How the EU’s CSRD indirectly hits suppliers too

The EU’s new Corporate Sustainability Directive (CSRD) will require more than 50.000 large companies to disclose their environmental & social challenges- in 2025 already. But the CSRD’s grip will not stick to large companies alone.
EU CSRD & suppliers

The EU’s new proposed Corporate Sustainability Reporting Directive (CSRD), is here to take sustainability reporting up a notch. It’s the successor of the already existing NFRD and will increase the scope of companies who have to report on their sustainability- from 11.000 to more than 50.000 in Europe.

Companies will comply with the new CSRD if they meet at least two out of these three requirements: 

  • €40 million in net turnover;
  • €20 million on the balance sheet;
  • 250 or more employees

Meaning; the CSRD also covers:

  1. Many large manufacturing companies;
  2. And other companies with extensive value chains (e.g. assembly or food).

The crucial role of value chains in calculating environmental footprints

Having a (large) value chain, means you’re not the only one contributing to your company’s total environmental footprint. Up to 80% of a company’s environmental footprint can come from its value chain. 

a. Upstream in your value chain, environmental impact can come from your suppliers (e.g. the impact of producing the products/ingredients/materials they deliver).

b. Downstream in your value chain, impact could come from consumers (e.g. the electricity required for using your products). 

The proposed CSRD highly emphasizes this crucial role of value chains in measuring a company’s carbon emissions* and its complete company environmental footprint** (all environmental impacts). They want this footprint information to be as robust, transparent and accurate as possible. And not rely completely on average environmental impact outputs. 

This means you will need as much primary environmental data as you can find in your value chain. The biggest accessible source? Suppliers.

*Carbon footprints will most likely have to be reported in the CSRD- and follow the Greenhouse Gas Protocol. A carbon footprint is one of the outcomes of a company footprint- which can be calculated by performing a Life Cycle Assessment (LCA). 

** Complete company environmental footprints are most likely requested by the CSRD as the proposed directive follows the EU Taxonomy’s requirements. They cover all the environmental impacts a company has (15+)- including its carbon emissions. It’s calculated by performing a Life Cycle Assessment (LCA). 

The need for product footprints from suppliers

For many large companies, supply chains form a large part of their environmental footprint. Some suppliers contribute the most to your footprint. They form a company’s so-called impact hotspots. These high-impact suppliers are crucial for both the company’s footprint measurements and increasing its opportunities for sustainable improvements. 

With the CSRD’s proposed reporting requirements, primary environmental data from these impact-heavy suppliers becomes a must-have. 

The result: companies have to request their *tier 1 suppliers to also perform environmental footprint measurements of their own product(s). This is called a ‘product footprint’, and can be fed back into the main CSRD compliant company’s own measurements. 

*Suppliers you directly conduct business with.

But I’m sure that- and this is something we have set out in our impact assessments- those companies that are required to report according to the CSRD, will likely request information from their suppliers. For example, in order to be able to comply with the reporting requirements. So, this is likely to trickle down into the supply chain. Not immediately to all companies- but it will first hit the first tier suppliers from large companies. And then they themselves may have to request information from their own suppliers.

– Alain Deckers, Head of the European Commission’s Corporate Reporting Unit
Image 1. Impact hotspot results expressed in CO2-eq results. The largest hotspot here: the supply chain (scope 3 emissions). 

Becoming CSRD-proof: The first steps 

In 2025, large companies already subject to the NFRD, have to report their sustainability-related information for the financial year 2024. In 2026 this is the case for all other large companies falling under the CSRD’s scope (over financial year 2025). So, companies need a sustainability plan soon. What are the first steps to take regarding suppliers?

1. Measure the baseline environmnetal footprint of your company: 

This is an environmental footprint of your complete company and is calculated through the scientific method Life Cycle Assessment (we call this activity-based footprinting). The baseline is based on averages and shows large companies exactly which suppliers contribute the most to their total footprint (image . 

2. Collect primary environmental data from high-impact suppliers:

The next step is to request product footprints (LCA) from your highest emitters. This information includes greenhouse gas emissions and other environmental impact outcomes of the suppliers’ product(s). E.g. land use, biodiversity, etc.

Naturally, this process requires quite some preparation. You can read our ultimate guide on collecting primary greenhouse gas (GHG) data from your suppliers below. Here’s a quick summary: 

  1. Identify which suppliers have the highest environmental impact in your supply chain. 
  2. Look for any shared value opportunities. Maybe there’s a partnership to be found in sustainability?
  3. Develop a method for managing supplier data. Use a (commercial) environmental data collection system, or a standardized reporting format. 
  4. Roll out your supplier data collection program. Train your suppliers in how to measure their own footprint. Check in periodically for progress.
  5. Feed the primary environmental data into your own system. 

Note: It could be that your suppliers already fall under the requirements of the CSRD and have to comply too. In that case, this process could be easier- and even result in collaboration. 

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Published

January 4, 2022

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Author

Zazala Quist

Editor

Zazala Quist

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