in 2015, SBTi has become one of the most well-known climate-related labels: by the end of 2023, it announced that it had approved the targets of over 4,000 companies. So far, its rise to prominence has made the subject more accessible, provided a clear, albeit perfectible, framework, and enabled the setting of emissions reduction in line with climate science. With the targets of many of the pioneering certified companies set for 2025 (and those of the following ones shortly thereafter), compliance with the commitments made is about to be verified. Unfortunately, in most cases, companies seem to be falling short of the mark,&nbsp;despite an already accommodating framework that allows them to set intensity targets<a class="footnoteLink" href="#footnote-4">[4]</a> : of the 56 commitments due in 2025 or earlier, and listed for scope 1+2+3 in SBTi's Monitoring report 2022<a class="footnoteLink" href="#footnote-5">[5]</a>, only 18 (around 30%) have reached more than 70% of their target<a class="footnoteLink" href="#footnote-6">[6]</a>.&nbsp;This finding should have prompted us to reflect on the flaws in the current system, to better assess the credibility of commitments upstream (for example, by making public the resources deployed by the companies in terms of investment and governance), and to realize that, in the face of climate change, failure to question one's business model inevitably leads to marginal/negligible actions.&nbsp;The submission of SBTi targets must come from an in-depth analysis on the company's "business" resilience, from the point of view of both physical risks and transition risks and opportunities (assessments carried out for example by means of prospective scenario analyses respecting planetary boundaries<a class="footnoteLink" href="#footnote-7">[7]</a>). This reflection should enable the company to confirm or rethink its strategy, in order to make its activity and its product and service offers useful in an economy compatible with the planetary boundaries<a class="footnoteLink" href="#footnote-8">[8]</a>,<a class="footnoteLink" href="#footnote-9">[9]</a>. Unfortunately, the SBTi Board, without consulting the opinion of its Technical Council<a class="footnoteLink" href="#footnote-10"><a class="footnoteLink" href="#footnote-10">[10]</a></a>&nbsp;, has preferred to change the rules of the game rather than endorse this statement of truth to its financial backers.<h2>This position runs counter to the scientific consensus and contravenes the fundamental principles of carbon accounting.&nbsp;&nbsp;</h2>The first reason why this option is inconsistent is definitional. The carbon footprint is an inventory of the emissions on which an activity depends to function; however, the purchase of carbon credits in no way affects these dependencies. A company that has purchased carbon credits to "offset" its emissions has not lessened its exposure to emissions-related risks.The other argument is a physical one. Two major families of projects structure the credit market: projects aimed at avoiding emissions, and projects aimed at capturing CO2 from the atmosphere. Neither can "offset" the CO2e accounted for in a carbon footprint:&nbsp;<ul><li>From a physical point of view, a ton of GHG avoided&nbsp;is not equivalent to a ton of GHG emitted: the latter corresponds to a gas currently present in the atmosphere, whereas the former corresponds to a theoretical difference between actual emissions and those that could have taken place. Put another way, the increase in avoided emissions only guarantees that we are doing better than business-as-usual, not that we are actually reducing emissions. Equating an avoidance carbon credit with a scope 3 emission is therefore questionable.</li><li>The use of so-called sequestration&nbsp;carbon credits to compensate&nbsp;is no more acceptable. Let us mention&nbsp;the two main problems:</li><li>First, this is tantamount to equating a ton of CO2 already emitted with expected (and therefore uncertain) CO2 capture, which takes place over several years. In the case of a forestry project, for example, CO2 sequestration takes place over decades of tree growth, not at the time of the credit purchase.</li><li>Second, the potential for carbon sequestration is limited, making it impossible to&nbsp;"offset" all emissions<a class="footnoteLink" href="#footnote-11">[11]</a> . This is why the SBTi's "Net Zero" standard only promotes the "elimination" of corporate emissions once they have been reduced to an incompressible residual level in 2050, at the end of an emissions reduction process of the order of -90% compared to current levels.</li></ul>The deadlock of offsetting, from a physical point of view, has led to a broad consensus among carbon accounting bodies to exclude any fungibility between carbon credits and corporate carbon footprints. All authoritative bodies on climate reporting (UNFCCC, ISO 14064, GHG Protocol...), and more recently the CSRD<a class="footnoteLink" href="#footnote-12">[12]</a> , prohibit the subtraction of carbon credits from emissions. The SBTi, too, until now, had insisted on this point<a class="footnoteLink" href="#footnote-13">[13]</a> . Validating the use of carbon credits to achieve scope 3 reduction targets would therefore constitute a backtracking and a deviation from the SBTi approach. However, incentives to finance decarbonization projects outside the value chain can be implemented without diminishing ambition in terms of emissions reduction or giving in to the logic of offsetting: carbon credits are useful and contribute to the common effort, provided they are conceived as a complement to the action undertaken in one's own value chain&nbsp;(see conclusion).<h2>A choice that would be inefficient and harmful to the climate cause</h2>The use of carbon credits would perpetuate the illusion that a company can get rid of the problem all by itself, using only money&nbsp;. However, one of the main virtues (and the main difficulty) of the famous Scope 3 lies precisely in the need for cooperation that it implies: it enables a company to situate itself in its network of interdependencies, to involve other players beyond itself, through a game of mutual influence. Many companies may still underestimate the scale of the efforts required to reduce Scope 3 emissions: offering ways of getting around the difficulty, by opening up the use of carbon credits, would maintain the illusion of an easy ecological transition, and delay the implementation of transformative actions. However, the real lesson for a company submitting an SBT objective should be the following: greening one’s activity marginally, without actually questioning business-as-usual practices, will not be enough; the ecological crisis calls for a profound rethinking of business models.&nbsp;The direction taken by the Board of Trustees is&nbsp;also counter-productive from the point of view of financial flows, as it sends out the wrong signals and confuses the debate: a high-carbon industry could tomorrow, through the purchase of carbon credits, be considered "aligned with a 2°C trajectory", while a small business specializing in building renovation, that has chosen to invest to develop its business, would be considered less virtuous. Allowing the use of carbon credits would, in short, be tantamount to favoring companies capable of paying a very high price (the very companies for which the transformations required for decarbonization are the most complex) for these modern-day climate indulgences.&nbsp;Allowing emissions reduction through carbon credits is often presented by offset proponents as a great incentive for the financing of offset projects. This stance is debatable as well, as reducing climate performance to a single figure, resulting from the subtraction between emissions and credits, focuses the discussionon the quantity sequestered rather than the quality of projects. The influx of demand for carbon credits runs the risk of encouraging the development of the least costly and lowest-quality projects. The existence of labels, which tends to ensure a minimum level of quality, is not an absolute guarantee<a class="footnoteLink" href="#footnote-14">[14]</a> , and is not sufficient to direct flows towards the best projects (serious governance, consideration of biodiversity, etc.).&nbsp;<h2>Conclusion – How to get out of the crisis created by the announcement of the SBTi Board</h2>Other approaches are possible to meet both the need to decarbonize our activities, and the need to deploy projects to finance the transition. This is what the Net Zero Initiative<a class="footnoteLink" href="#footnote-15">[15]</a> is working on, by proposing a reporting&nbsp;method based on the logic of contribution to the goal of global carbon neutrality, i.e. the idea that a company should take part in a collective effort, rather than seeking to offset its emissions on its own. The framework proposed by the Net Zero Initiative is&nbsp;based on three non-fungible levers of action:&nbsp;<ul><li>reduction of the company’s carbon footprint - pillar A of the standard,</li><li>promotion of low-carbon products (primarily through the company’s own activities, then through carbon credits for avoided emissions) - pillar B,</li><li>contribution to the effort to sequester carbon and preserve and restore biodiversity (in the company’s value chain or via the purchase of carbon credits for sequestered emissions) - pillar C.</li></ul>Because this approach insists on not neglecting any one of these three pillars, it is more robust, fairer, and more effective.&nbsp;<ul><li>Robust&nbsp;because it is in line with the conclusions of the IPCC, which calls on the one hand to reduce emissions (pillar A)<a class="footnoteLink" href="#footnote-16">[16]</a> , and to do so, to review its product and service offering (pillar B)<a class="footnoteLink" href="#footnote-17">[17]</a> , and on the other hand to develop carbon sinks (pillar C)<a class="footnoteLink" href="#footnote-18">[18]</a> .</li><li>Fair, because it recognizes the contribution of organizations that provide innovative solutions for the transition: as a bicycle manufacturer grows its business, it may need to increase its direct emissions in order to decarbonize mobility. The Net Zero Initiative&nbsp;also prioritizes actions within&nbsp;the value chain - the most difficult, but also the most effective - over projects outside the value chain.</li><li>Efficient, because it enables us to map organizations' efforts precisely, and thus 1) encourages them to mobilize all the levers at their disposal; 2) direct financial flows towards the most virtuous.</li></ul>For all these reasons, we feel that this approach, which is still under development, provides some answers to the challenges raised by the crisis facing SBTi. We hope it will provide food for thought in the future.

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<a href="https://sciencebasedtargets.org/about-us#what-we-do">https://sciencebasedtargets.org/about-us#what-we-do</a>

<a href="https://www.greenbiz.com/article/sbti-yes-companies-can-use-carbon-offsets-abate-certain-scope-3-emissions">https://www.greenbiz.com/article/sbti-yes-companies-can-use-carbon-offsets-abate-certain-scope-3-emissions</a>

Employee letter reprinted in Clancy, H. (2024, April 11). Read the leaked protest letter from SBTi staff angry over new carbon offset policy. Greenbiz.&nbsp;<a href="https://www.greenbiz.com/article/read-leaked-protest-letter-sbti-staff-angry-over-new-carbon-offset-policy">https://www.greenbiz.com/article/read-leaked-protest-letter-sbti-staff-angry-over-new-carbon-offset-policy</a>It should be noted that the Board has since made it known that the principles of governance will be respected in the final decision on the terms and conditions of application.

Intensity targets involve reducing emissions per physical unit produced or per €. This option is aimed in particular at fast-growing companies and/or those making the biggest contribution to the transition, but in practice many companies are taking advantage of it.

<a href="https://sciencebasedtargets.org/reports/sbti-monitoring-report-2022">https://sciencebasedtargets.org/reports/sbti-monitoring-report-2022</a>

In other words, they have achieved 70% of the expected reduction in emissions.

See <a href="https://www.carbone4.com/expertises/resilience and https://www.carbone4.com/expertises/innovation/ifinitiative">https://www.carbone4.com/expertises/resilience and https://www.carbone4.com/expertises/innovation/ifinitiative</a>

<a href="https://www.carbone4.com/cp-emlyon-chaire-strategie">https://www.carbone4.com/cp-emlyon-chaire-strategie</a> and <a href="https://www.carbone4.com/webinaire-strategie-entreprise-urgence-climatique and https://www.ifinitiative.com/">https://www.carbone4.com/webinaire-strategie-entreprise-urgence-climatique and https://www.ifinitiative.com/</a>

In the European market, this work will in any case be made necessary by the CSRD, provided it is used as a tool for strategic rethinking and transformation, rather than simply as a regulatory compliance exercise.

Letter reprinted in Clancy, H. (2024, April 11). Read the leaked protest letter from SBTi staff angry over new carbon offset policy. Greenbiz.&nbsp;<a href="https://www.greenbiz.com/article/read-leaked-protest-letter-sbti-staff-angry-over-new-carbon-offset-policy">https://www.greenbiz.com/article/read-leaked-protest-letter-sbti-staff-angry-over-new-carbon-offset-policy</a>

See the March 2024 rules for calculating short-term targets, p. 10: https:<a href="https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdf">//sciencebasedtargets.org/resources/files/SBTi-criteria.pdf</a>

Thomas, P-L. (2023, August 30). Verra, leader in carbon credits, nailed once again.&nbsp;La Croix.&nbsp;<a href="https://www.la-croix.com/Economie/Verra-leader-credits-carbone-nouvelle-fois-epingle-2023-08-30-1201280701">https://www.la-croix.com/Economie/Verra-leader-credits-carbone-nouvelle-fois-epingle-2023-08-30-1201280701</a>

<a href="https://www.net-zero-initiative.com/fr">https://www.net-zero-initiative.com/fr</a>

See the work of Group 1 in particular.

See the work of Group 2 in particular.

See the work of Group 3 in particular.

Why is the SBTi's intention to count carbon credits as emission reductions problematic? A Carbone 4 analysis

The Science Based Targets Initiative is accused of greenwashing.

With the development of ever more powerful computers and smartphones, the multiplication of connected devices in our offices and homes, and the promises of Artificial Intelligence and 5G, digital technologies have us ever more dreaming of a "dematerialized" economy, freed from the physical limits of the real world.However, the digital sector is becoming increasingly resource-hungry, and not just in terms of fossil fuels. Dependent on raw materials such as copper, gold and lithium, digital technologies also rely on much lesser-known metals such as indium, tantalum and gallium to manufacture the equipment that enables it to exist (computers and smartphones, but also transmission networks and data centers).In this analysis, we explore the question of the sector's resource consumption. More specifically: are there any raw material supply risks for the digital sector ? While we don't expect to come up against geological constraints (i.e., "emptying the reserves") in the next 10 years, other issues are likely to restrict access to the raw materials on which the digital sector depends: competing uses, geopolitical risks, environmental and social risks, and the illusion of recycling.<h3>Context: the strong growth of the digital sector</h3>The digital sector alone accounted for 4% of global greenhouse gas emissions in 2019. With strong growth, the digital sector's carbon footprint could increase 60% by 2040<a class="footnoteLink" href="#footnote-1"><a class="footnoteLink" href="#footnote-1">[1]</a></a>. It also accounts for 4.2% of primary energy consumption and 0.2% of water consumption worldwide<a class="footnoteLink" href="#footnote-2">[2]</a>.But the environmental impact of digital technologies is not limited to greenhouse gas emissions or water consumption. The industry is &nbsp;also dependent on a growing number of critical resources.&nbsp;On average, a smartphone is made up of 50 to 70 chemical elements<a class="footnoteLink" href="#footnote-3">[3]</a>, used in minute quantities for highly precise and complex applications. These elements are essential to achieve the record performances and costs seen today in tech.

Demand has increased not only in volume - but also in diversity

The digital sector contributes to the exponential consumption of raw materials in our economy - particularly that of metals. Between 1980 and 2008, global demand for metals almost doubled (87% increase)<a class="footnoteLink" href="#footnote-4"><a class="footnoteLink" href="#footnote-4">[4]</a></a>. Demand has increased not only in volume - but also in diversity, as shown in Figure 1, which traces the increase in the number of metals used with successive technological evolutions. Between 1980 and 2010, the number of metals used was multiplied by 6, mainly due to the ICT (Information &amp; Communication Technologies) industry. By 2050, to meet projected demand, the quantity of metals required could represent 3 to 10 times current production volumes. This would mean producing more metal over the next 35 years than we have produced since Ancient history<a class="footnoteLink" href="#footnote-5"><a class="footnoteLink" href="#footnote-5">[5]</a></a>.

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Figure 1 - Illustration of the increase in the number of metals used according to technological evolution.

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Figure 2 - iPhone 6 Composition (in grams)

Faced with this exponential consumption of raw materials, isn't the digital sector at risk of tensions over the raw materials on which it depends ? We explore this question in this article, focusing on a few critical raw materials for the digital sector, and the risks they face (economic, technological, supply, geopolitical, and environmental).<h3>Five critical raw materials for the digital sector</h3>Let's take a closer look at five critical raw materials for the digital industry : indium, gallium, tantalum, neodymium and germanium. By cross-referencing several studies (Bureau de recherches géologiques et minières - BRGM, European Commission, France Stratégie, etc.<a class="footnoteLink" href="#footnote-6">[6]</a>), these five elements stand out as critical for the digital sector, as they are at the crossroads of two factors :<ul><li>Demand : the use of these materials is essential if digital technology is to perform at current technological standards and costs. Alternatives to these materials would, for the most part, increase the production costs of digital equipment.</li><li>Supply : they face supply vulnerabilities, even though they are used almost exclusively in digital applications.</li></ul>

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Figure 3 - What is a "critical" raw material for the digital industry ?

<h4>Essential uses for the digital sector</h4>In terms of demand, our studied raw materials have a very specific use in user terminals. Although they are present in minute quantities - representing less than 100 mg<a class="footnoteLink" href="#footnote-7">[7]</a> of the total weight of a conventional smartphone - they enable high levels of performance to be achieved, both in terms of quality and cost. They are therefore poorly substitutable, as they have no equivalent in terms of cost and/or quality.&nbsp;

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Figure 4 - Use of critical raw materials in digital applications and examples of other uses

Figure 3 gives an overview of the five raw materials and their use in the digital sector. Indium, for example, used in the form of tin-doped indium oxide, enables the quality of touch screens and LCDs we have today. Zinc or tin oxides are possible substitutes, but they do not deliver the same performance<a class="footnoteLink" href="#footnote-8">[8]</a>. This is a material with which we interact on a daily basis, without realizing the complexity of its value chain and its environmental impacts (detailed later in this article).Furthermore, these five raw materials are used almost exclusively in the digital sector - which conditions and sizes their demand (the sector accounts for between 30 and 95% of their consumption)<a class="footnoteLink" href="#footnote-9">[9]</a>. With the frantic race to bring out the latest models and the increase in screen size (e.g.: at 31 cm in 2010, the average diagonal of flatscreen TVs is set to increase to 65 inches in 2025<a class="footnoteLink" href="#footnote-10">[10]</a>), the trend shows no sign of slowing down.<h4>Raw materials subject to supply tensions&nbsp;</h4>The value chains for these metals are complex, especially because of the way mining projects operate. These projects span decades and include several phases : mineral exploration to find exploitable reserves, extraction, refining, and manufacturing stages. Our five raw materials face several supply tensions :<ul><li>Co-products or by-products : Like most mining resources, these materials are co- or by-products, substances that are not present in sufficient quantities in the earth's crust to justify mining on their own. Their production therefore depends on the production of other metals. There is no such thing as a mine dedicated to a single material. Only a few main substances, such as copper, iron or zinc, can justify a mine. The existence of co- or by-products ensures economic profitability. For example, indium is produced during the zinc refining stage. However, zinc refineries also depend on other co-products to achieve economic profitability. The mining industry is therefore linked to multiple markets, making them all interdependent. Producing more indium means producing more zinc and co-products, and finding markets for each.</li><li>Production monopoly : The refining of these materials is almost entirely concentrated in China (in 2022, China produced 58% of the world's indium, 98% of gallium and 70% of rare-earth elements)<a class="footnoteLink" href="#footnote-11">[11]</a>. This Chinese monopoly makes our five raw materials vulnerable to geopolitical tensions. It should be noted that China's share of global production of these materials has been partly reduced as a result of the US protectionism implemented by the Trump administration against Chinese products, particularly for rare-earth elements<a class="footnoteLink" href="#footnote-12">[12]</a>.</li><li>Strong social and environmental impacts : In addition to GHG emissions, extraction and refining have a strong impact on environmental and human health. Open-pit mining alters the landscape, the soil and the local hydrological regime. Ore extraction and element separation generate chemical effluents (cyanide, arsenic, lead, sulfates, mercury, etc.)<a class="footnoteLink" href="#footnote-13">[13]</a>,<a class="footnoteLink" href="#footnote-14">[14]</a>. In addition to these materials, which are harmful to biodiversity and human health, the production of digital raw materials generates a colossal quantity of inert waste, resulting from the crushing of rocks<a class="footnoteLink" href="#footnote-15">[15]</a>. As we cross more planetary boundaries, how long will we accept these harmful impacts, which are accelerating with the increased consumption of these raw materials ? Raw materials are therefore subject to transition risks as well<a class="footnoteLink" href="#footnote-16">[16]</a>. This also applies to social issues. A non-negligible proportion of the supply comes from illegal child labor operations<a class="footnoteLink" href="#footnote-17">[17]</a>. In the Democratic Republic of Congo, one of the main producers of Tantalum, armed conflicts over the exploitation of natural resources have been raging for 20 years. How much longer will we accept this exploitation ?</li><li>Virtually zero recycling : Finally, in the face of these raw material supply challenges, recycling is no panacea either. Today, these raw materials are neither recycled nor recyclable. Their end-of-life recycling rates are below 1%<a class="footnoteLink" href="#footnote-18">[18]</a>. The minute, mixed quantities used in terminals prevent efficient recycling methods at viable economic costs. This difficulty in recycling terminals also comes with its share of environmental and social consequences. Some of this digital waste ends up in landfills on the other side of the world. The Agbogbloshie e-waste dump in Ghana is one of the largest in the world<a class="footnoteLink" href="#footnote-19">[19]</a>.</li></ul>

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Figure 5 – Critical aspects of the value chains

<h4>Sufficiency&nbsp;as a means of action</h4>The current digital consumption model seems unlikely to be sustainable, given the nature of the tensions on raw materials. According to CISCO, the number of terminals connected to an IP address will be three times greater than the world's population in 2023<a class="footnoteLink" href="#footnote-20">[20]</a>. Structural changes will have to be considered to mitigate the sector's impact. With this in mind, several solutions can be considered, starting with user terminals:&nbsp;<ul><li>Influencing demand : Promote rational screen consumption (restrain the increase in the number of screens per person), promote longer lifespans, increase the operational life of applications and software, and encourage the use of refurbished devices rather than buying new ones.</li><li>Influencing supply (less resource-hungry) : Design devices with lower performance levels to reduce the material footprint, design devices that promote recycling at end-of-life.</li></ul>Moreover, this desirable sufficiency is not limited to terminals alone. We also need to question the models of other digital components such as data centers and network infrastructures (deployment of 5G across an entire territory, programmed obsolescence of 2-3G, growth in the number of data centers, etc.).&nbsp;Beyond questioning supply risks, digital technology must stop representing an ideal of conspicuous consumption, which hides the physical and geological realities. This is the paradox of the sector: the promise of digitalization as a means of optimizing other sectors of activity comes up against a lack of awareness of the unsustainable materiality of digital technology.&nbsp;

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Arcep, Pour un numérique soutenable, <a href="https://www.arcep.fr/la-regulation/grands-dossiers-thematiques-transverses/lempreinte-environnementale-du-numerique.html">https://www.arcep.fr/la-regulation/grands-dossiers-thematiques-transverses/lempreinte-environnementale-du-numerique.html</a>, 2020

GreenIT, Empreinte environnementale du numérique mondiale, <a href="https://www.greenit.fr/empreinte-environnementale-du-numerique-mondial/">https://www.greenit.fr/empreinte-environnementale-du-numerique-mondial/</a>

SystExt, Des métaux dans mon smartphone ?, <a href="https://www.systext.org/node/1724">https://www.systext.org/node/1724</a>, 2017

SystExt, Les métaux de la révolution 4.0, <a href="https://www.systext.org/node/1568">https://www.systext.org/node/1568</a>, 2019

Olivier Vidal. Impact de différents scénarios énergétiques sur les matières premières et leur disponibilité future. Annales des mines - Série Responsabilité et environnement, 2020, N°99 (3), pp.19-23. ff10.3917/re1.099.0019ff. ffhal-03426222f

Commission européenne, Critical Raw Materials for Strategic Technologies and Sectors in the E: A Foresight Study; France Stratégie, La consommation de métaux du numérique : un secteur loin d’être dématérialisé, 2020 ; Commission européenne, Critical Raw Materials and the Circular Economy, 2018; ONU, Digital economy growth and mineral resources:&nbsp; Implications for Developing Countries, 2020&nbsp;; The Shift Project, Lean ICT - Pour une sobriété numérique, 2018

Senate, 100 millions de téléphones portables usagés&nbsp;: l’urgence d’une stratégie, 2016

BRGM, L’indium (In) – éléments de criticité, <a href="https://www.mineralinfo.fr/sites/default/files/documents/2020-12/fichecriticiteindium170921.pdf">https://www.mineralinfo.fr/sites/default/files/documents/2020-12/fichecriticiteindium170921.pdf</a>, 2017

<a href="https://lelementarium.fr/">https://lelementarium.fr/</a>

Materials of the dematerialized:  are there raw material supply risks for companies in the digital sector ?

Mélodie joined the Carbone 4 team in August 2020. A graduate of the École Centrale Paris, she specialised in the energy sector from the end of her studies. She also holds a degree in Energy Economics from IFP and INSTN.Before joining Carbone 4, Mélodie worked for three years in a management consultancy. In particular, she assisted several energy players in their digital transition.&nbsp;At Carbone 4, she works mainly on two themes: climate investment strategies and the carbon impacts of digital technology.&nbsp;She assists asset managers, particularly infrastructure investors, in defining and steering a climate strategy. She is responsible for the methodological development of the CIARA (Carbon Impact Analytics for Real Assets) platform.&nbsp;In the IT sector, Mélodie helps her clients to better understand the carbon footprint of digital uses, in order to control and reduce it. She is particularly interested in the impact of the development of the cloud on the increase in the sector's emissions.&nbsp;

Mélodie Pitre

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