Carbone-4-NZI-Guidelines-april-2020-2.pdf

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94-publication-referentiel-nzi.pdf

Net Zero Initiative - Diving into the Net Zero Initiative Guidelines

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

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Misconceptions about electric vehicles

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351-publication-strategy-scenario-analysis.pdf

Corporate strategy in the era of climatic emergency:  Are old recipes (still) viable?

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Preconceived ideas on aviation and climate

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270-publication-decoupling.pdf

*offer subject to conditions, within the limits of stocks available

Decoupling and  green growth*

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213-publication-2-infra-challenge-methodological-guide.pdf

Assessing infrastructure portfolios' alignment with the Paris Agreement

Zenon has been a consultant at Carbone 4 since February 2019 and is now manager. After studying, Zénon created a start-up for the desalination of seawater with renewable energies. He then launched L’<a target="_blank" href="https://vasselinzenon.wixsite.com/linparable/">Inparable</a>&nbsp;to help engineers in search of meaning to take the first steps towards a profession with a strong positive impact.At Carbone 4, he now develops the expertise of the Group in the environmental footprint of the digital sector and helps pure players reduce their emissions. More broadly, he has guided around twenty organizations in all sectors in their climate strategy.He gladly facilitates training sessions or presents the stakes of global carbon neutrality in conferences.

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Clara is manager at Carbone 4In the strategy practice, she helps companies identify business risks and opportunities associated with the transition to a lower-carbon economy, and integrate the matters related to climate change into corporate strategy.Prior to joining Carbone 4, she worked as a consultant in corruption and integrity risk management where she oversaw corporate investigations, reputational due diligence and compliance projects. Most recently, Clara led the strategy department of a nonprofit organisation.&nbsp;

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<a href="https://carbone4.com/files/Carbone_4_NZI_4_IT_General_guidelines_english.pdf">Download the General guidelines NZI for IT</a>&nbsp;Companies who co-authored the principles : Backmarket, Bureau Veritas, Constellation, IJO, Isai, Octo Technology, Orange, OVHcloud, VusionGroup<h3>&nbsp;</h3><h3>Introduction</h3>The digital sector – including device production, data sharing, computing and storage capacity&nbsp;– has seen its energy and resource consumption boom, while the opposite would seem to be required to limit global warming to less than 2°C above pre-industrial levels. Accounting for 2.1% to 3.9%<a class="footnoteLink" href="#footnote-1">[1]</a> of global greenhouse gas (GHG) emissions and 2.5% of France's carbon footprint in 2020, it stands out for its upward trend, of +6% per year in France<a class="footnoteLink" href="#footnote-2">[2]</a>. If the trend continues, the carbon footprint of the digital sector in France could increase by 45% between 2020 and 2030<a class="footnoteLink" href="#footnote-3">[3]</a>. In a broader lifecycle analysis, GHG emissions represent only part of the environmental impact of digital technology: the sector is exerting increasing pressure on mineral and fossil resources, water use and waste<a class="footnoteLink" href="#footnote-4">[4]</a>. Lastly, growing demand for electricity and non-recyclable critical metals could come into competition with the increased needs from the low-carbon transition<a class="footnoteLink" href="#footnote-5">[5]</a>.The sector is sometimes promoted as a provider of solutions to the climate crisis, capable of reducing the greenhouse gas emissions of other sectors. This calls for a further investigation of the decarbonisation potential of digital technology and of the steps the sector should take to contribute to the net zero emissions objective.&nbsp;These Guidelines extend the Net Zero Initiative (NZI) benchmark initiated by Carbone 4 by adapting it to the digital sector. Twenty organisations and experts from the sector including digital companies, specialised consultancies and investment funds, network operators, institutions, academics and NGOs pledged to use the the NZI for IT Guidelines. Companies that sign the NZI for IT code of conduct acknowledge the relevance of its findings and use the proposed methodologies to adopt climate strategies commensurate with current environmental challenges.&nbsp;&nbsp;<h3>I. Two categories of digital products&nbsp;and services with distinct climate issues</h3>Digital solutions can be differentiated by their functions, forming 2 groups with different decarbonisation levers.<ol><li>The first category (hereinafter referred to as "category A") refers to solutions that promote a digital consumption for its sake: this is the case for all screens that support entertainment, and in particular the viewing of online recreational videos, whether they come from streaming websites, mobile phone applications or video game consoles. This category A has seen very strong growth in recent years<a class="footnoteLink" href="#footnote-6">[6]</a>. These products have neither the aim nor the ability to contribute to the decarbonisation of other uses. Like all other products &amp; services, they should start by questioning the relevance and conditions of their development in a world constrained by the compliance with a 1.5°C or 2°C carbon budget. Furthermore, their own &nbsp;contribution to decarbonisation can only, and must only, be achieved through efforts to reduce their induced emissions (pillar A of the NZI reference framework).</li><li>The second category (hereinafter referred to as "category B") refers to digital solutions aimed at digitising or connecting another type of product, services or solution. Today's economy is heavily reliant on the support of these digital solutions, which enable players to communicate and operate increasingly faster (emails, automated processes, digitised transactions, etc.), a logic that decarbonisation calls into question. Category B, which is largely based on data production and processing, includes solutions for measuring, managing and optimising a number of physical flows. Examples include systems for optimising buildings energy consumption, eco-driving systems integrated into vehicles, and platforms facilitating access to soft or shared mobility. Under certain conditions, the solutions in this category offer potential help in reducing greenhouse gas emissions. For these solutions, the challenges of decarbonisation therefore go beyond Pillar A: there is also a challenge of avoided emissions, Pillar B of the NZI reference framework. The difficulty, however, lies in measuring the reduction in emissions they actually achieve.</li></ol>The digital revolution is often presented or considered as the ally of ecology, due to the decarbonising potential of certain solutions belonging to category B<a class="footnoteLink" href="#footnote-7">[7]</a>. However, when we look at the negative externalities associated with the sector as a whole (categories A and B), we see that its emissions and other pollution are significant and growing. In fact, the emissions that could be avoided by certain category B solutions are over-compensated by the growth of certain uses (particularly in category A) that have no environmental virtue.&nbsp;&nbsp;<h3>II. How can digital companies contribute to global net zero?&nbsp;</h3>Like any other sector, the digital sector must contribute to the pursuit of the goal of global net zero: any digital company, whether it produces category A or B goods and services, must be accountable for its climate strategy and follow science-based rules of action to limit its GHG emissions. To do so, the company can take a two-stage approach.&nbsp;<ol><li>Firstly, a company should ensure that its solutions are compatible with a low-carbon world (forward-looking analysis and pillar B of the NZI framework),</li><li>Secondly, it must reduce its own emissions and contribute to the development of carbon sinks (pillars A and C of the NZI guidelines).</li></ol><h4>1. Ensuring that the purpose of one’s activities is compatible with a low-carbon world: analysing the business model and Pillar B</h4>The need to re-benchmark the various economic sectors within the physical limits of the planet means that each company must first question the purpose of its activities to ensure that they are compatible with a low-carbon world.&nbsp;Given the pressure that the sector is exerting on greenhouse gas emissions, mineral and water resources, as well as on the demand for electricity, every digital company must ask itself the question of the relevance of the uses of its products in a transitioning world. This analysis of the nature of its activities is the only way to ensure that they meet the imperative of sufficiency, i.e. "a situation in which limited resources are put at the service of reasonable needs"<a class="footnoteLink" href="#footnote-8">[8]</a>. It implies upstream reflection on the sustainability of the business model&nbsp;in a low-carbon world.For companies marketing category B&nbsp;solutions that help to reduce emissions from their ecosystem,&nbsp;the analysis can go a step further: they can assess the ability of their existing or future solutions to contribute to decarbonising activities.&nbsp;As we will see in Chapter 3, several tools can be used to assess the compatibility of a company's business model with a low-carbon world (for categories A and B), and to measure the emissions avoided by its products and services (for category B only).<h4>2. Reducing one’s own emissions and helping to develop carbon sinks</h4>Once it has ensured that its products are aligned with a low-carbon world, a digital company, whether Category A or B, must reduce the externalities of its products as much as possible.&nbsp;Reducing one’s own emissions (known as induced&nbsp;emissions, or pillar A) must be a key part of the&nbsp;climate strategy of digital sector companies. They must follow science-based emissions reduction trajectories aligned with those of their sector to meet the Paris Agreement.As mentioned above, category A solutions – whose purpose is a digital consumption per se (and video viewing in particular) – should focus their efforts on reducing their induced emissions in absolute terms,&nbsp;because of their growing emissions and inability to reduce emissions of other sectors.The key obstacle to an adequate reporting by companies in the sector lies in digital value chains that are intricate, geographically fragmented, and suffer from a lack of transparency&nbsp;from&nbsp;the sector's largest players<a class="footnoteLink" href="#footnote-9">[9]</a>.Finally, like all economic players, companies in the digital sector (categories A and B) must help to reduce global emissions by contributing to developing global carbon sinks (pillar C of the NZI guidelines).&nbsp;However, with the exception of IT solutions dedicated to improving agriculture and/or forestry, digital technology has no immediate link with the value chains of the land and forestry sectors: its players can only contribute to the effort by funding carbon sequestration projects outside their value chain.&nbsp;Remember that these contributions in no way "offset" the emissions of these companies,&nbsp;and&nbsp;do not replace the essential reduction actions under pillar A.&nbsp;<h3>III. Tools for a low-carbon strategy in the digital sector&nbsp;</h3>To build an effective and ambitious climate strategy, companies of the digital sector must have the analytical tools to meet the objectives set out in the previous chapter. The following tools can already be used to help the sector’s companies make an effective contribution to global net zero.&nbsp;1. All digital players, category A and B, must first reflect on the purpose of their activities to ensure that they are able to operate within the physical limits of the planet and in compliance with the Paris Agreement.&nbsp;<ul><li>Companies marketing Category A and B&nbsp;solutions can analyse the resilience of their business model and solutions portfolio&nbsp;by projecting them into a low-carbon world using forward-looking scenario analysis. These aim to identify the risks and opportunities associated with the low-carbon transition, and are an exercise recommended by the CSRD<a class="footnoteLink" href="#footnote-10">[10]</a><a class="footnoteLink" href="#footnote-11">[11]</a>.</li><li>Category B companies&nbsp;can also assess the relevance of a solution, or a portfolio of solutions, in a world in transition using Pillar B&nbsp;tools.</li><li>The Paris Agreement Compatibility Score (SCAP)<a class="footnoteLink" href="#footnote-12">[12]</a> developed by NZI can be used to assess the compatibility of existing products and services with a low-carbon world. By analysing a solution or portfolio of solutions, it can answer two questions: do my solutions contribute to low-carbon practices, and do my solutions help to decarbonise the function I am addressing?</li><li>Category B companies can also carry out an analysis to measure the emissions that their new solutions can help to avoid for customers and end users. Digital solutions aimed at optimising systems (sensors feeding machine learning&nbsp;algorithms to optimise data centre cooling, for example), eliminating travel thanks to remote work, or better matching supply and demand (as-a-service solutions and usage economy platforms), are conducive to calculating avoided emissions. However, a number of methodological challenges need to be rigorously addressed: quantifying rebound and indirect effects, and defining the&nbsp;baseline situation are critical<a class="footnoteLink" href="#footnote-13">[13]</a>.</li></ul>These tools open up two possibilities for digital businesses:&nbsp;<ul><li>modify their existing products and services to make them more suitable for a low-carbon world, through new uses or new markets;</li><li>consider and direct their production towards the creation of new products and services that will be resilient in this global transition, and will replace those that are less relevant or at high risk of transition.</li></ul>&nbsp;2. Secondly, companies (categories A and B) must take an interest in measuring and reducing the negative externalities of their products and services. As a reminder, according to the SBTi, the majority of companies - and the economy as a whole, all sectors combined - must reduce their emissions by at least 90% by 2050 compared with 2020 in order to limit global warming to 1.5°C compared with the pre-industrial era<a class="footnoteLink" href="#footnote-14">[14]</a>.<ul><li>To reduce its externalities, the company must seek to reduce its own emissions&nbsp;(pillar A).</li><li>To do so, it needs to use standard science-based methodologies&nbsp;appropriate for digital technology. This will enable it to measure its carbon footprint, submit its reduction targets to SBTi and adopt an appropriate reduction action plan.</li><li>But it is not enough. Analysing the purpose of the digital solutions is also necessary. It can consist in checking the compatibility of its portfolio of products with a low-carbon world, and/or assessing the decarbonisation potential in its products’ customer sectors (pillar B).</li></ul>When they cannot reduce emissions in their value chain, companies (categories A and B)&nbsp;can fund projects that contribute to reducing emissions and developing carbon sinks outside their value chain (pillar C).<ul><li>Digital companies must support projects outside their value chain that are consistent with their financial resources and/or their level of current or past emissions (for example via an internal carbon price compatible with a 1.5°C objective).</li><li>Under no circumstances can these contributions be considered a compensation for induced emissions and give way to declarations of carbon neutrality.</li><li>If companies do not adopt a global reduction trajectory compatible with the Paris Agreement, their investments in "offsetting" are tantamount to an attempt to grant themselves a right to exist in a low-carbon world without having made the necessary transformations. These practices are formally condemned by the GHG Protocol, the SBTi and the NZI.</li></ul>

For all category A and B digital companies, communication must be unambiguous, sincere and faithful to&nbsp;their effective efforts to reduce their environmental impact and their low-carbon transition strategy.&nbsp;This means respecting the four principles listed below.<ul><li>A company should refrain from declaring hypothetical "climate" virtues or benefits associated with its products and services if it has not conducted specific studies&nbsp;using appropriate methodologies that can attest to these emission reductions. It is up to any company that has produced a solution to demonstrate any positive environmental impacts using scientific methods.</li><li>Given the collective interest in accessing the data of digital players to measure the environmental impacts of the sector and inform decision-making, companies must demonstrate a reasonable level of transparency&nbsp;to facilitate inventories of the carbon impacts of their activities.</li><li>For products and services that have no emission reduction or avoidance potential, it is important to be transparent about their impact over their entire life cycle, and under no circumstances to communicate that they are "green", messages that help to make invisible the pressures exerted by these solutions on mineral resources and the climate<a class="footnoteLink" href="#footnote-15">[15]</a>.</li><li>Finally, declarations of emissions avoided&nbsp;by Category B digital solutions must be grounded in appropriate calculations,&nbsp;account for rebound effects and describe the reference situation.</li></ul>

Carbone 4_NZI4IT_General guidelines_english.pdf

Neutrality

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Charlotte Freitag et al, The real climate and transformative impact of ICT: A critique of estimates, trends, and regulations, 2021

<a href="https://theshiftproject.org/wp-content/uploads/2018/11/Rapport-final-v8-WEB.pdf">The Shift Project, Lean ICT: pour une sobriété du numérique, 2018</a> and <a href="https://theshiftproject.org/wp-content/uploads/2021/03/Synthese_Numerique-et-5G_30-mars-2021.pdf">Impact environnemental du numérique : tendances à 5 ans et gouvernance de la 5G, 2021</a>; <a href="https://www.arcep.fr/uploads/tx_gspublication/etude-numerique-environnement-ademe-arcep-volet02_janv2022.pdf">ARCEP-ADEME, Evaluation environnementale des équipements et infrastructures numériques en France, 2022</a>

<a href="https://www.arcep.fr/uploads/tx_gspublication/etude-numerique-environnement-ademe-arcep-volet02_janv2022.pdf">ARCEP-ADEME, Environmental assessment of digital equipment and infrastructure in France, 2022</a>

<a href="https://www.arcep.fr/uploads/tx_gspublication/etude-numerique-environnement-ademe-arcep-volet02_janv2022.pdf">ARCEP-ADEME, Evaluation environnementale des équipements et infrastructures numériques en France, 2022</a>; <a href="https://www.greenit.fr/wp-content/uploads/2021/12/EU-Study-ACV-7-DEC-FR.pdf">Green IT, Le numérique en Europe : une approche des impacts environnementaux par l'analyse du cycle de vie, 2020</a>; <a href="https://www.linfodurable.fr/en-europe-une-hostilite-emergente-contre-les-centres-de-donnees-34080">AFP, En Europe, une hostilité émergente contre les centres de données, 2022</a>; <a href="https://theothereconomy.com/fr/modules/economie-ressources-naturelles-et-pollutions/#La-revolution-numerique-serait-l'alliee-de-la-transition-ecologique">Marion Cohen and Antoine Gonthier, Economie, ressources naturelles et pollutions, </a>2020&nbsp;

<a href="https://www.ecologie.gouv.fr/sites/default/files/rapport_08_cgdd_ressources_minerales_critiques_energies_bas_carbone_juillet2023.pdf">CGDD, Les ressources minérales critiques énergies bas carbone, 2023</a>; <a href="https://www.iris-france.org/180834-un-retour-des-stocks-strategiques-de-metaux-critiques-dans-la-dynamique-de-transition-bas-carbone%E2%80%89/">IRIS, Un retour des stocks stratégiques de métaux critiques dans la dynamique de transition bas carbone?, 2023</a>; <a href="https://www.carbone4.com/analyse-guerre-et-transformation-bas-carbone-dependance-metaux">Carbone 4, Guerre et transformation bas-carbone: d'une dépendance des énergies fossiles vers celle des métaux?, 2022</a>

While data traffic is responsible for 55% of the global energy impact of digital technology, online video flows accounted for 80% of this traffic in 2018 and 80% of the increase in their annual volume. It should be noted that these video flows by type of use are made up of streaming platforms for films or series (34%), pornography (27%), Tubes on Demand (21%), and videos exchanged on social networks via smartphones (21%) - see <a href="https://theshiftproject.org/wp-content/uploads/2019/07/R%C3%A9sum%C3%A9-aux-d%C3%A9cideurs_FR_Linsoutenable-usage-de-la-vid%C3%A9o-en-ligne.pdf">The Shift Project, Climate: the unsustainable use of online video, 2019</a>

Remote working, collaborative platforms, e-commerce, so-called "dematerialized" uses (books, films, music), "intelligent" buildings and cities, etc., would all help to reduce our consumption of resources and the resulting pollution. See <a href="https://theothereconomy.com/fr/modules/economie-ressources-naturelles-et-pollutions/#La-revolution-numerique-serait-l'alliee-de-la-transition-ecologique">Marion Cohen and Antoine Gonthier, Économie, ressources naturelles et pollutions, </a>2020&nbsp;

Definition proposed by the economist Eloi Laurent in an interview with France Inter in September 2022

From an accounting point of view, it can be difficult to provide keys for converting the consumption of digital products and services into quantities of GHGs emitted. This is because it is difficult to identify relevant units of need (functional units in carbon accounting) that are close to the underlying physical reality (e.g. what physical quantities should be attached to the viewing of a streaming video in order to properly reflect the response to the need? Is the need simply a volume of data, a bit rate for a certain duration or something else?) because digital equipment is subject to numerous threshold effects that decouple its consumption of energy and materials from the quantity of services rendered. In fact, on a small scale, there is a non-linearity between the power consumption of network equipment and the data flows passing through this equipment. On a large scale, it seems reasonable to imagine that this effect will be eliminated, but then we come up against the problem of network infrastructures: capacity sizing is linked to the peak load and not to the average load. The 'weight of the peak' therefore adds emissions that are difficult to include in the carbon bill of VoD system users. Furthermore, the superimposition of invisible flows mobilised to provide a digital service obscures the physical reality that supports them (see <a href="https://www.carbone4.com/analyse-risques-matieres-premieres-numerique">Carbone 4, Les matières de l'immatériel: exist-t-il des risques d'approvisionnement en matières premières pour les entreprises du numérique? 2023</a>). Finally, business models and the distribution of value do not encourage a systemic approach (e.g. over-the-top services or OTTs - see Transitioning towards sustainable digital business models, ECDF Working Paper Series #005, Hugues Ferreboeuf, 2022)

Corporate Sustainibility Reporting Directive

Scenario-based prospective analyses aim to identify the risks and opportunities of the low-carbon transition

<a href="https://www.carbone4.com/publication-nzi-indicateur-scap">NZI, Proposal for a new climate indicator, </a>2022&nbsp;

These aspects are detailed in the NZI for IT Methodology on avoided emissions in the digital sector

<a href="https://sciencebasedtargets.org/resources/files/Net-Zero-Standard.pdf">SBTi, Net Zero Standard V.1.1, April 2023</a>

As pointed out in <a href="https://www.net-zero-initiative.com/fr/10-principes#:~:text=Les%20%22Dix%20principes%20Net%20Zero,d%C3%A9veloppeurs%20de%20projets%2C%20institutionnels">The 10 Principles of NZI</a>, giving customers a bogus "zero emissions" carbon bill reflects a lack of rigorous accounting and helps to maintain confusion about the real impact of climate change&nbsp;

444-principles-guidelines-nzi-it.pdf

Net Zero Initiative

Principles and guidelines NZI for IT

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;

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Luce is a senior consultant at Carbone 4 in the climate change mitigation practice. Within the firm, she develops carbon footprints and action plans for companies in various industries.Luce has 5 years of experience in consulting. Prior to Carbone 4, she specialized in sustainable mobility and energy efficiency in the consulting firm: Dunsky Energy + Climate. She worked mainly with governments (ministries, regions, and municipalities) and energy providers on the analysis and development of energy-climate programs in North America.Previously, Luce worked for 2 years in KPMG Canada’s management consulting practice. She contributed to assignments in various industries (aviation, financial services, insurance), including in change management.Luce is also a certified mediator, specialized in conflict resolution and non-violent communication.&nbsp;

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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;

Helene is senior manager at Carbone 4 since january 2018 and co-leader of the Climate performance practice which supports stakeholders in defining, implementing and promoting ambitious and enforceable policies to reduce greenhouse gas emissions.She contributes to develop and convey our 8 fields of expertise to our clients and prospects. She aims at supporting Carbone 4’s clients so they take the best strategic decisions for the pursuance and the resilience of their activities in a 2°C world path. She participates in the definition of Carbone 4’s strategy and its translation into operational execution and seeks to transform business opportunities into actual projects.Helene started her career in metal industry, implementing Quality, Safety and Environment Management systems, before consulting for a major car manufacturer, helping it improve the organization of its engineering and design core business unit. Then she ran for Assystem its nuclear business unit for the Paris area, until she became in charge of energy-transition strategies for the engineering firm.&nbsp;

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Finance

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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

Carbon footprints and reporting

Within Carbone 4, Florian works on assessing the carbon impact of companies and participates in defining their climate strategy. Florian also contributes to the development of the Carbone4 Academy, which trains economic and financial players in climate and energy issues.Before joining Carbone 4, Florian taught philosophy. He is particularly interested in contemporary work conducted in the field of environmental philosophy.&nbsp;

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Thibault joined Carbone 4 in January 2023, as a senior consultant within the transport &amp; mobility practice. Now, as a project manager, he assists companies and local authorities in their transition to low-carbon mobility. Prior to joining Carbone 4, Thibault worked 4 years in a strategy and transformation consulting firm in Aeronautic. In this role, he worked with a major aircraft manufacturer in this sector on a wide variety of topics with a strong analytical focus such as : digitalization of industrial management control, inventory management optimization and supply chain performance monitoring, and support of a purchasing competitiveness plan.

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In line with its ambition to reduce the continent's emissions by 55% by 2030, in July 2021 the European Commission presented its objectives and measures for light vehicles<a class="footnoteLink" href="#footnote-1">[1]</a>. Among them is the obligation for manufacturers to reduce CO2 emissions per kilometre from new vehicles by 100% by 2035, a provision that caused a stir because it amounts de facto to banning the sale of new&nbsp;combustion-powered vehicles. Despite an agreement reached at the end of 2022 between the Council (the institution representing the Member States) and the Parliament (the institution representing European citizens) on this target, the European authorities finally backed down last March during the final vote: under pressure from Germany in particular, the European Union went back on this ban, introducing an exception for "carbon-neutral e-fuels". What consequences does this reversal have for Europeans, and is this exemption justified?<h3>Context</h3>Transport by car and van accounts for around 15% of total emissions in the European Union<a class="footnoteLink" href="#footnote-2">[2]</a>. In France, national emissions from the road transport sector recorded in the SECTEN inventory are up slightly since 1990 (116 MtCO2e in 1990 compared with 127 in 2019), despite the fact that the National Low Carbon Strategy is aiming for "complete decarbonisation by 2050"<a class="footnoteLink" href="#footnote-3">[3]</a>. The ban on new internal combustion vehicles, coupled with a strategy of sobriety, therefore represents a major challenge both from the point of view of the decarbonisation imperative and the competitiveness of European industries, faced with the challenge of electrification and the emergence of new players who have long been positioned on the electric market (Tesla, the best known, Byd in China). Despite this, many voices, including Germany's, spoke out against the measure, fearing that it would weaken the automotive industry, which accounts for 12% of the country's workforce and 4.7% of its GDP<a class="footnoteLink" href="#footnote-4">[4]</a>. A compromise was finally reached at the end of March, on the basis of an exemption for vehicles powered by "carbon-neutral" synthetic fuels known as "e-fuels".&nbsp;<h3>Les « e-fuels », une alternative crédible aux carburants classiques pour décarboner ?</h3>Electrofuels, known as "e-fuels" or "synthetic fuels", are new-generation liquid or gaseous fuels. They are synthesised from renewable energy sources such as solar, wind or hydroelectric power to produce hydrogen (via a water electrolysis process) and carbon dioxide (or nitrogen in the case of e-ammonia). The CO2 used during the process can either be captured diffusely in the atmosphere (so-called DACCS technologies) or captured directly from the effluents of certain high-emission industrial sites (so-called CCU/CCS technologies).

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Simplified e-fuels synthesis diagram

This chemical process for creating synthetic fuel is not new. In the 1920s, two German chemists, Franz Fischer and Hans Tropsch, succeeded in liquefying a synthetic gas produced from coal, of which Germany had an abundance. It was not until the Second World War that this technology was developed on a large scale, in particular to meet the fuel needs of the German army.The complexity of the chemical synthesis and refining process makes these fuels extremely expensive, which is the main reason why they were only developed to a very limited extent after the war, in favour of petroleum-based fuels.More recently, these electrofuels have emerged as a promising solution for reducing greenhouse gas emissions in the transport sector for two main reasons. Firstly, they can be used in current combustion engines without requiring major modifications. Secondly, electrofuels have a carbon footprint that is at least 70% smaller than that of petroleum fuels<a class="footnoteLink" href="#footnote-5">[5]</a> throughout their production cycle. These synthetic fuels are therefore an effective solution for reducing greenhouse gas emissions from transport.However, this type of fuel suffers from a major flaw that calls into question its relevance for decarbonising motor vehicles: its low energy efficiency compared with battery-electric vehicles (the main alternative for decarbonising cars). While the latter uses electricity directly, the e-fuel engine involves an additional energy conversion: the synthesis of the fuel. Added to this is the fact that once the energy has been charged into the car (either by an electric battery or by storing the e-fuel), the electric motor is much more thermally efficient, so the energy given back to the car to move forward will be greater than for its internal combustion equivalent.As a result, with the same amount of decarbonised electricity available, a battery-powered vehicle can cover 3 to 5 times as many kilometres<a class="footnoteLink" href="#footnote-6">[6]</a> as its internal combustion equivalent using e-fuel. The choice of whether or not to use e-fuels is therefore above all a question of prioritising the use of available low-carbon energy.

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The distance you can travel in an electric car or a combustion-powered e-fuel car with the same amount of available energy

While the car industry can use electric batteries, this will not be the case for other mobility sectors. Heavy and long-distance transport (land, sea and air) will find it difficult to decarbonise through electrification or hydrogen. E-fuels therefore appear to be an interesting transitional solution, complementing a more global decarbonisation strategy. Proof of the growing interest in this type of fuel, the aeronautical sector has very recently increased the proportion of its use in its decarbonisation roadmap for the European Union, starting in 2030<a class="footnoteLink" href="#footnote-7">[7]</a>.<h3>Carbon-”neutral" fuels?</h3>In addition to efficiency considerations, a second reservation can be made about the "neutral" nature of these fuels. The argument put forward for reversing the ban on new combustion vehicles is based on the supposed carbon 'neutrality' of these synthetic fuels: the combustion engine powered by an e-fuel would be 'neutral', insofar as the CO2 emitted during its combustion would first have been taken from the air or from the factory, and the hydrogen needed to produce it would have been generated from decarbonised electricity. In this respect, European legislation should make no distinction between an internal combustion vehicle running on synthetic fuel and an electric vehicle: since both solutions are considered equivalent (because they are "neutral"), European legislation should refrain from favouring one or the other in its wording, and leave it to the market to select the most viable technological option. The reasoning, while seemingly appealing, does not stand up to analysis.<ol><li>Firstly, it is highly questionable to consider the two types of engine to be neutral, and therefore equivalent, on the grounds that the CO2 used to produce e-fuels has first been captured on an industrial site or in the air. Since the ban on the production of internal combustion vehicles powered by conventional fuels is not the subject of debate between the political authorities, the appropriateness of the exemption granted to e-fuels presupposes comparing 1) the situation in which internal combustion vehicles are banned and only new electric vehicles are authorised with 2) the situation in which internal combustion vehicles are banned and both e-fuels and electric vehicles are authorised. However, the equivalence between electric vehicles and e-fuel, even from the sole point of view of combustion emissions, is only valid if we assume that the capture device (DACCS or CCU) has been deployed for the production of e-fuel. Let's consider the most favourable case for e-fuels, i.e. the one in which the fuel is synthesised from CO2 taken from the atmosphere (the device therefore starts by generating a "negative emission": CO2 is removed from the atmosphere). The diagram above shows the flow of combustion emissions from a plant and a vehicle in several configurations (with or without a capture device; electric, thermal or e-fuel).</li><li>But above all, it would be highly questionable to confine ourselves to combustion emissions alone, which is what the critics of electric vehicles generally point out when they highlight the emissions generated by the manufacture of batteries<a class="footnoteLink" href="#footnote-8">[8]</a>: as we have shown, the energy efficiency of a combustion vehicle, whether powered by conventional fuel or e-fuel, is much lower than that of an electric vehicle, which means that for the same distance, more energy has to be mobilised by the former. As the production of this energy generates emissions, it is wrong to assume that the emissions generated by the two types of vehicle are equivalent: a combustion vehicle powered by e-fuel is not neutral, any more than a vehicle powered by electricity, but the latter is indeed more virtuous from a climate point of view, once all the emissions generated over the life of the vehicles are taken into account.</li><li>More fundamentally, the reasoning implicitly accepts that products can be "neutral" and that this criterion alone is sufficient to identify those best suited to the low-carbon transition. The attribute of "neutrality" presupposes the possibility of taking the emissions of a process as zero (or at least cancelling them out) - in this case, the alleged "neutrality" is supposed to reside in the capture operation prior to combustion by the vehicle, and in the renewable origin of the electricity used to produce the hydrogen - which obscures part of its climatic impact. But above all, its binary nature (a product is either neutral or it isn't) leads to an excessively simplistic understanding of the issues: if there are neutral products, it's because the choice between them can be considered equivalent from a climate point of view, and therefore politicians don't have to make a decision. The problem is not to determine whether a product is neutral or not, but to compare the merits and limitations of several solutions to a given problem (in this case, the decarbonisation of passenger transport): directing the production of carbon-free hydrogen towards passenger transport, through the production of e-fuels for example, means at the same time depriving other sectors, such as the steel industry, which do not have the same alternatives.</li></ol>This last observation calls for a broader reflection on the role of the European legislator: in a context of increasingly constrained resources, the legislator cannot simply identify, from among the existing alternatives, 'neutral' products that the free market would then have to sort out. The exacerbated pressure on resources and the need for coherent action mean that politicians, in this area as in others, must fully assume their role as strategists to ensure that resources are used wisely for the common good.

Mobility

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<a href="https://www.consilium.europa.eu/fr/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/">https://www.consilium.europa.eu/fr/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/</a>

<a href="https://www.consilium.europa.eu/en/infographics/fit-for-55-emissions-cars-and-vans/">https://www.consilium.europa.eu/en/infographics/fit-for-55-emissions-cars-and-vans/</a>

<a href="https://www.ecologie.gouv.fr/sites/default/files/2020-03-25_MTES_SNBC2.pdf">https://www.ecologie.gouv.fr/sites/default/files/2020-03-25_MTES_SNBC2.pdf</a> (page 80)

<a href="https://www.tresor.economie.gouv.fr/Articles/ab29bd3a-c676-46e6-b9a3-25e515e7d0e3/files/794dbe07-edb6-4924-bfae-ba671342f7be">https://www.tresor.economie.gouv.fr/Articles/ab29bd3a-c676-46e6-b9a3-25e515e7d0e3/files/794dbe07-edb6-4924-bfae-ba671342f7be</a>

Minimum greenhouse gas emission reduction rate set by the European directive on renewable energies RED II

<a href="https://theicct.org/e-fuels-wont-save-the-internal-combustion-engine/">https://theicct.org/e-fuels-wont-save-the-internal-combustion-engine/</a> and <a href="https://www.transportenvironment.org/wp-content/uploads/2020/12/2020_12_Briefing_feasibility_study_renewables_decarbonisation.pdf">https://www.transportenvironment.org/wp-content/uploads/2020/12/2020_12_Briefing_feasibility_study_renewables_decarbonisation.pdf</a>

<a href="https://www.iata.org/en/pressroom/2023-releases/2023-04-26-02/">https://www.iata.org/en/pressroom/2023-releases/2023-04-26-02/</a>

Beyond 30 to 40,000 km, the electric vehicle is more advantageous than the internal combustion vehicle: over its lifetime in France, an electric car emits overall 3 to 4 times less CO2e than its equivalent. See Carbone 4 (2022). “<a href="https://www.carbone4.com/en/analysis-faq-electric-vehicles">Misconceptions about electric vehicles</a>”.

The future of the European car: why are synthetic fuels not the solution?

mobility

Isaure has been a consultant senior at Carbone 4. Isaure has a degree in International Relations from Sciences Po Paris and in Philosophy from the Sorbonne. Isaure also specialized in environmental resource economics during a master's degree at the London School of Economics. At Carbone Lorraine, Isaure is in charge of carbon audits for all sectors, and assists clients committed to the low-carbon transition in redefining their business models. Before joining the Carbone 4 team, Isaure worked as a project and development manager for a non-governmental organization promoting access to renewable energy in rural areas with the aim of developing economic activities.

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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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