The global push toward sustainability has given rise to a complex web of carbon reporting requirements that companies must navigate. From the European Union’s pioneering regulations to growing international frameworks, organizations face increasing pressure to measure, report, and reduce their carbon footprints. This article explores key reporting frameworks with a focus on embodied carbon and how these requirements are reshaping global business practices.
Carbon Border Adjustment Mechanism (CBAM)
The EU’s Carbon Border Adjustment Mechanism represents a groundbreaking approach to preventing “carbon leakage” – where companies might relocate production to countries with less stringent climate policies. Implemented in October 2023 with a transitional period, CBAM requires importers to purchase certificates corresponding to the carbon price that would have been paid had the goods been produced under the EU’s carbon pricing rules.
CBAM initially covers carbon-intensive sectors including cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. For manufacturers and exporters to the EU, this means detailed tracking of embodied carbon in products is no longer optional but a core requirement for market access.
The mechanism requires reporting on both direct emissions (those occurring during production) and indirect emissions (from the electricity used in manufacturing processes). This comprehensive approach sets a new global standard for carbon accounting and creates significant implications for global supply chains.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD expands and strengthens the existing reporting requirements under the Non-Financial Reporting Directive (NFRD). Starting in 2024 (for fiscal year 2023), the CSRD applies to all large EU companies and listed SMEs, affecting approximately 50,000 companies compared to the 11,000 under the previous framework.
What makes CSRD particularly significant for embodied carbon accounting is its requirement for double materiality assessment – companies must report not just how sustainability issues affect their business, but also how their activities impact people and the environment. This includes detailed reporting on Scope 3 emissions, which encompass all indirect emissions in a company’s value chain, including embodied carbon in purchased goods and services.
The CSRD also introduces mandatory third-party assurance of sustainability information, elevating carbon data to the same level of scrutiny as financial reporting. This represents a major shift in how embodied carbon data is collected, verified, and disclosed.
Science-Based Targets Initiative (SBTi)
While not a regulatory requirement, the Science-Based Targets initiative has become a de facto standard for companies committed to serious climate action. SBTi provides companies with a clearly defined path to reduce greenhouse gas emissions in line with the Paris Agreement goals.
For embodied carbon reporting, SBTi is significant because it requires companies to set targets for their entire value chain (Scope 3) emissions if these constitute more than 40% of their total emissions – which is the case for most manufacturing and retail companies. This has driven unprecedented attention to embodied carbon in materials, components, and products.
SBTi’s influence continues to grow, with over 4,000 companies worldwide committing to science-based targets. Its methodology and frameworks are increasingly being referenced in regulatory discussions, suggesting that what begins as voluntary may eventually become mandatory.
Other Significant Frameworks Affecting Embodied Carbon Reporting
International Sustainability Standards Board (ISSB)
The ISSB was established at COP26 to develop a comprehensive global baseline of sustainability disclosures. Its standards require companies to report on climate-related risks and opportunities, including detailed information about their Scope 1, 2, and 3 emissions. For embodied carbon, this means increased attention to the carbon intensity of materials and products throughout the value chain.
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD recommendations have been widely adopted and are being incorporated into regulatory frameworks globally. They require companies to disclose governance, strategy, risk management, and metrics related to climate risks, including those associated with embodied carbon in products and materials.
The EU’s Edge and Global Implications
The EU’s proactive approach to sustainability reporting gives European companies a significant advantage in the global transition to a low-carbon economy. By mandating comprehensive carbon accounting earlier than other regions, the EU has created a business environment where companies must develop expertise in measuring and managing embodied carbon.
This early adoption is creating ripple effects throughout global supply chains. Non-EU companies that export to Europe must now adapt to these stringent requirements, effectively extending the EU’s regulatory influence beyond its borders. Many multinational corporations are choosing to apply EU standards globally rather than maintaining different systems for different markets.
The EU’s leadership is also influencing policy development elsewhere. California’s Climate Corporate Data Accountability Act and the SEC’s proposed climate disclosure rules in the United States draw heavily from European precedents. Similarly, the UK’s Streamlined Energy and Carbon Reporting (SECR) framework shows clear influence from EU approaches.
Challenges in Implementation
Despite the clear direction of travel, significant challenges remain in implementing these reporting requirements, particularly for embodied carbon:
- Data availability and quality: Obtaining accurate emissions data from suppliers, especially those in regions with less developed reporting infrastructure, remains difficult.
- Methodological inconsistencies: Despite standardization efforts, variations in calculation methodologies can lead to inconsistent results.
- Resource requirements: Comprehensive carbon accounting demands significant expertise and resources, creating potential barriers for smaller companies.
- Verification processes: As third-party assurance becomes mandatory, developing robust, cost-effective verification processes is essential.
Looking Forward
The landscape of carbon reporting requirements will continue to evolve rapidly in the coming years. Companies that take a proactive approach to measuring and reducing their embodied carbon emissions will be better positioned for regulatory compliance and competitive advantage in a carbon-constrained economy.
For organizations just beginning their carbon accounting journey, focusing on the following steps can help prepare for current and future requirements:
- Conduct a comprehensive inventory of Scope 3 emissions, with particular attention to embodied carbon in purchased goods and services
- Engage with key suppliers to improve data quality and identify reduction opportunities
- Develop internal expertise in carbon accounting methodologies or partner with specialized providers
- Align reporting practices with the most stringent applicable requirements, which often means following EU standards
- Integrate carbon considerations into procurement and product design decisions
As reporting frameworks continue to converge and become more rigorous, the distinction between leaders and laggards in carbon management will become increasingly apparent. Those companies that master the complexities of embodied carbon accounting will not only ensure compliance but will likely discover valuable opportunities for innovation and cost reduction in the transition to a low-carbon economy.
Embodied Carbon Solutions helps organizations navigate their sustainability journey through expert carbon analysis, supplier engagement, and practical reduction strategies. Our partnership with leading AI-powered PCF platforms enables clients to quickly establish baselines and begin meaningful carbon reduction initiatives. Contact us to learn how we can help your organization transform sustainability goals into tangible results.