The future of manufacturing is sustainable manufacturing. And those that adapt most quickly, and most effectively, will gain new competitive advantage.
Carbon reporting in manufacturing will be the means by which you establish this new advantage; measuring carbon emissions, tracking them through the manufacturing process, and accurately reporting them with the same precision as financial data. This is the new requirement that the world is asking manufacturers to bear, to ensure we stay on course to meet the targets set out in the Paris Agreement of keeping the increase in the global average temperature to well below 2°C above pre-industrial levels.
Yes, it’s a challenge. But it’s also an opportunity.
And it may not be terribly difficult to manage.
In fact, there are technologies available today that will be able to help you measure, report and manage your carbon emissions.
Here is what you’ll learn in this guide:
- Sustainable Manufacturing: What is Driving this Change?
- Why should Manufacturers Care about Carbon Reporting?
- What does the Journey to Sustainable Manufacturing Look Like?
- What Types of Carbon Reporting will Manufacturers have to Consider?
- Carbon Reporting: What are the Challenges?
- How can Mavarick help you Comply with Carbon Reporting in Manufacturing?
Sustainable Manufacturing: What is Driving this Change?
At the end of the day, it is the warming planet that is driving these changes.
The warming planet and the regulations that have been enacted to combat climate change. In this endeavor, governments focus on a single culprit: Carbon.
Carbon-based molecules are seen as the greatest driver of the “greenhouse” effect. European, British and American regulations target the reduction of carbon emissions as their goal.
In Europe, the EU’s Regulation 2019/2088 spells it out plainly: The objective is “reducing carbon emissions in view of achieving the long-term global warming objectives of the Paris Agreement”.
In 2023, Europe enacted the Corporate Sustainability Reporting Directive, or CSRD, requiring European businesses to track and report their carbon emissions.
So yes – it is the warming planet and government regulations that are the driving force behind the changes we’re seeing in manufacturing. But of course, beyond that, it is scientific consensus and consumer pressure that is driving the regulation.
97% of climate scientists agree that the planet is warming, and that the warming is due to human influence. And scientists see reductions in carbon emissions as the strategy with the best prospects of slowing the change in the planet’s climate. And finally, 93% of Europeans agree that climate change is a serious threat, and believe that greenhouse gas reductions are required to save the planet.
Whatever you think about the science of climate change, or the burdens of compliance with carbon emissions reporting, the health and future of your manufacturing operation will depend, in part, on your carbon emissions.
Why should Manufacturers Care about Carbon Reporting?
Carbon reporting will be vital to the financial interest of your manufacturing business going forward. Beyond this, carbon reporting in manufacturing represents an opportunity for you to establish competitive advantage.
In general, there are 3 ways in which carbon reporting can help your manufacturing business:
- Top Line: Increase revenue through alignment with customer sentiment and regulations
- Bottom Line: Achieve higher profitability on more environmentally responsible products
- Company Value: Increase Overall Company Value by becoming an Industry Sustainability Leader
Increasing Manufacturing Revenues through Sustainability Compliance
There are two main ways to increase revenue through sustainability in manufacturing leadership. The first is to sell more product by appealing to customers and consumer sentiment, and the second is to win more contracts as a sustainable supplier within a value chain.
As mentioned previously, 93% of Europeans agree that climate change is a serious threat to the planet. A 2020 IBM study found that 77% of consumers say that it’s important for brands to be environmentally responsible. As we move forward, we will see more and more consumers looking to sustainability as a factor in purchase decisions. And this pressure will be placed on those within the value chain.
Consumers have been shown to prefer sustainably produced goods when presented with a choice. The trend towards preferential treatment of sustainably produced goods will accelerate as more goods include sustainability as part of their product passports. The EU recently adopted the Circular Economy Package, which includes a provision to ensure sustainability is included in Digital Product Passports.
The upshot, of course, is that sustainability in manufacturing can help you create products that consumers have been shown to prefer. This is a direct way for manufacturers to increase their revenue through sustainability.
The benefits of sustainable production will accrue not only to those manufacturers that are creating finished products for the market, but also manufacturers that part of the upstream value chain for creating those finished goods.
The EU’s new Corporate Sustainability Reporting Directive (CSRD) mandates that manufacturers work with suppliers that meet sustainability thresholds. If you manufacture products that are used as components in another manufacturer’s processes, your carbon emissions will be a factor in the purchasing manufacturer’s decisions. Manufacturers that prove to be trustworthy environmental stewards – through faithful carbon reporting – will win more business in Europe going forward.
How to Achieve Higher Profitability through Environmentally Responsible Products
Not only can sustainability in manufacturing increase your top-line revenue, as explored above, but it can also help drive improvements to your bottom line as well.
As we step forward into our new climate-conscious future, consumers are showing a willingness to pay a premium for sustainably produced goods. In a 2023 global survey of consumer sentiment, Boston Consulting Group found that segments of consumers are willing to pay a premium of between 3% and 12% for sustainably produced goods like cars and washing machines. That BCG study further found that these premiums can in many cases exceed the costs of moving to sustainable production. Consumers want to do their part to protect the planet’s future, and supporting sustainable businesses is part of that.
Another way that sustainability helps you achieve better margins is through cost reductions involved with energy efficiency.
Energy is both a top input cost for manufacturing processes and a top driver of carbon emissions. Monitoring energy usage and finding ways to use energy more efficiently helps manufacturers save money and reduce carbon emissions.
In this way, energy efficiency and sustainability help manufacturers achieve higher margins.
Learn more about energy efficiency in manufacturing in this comprehensive guide: Energy Efficiency in Manufacturing – A Complete Guide.
Increase Overall Company Value by becoming an Industry Sustainability Leader
Early adoption of sustainability requirements will position manufacturers to implement new environmental regulations.
For the near future, there is only one way this is going. Regulations will continue to increase. Requirements will continue to increase. The writing is not only on the wall; It is in the Paris Climate Accord and in the European Green New Deal. Manufacturers will face increasing requirements for environmental sustainability as we move toward the 2030 and 2050 goals – as will all businesses.
Manufacturers able to proactively shift their business towards sustainability will weather these changes gracefully, taking them as they come. Those who do not keep up with the pace of sustainable manufacturing innovation will face steep hurdles as they try to catch up. And those that keep pace will outcompete laggards for business in the interim.
Furthermore, manufacturers that maintain carbon reporting compliance will outcompete their peers for investment funding. Institutional investors seek opportunities to place funds in sustainable ventures.
The CSRD text spells it out this way:
“The growth in the number of investment products that aim to pursue sustainability objectives means that good sustainability reporting can enhance an undertaking’s access to financial capital”
You may not be looking for investment funds to expand operations now, but if you want to do so in the future, your sustainable manufacturing practices compliance can help you achieve that.
What does the Journey to Sustainable Manufacturing Look Like?
The journey to sustainability in manufacturing can be quite simple at the high level. You start with understanding the regulatory environment and your compliance obligations. Then you measure your current position, with respect to carbon emissions, and finally look for opportunities to manage or reduce your carbon footprint.
But of course, there are complications. We’ll discuss the challenge in more detail below.
Understanding Sustainability Compliance Regulations in Manufacturing
Here in Europe, it’s relatively easy to understand the compliance requirements for carbon reporting in manufacturing. All manufacturers, regardless of the goods they produce, and regardless of which EU country they reside in – must adhere to the new EU CSRD regulations.
The situation is more complicated in America. In America, the Securities and Exchange Commission (SEC), is currently considering new greenhouse gas reporting regulations. But they have no carbon reporting regulations yet on a national level.
But then – some states are taking matters into their own hands. For example, in California, the governor has signed a bill that mandates the construction of carbon reporting standards for companies that reside in the state. Manufacturers in California – like their European counterparts – will have to report on carbon emissions from their own operations as well as those of their suppliers.
The important thing is to make sure you’re not adhering to European pharmaceutical manufacturing regulations if you’re an automaker in California. But don’t worry – there will likely be swarms of consultants looking to help you understand your compliance requirements.
Another critical factor on the journey to sustainable manufacturing is figuring out timelines for when you need to comply with new regulations.
Your timeline for beginning sustainability reporting under the CSRD depends on the size of your manufacturing operation.
- FY2024: Listed companies with more than 500 employees will need to report on 2024 activities and data, publishing the reports in 2025
- FY2025: Large non-listed companies that exceed 2 out of the 3 thresholds below will need to report on 2025 activities and data, publishing the reports in 2026. Thresholds:
- Balance sheet > EUR 20M
- Net Revenue > EUR 40M
- > 250 Average employees during FY
- FY2026: Listed SMEs need to report on 2026 activities and data, publishing the reports in 2027
If you are a non-listed SME within a value chain of any company that fits the above criteria, then you can be sure that you’ll be asked to report on your emissions, which make up part of their scope 3 emissions (and in some cases scope 1 and 2).
Establishing Baselines and Monitoring Performance for Carbon Emissions Reporting
Manufacturers have two options when looking to establish baselines and monitor carbon: Internal or external.
Manufacturers can hire external consultants to come in and set up carbon monitoring equipment. The manufacturing industry has a well serviced industry of consultants attached to it – looking to help manufacturers improve productivity and energy efficiency. Many of these same consultants are now looking to help manufacturers understand and comply with sustainable manufacturing regulations.
One drawback of looking to external consultants for this kind of work is that they typically provide a snapshot of your carbon emissions, rather than a continuous view. And that snapshot could be misleading if it is taken during a time of anomalous carbon emissions. Having an in-house carbon emissions monitoring solution solves this problem, by providing continuous reporting.
A carbon emissions reporting solution, such as that provided by Mavarick, tracks emissions from all your activities. Carbon emissions reporting is centralised and accessed through an intuitive user interface where total emissions and emissions-versus-target can be monitored continuously.
Reducing Carbon Emissions in Manufacturing
The last step on the journey to sustainability in manufacturing is finding ways to reduce your carbon emissions.
Again – finding opportunities to reduce carbon emissions is an area that external services providers can help you with. However, in the end, it will come down to you and your team to deliver the changes to your operations to make meaningful cuts to your carbon emissions.
An external audit will likely result in “the usual suspects” when it comes to finding opportunities to cut down on emissions. But if you are monitoring your activities and assets at a granular level, and comparing emissions versus targets, you’ll be able to find opportunities that a general audit may miss and prioritise your specific carbon hot spots.
Ultimately, the new regulatory environment – with its increasingly stringent compliance requirements – is going to force a lot of businesses to shift their thinking about how they do business.
Corporate sustainability is the new normal, and many businesses are creating entire new departments to deal with compliance and to try to turn green manufacturing into a competitive advantage.
Environmental stewardship is going to be part and parcel of doing business in the future, and manufacturers will have to embed it into their culture.
What Types of Carbon Reporting will EU Manufacturers have to Provide?
As stated previously, in the EU, manufacturers will be required to report on not only their own carbon emissions, but also those of their suppliers.
The CSRD lays out 3 different levels of reporting that EU manufacturers will have to provide:
- Scope 1: Direct emissions from your operations’ manufacturing processes
- Scope 2: Indirect emissions from energy used in manufacturing processes
- Scope 3: Indirect emissions from all sources along the value chain
Scope 1: Direct Emissions from your Operations and Manufacturing Processes
Scope 1 emissions are fairly straightforward. To comply with regulations on Scope 1 emissions reporting, you’ll need to provide a picture of carbon emissions from your facility’s operations. This will include things like carbon emissions from combustion of fossil fuels to power machines, or emissions directly from furnaces.
Carbon emissions resulting from industrial processes can be a large source of Scope 1 emissions. The processes that manufacturers undergo to produce cement, laundry detergent, or washing-up liquid lead to large carbon emissions in and of themselves. These process-generated emissions also must be reported under Scope 1.
With a carbon emission monitoring system, reporting on these types of emissions is straightforward. Sustainability consultants can also provide a snapshot of performance to help comply with scope 1 reporting.
The only type of Scope 1 direct emissions that may not be intuitive would be in emissions from a company’s vehicle fleet. However, there are readily available and simple-to-use approaches to estimate your emissions from a vehicle fleet. Such as simply looking at fuel consumption.
Mavarick’s Carbon Emissions Management solution can help you automate tracking of all of these Scope 1 emissions, including from your vehicle fleet.
Scope 2: Indirect Emissions from Energy Used in Manufacturing Processes
Scope 2 emissions are all about the energy you use to power your manufacturing operation that come from an external source.
The energy you use – whether it’s electricity, heat or steam that was generated from an external source likely involved carbon emissions to produce it. And even if your electricity originated from a renewable electricity source, if it was delivered via the grid then it still has a carbon footprint.
A manufacturing operation needs to account for not only the direct emissions they produce through their manufacturing processes, but also for the energy they consume while they do it.
Scope 2 reporting is all about measuring and tracking the externally produced energy you use in your manufacturing operation.
Again – measuring your consumption can be done by external parties. But a more accurate and consistent method of assessing your energy consumption is through an Energy Management System and scope 2 emissions through a Carbon Management System.
Your Energy Management System can be integrated into your Carbon Management System. An Energy Management System is typically made up of a network of monitors that are integrated into your processes and transmit data to a server for analysis. The user can then accurately measure, monitor and gain insights to make data-informed decisions around energy usage.
You can read more in this comprehensive guide: Energy Efficiency in Manufacturing: A Complete Guide.
Scope 3: Indirect Emissions from All Sources Along the Value Chain
This is the tricky one. Both from conceptual and operational standpoints.
We’ve discussed the carbon emissions from your manufacturing operation. These are relatively simple to conceptualize. It’s the emissions emanating from your factory processes and from the energy used to power them.
Scope 3 looks beyond your manufacturing operation – to measure the carbon emissions involved in the entire value chain that you work within.
Scope 3 reporting requires that you account for not only your own operation’s carbon emissions, but also for the emissions from your upstream suppliers and the downstream users of your manufactured products.
To comply with Scope 3 reporting, manufacturers will have to provide estimates for the emissions their suppliers generate. Fortunately, the CSRD regulations will apply to your suppliers as well (including non-EU suppliers), so your suppliers will be able to provide you with those emissions estimates.
Compliance with reporting on downstream carbon emissions may prove tricker. The CSRD requires that manufacturers provide estimates of carbon emissions involved with downstream actions, such as transportation of your sold goods, usage of the end-products, and even end-of-life scrapping or recycling of the goods.
The good news with downstream Scope 3 reporting is that it is likely that industries will develop standards around estimates for things like transportation and scrapping. This would make reporting on Scope 3 downstream emissions as simple as keeping up to date with industry standards.
The thing to realise about Scope 3 emissions is that this is where the CSRD presents an opportunity for manufacturers. Manufacturers that are proactive in impacting their own Scope 1 and Scope 2 emissions will be more attractive suppliers in their industry.
Downstream purchasers within your value chain will be required to review the carbon emissions for their potential suppliers. Suppliers with low carbon emissions will have an advantage over suppliers with higher emissions. Downstream purchasers of your manufactured goods can and will use your reported carbon emissions as criteria when making decisions about who to work with.
Carbon Reporting: What are the Challenges?
There are plenty of challenges when it comes to the new carbon reporting in manufacturing rules.
We’ve discussed some of these already – especially with respect to the challenges in reporting on Scope 3 emissions.
Here are the challenges that remain:
- Paradigm-Shift: Integrating Sustainability into the culture of your Manufacturing Business
- Reporting: Implementing a System for Monitoring Emissions
- Accurate Data: To Identify Opportunities to Reduce Emissions
Paradigm Shift: Integrating Sustainability into the culture of your Manufacturing Business
This is the new world. Like it or not, we all have to live in it.
The good news is that those who make the paradigm shift quickly will realise outsized gains.
The greatest challenge that manufacturers likely face is realising that sustainability is a new way of doing business – and figuring out how to re-organise their business to account for this change.
The first question that many manufacturing operations may need to face is “who within my organisation should be in charge of sustainability”?
Indeed, many organisations are appointing a Chief Sustainability Officer to preside over an entire new division within their business, focused on green manufacturing.
A natural home for sustainability tracking and reporting can be found within manufacturer’s accounting departments. Accounting is already concerned with tracking and reporting financials, and many manufacturers are finding that expanding the scope of accounting to deal with sustainability is a good solution.
However you choose to deal with the new world of sustainability reporting, it’s vital that leadership within your organisation are bought in – and that you take action to educate your workforce.
Reporting: Implementing a System for Monitoring Emissions
Anyone looking to comply with carbon reporting in manufacturing will have to implement some sort of system for measuring their emissions. There are varying degrees of formality that this “system” can take.
A rudimentary approach is manual data processing.
Many manufacturers use fleet-management software to plan and track company vehicles. Mileage or emissions data can be drawn from fleet-management systems and transferred manually to spreadsheets to account for portions of Scope 1 emissions reporting.
Scope 1 emissions from manufacturing processes can produce large volumes of carbon in and of themselves and if a manual approach is taken here, it’ll involve manual measurements, data gathering and calculations, This isn’t efficient, especially if you want to accurately monitor emissions over time.
Some manufacturers may choose to monitor Kilowatt-hour data directly through electricity accounts, and then transfer that data manually to spreadsheets. This can help manufacturers cover their Scope 2 emissions reporting.
They may add to those spreadsheets data provided by their suppliers and customers, to account for Scope 3 data within their value chain.
Another approach, discussed previously, is through the hire of external parties. Third-party consultants can help you measure and compile your Scope 1 and Scope 2 emissions.
Finally, manufacturers have the option of implementing their own Carbon Emissions Management system, such as the one offered by Mavarick. Carbon emissions management systems can directly and continuously monitor Scope 1 and Scope 2 emissions. And some (such as Mavarick’s) can directly interface with supplier’s systems to port Scope 3 emissions data from the source.
Accurate Data: To Identify Opportunities to Reduce Emissions
If you want to reduce your carbon footprint, you’ll need accurate, consistent, and granular carbon emissions data. And you’ll need the data to be presented within an interface that readily allows for analysis.
First of all – you need accurate data. Manual tracking systems can lead to accuracy issues due to human error. Emissions or energy usage data may be provided in different formats on different machines or different meter interfaces. When this is the case, conversion calculations are required to get data into a consistent format. Managing conversion calculations within a spreadsheet can lead to human errors. Simple data entry can lead to errors, too.
Data accuracy can also be an issue if you are not regularly tracking emissions. One-off snapshots can sometimes misrepresent an operation’s usual emissions. Continuous monitoring of emissions helps to ensure that you understand and report on your emissions accurately.
Finally, the granularity of data can be a blocker for identifying opportunities to reduce emissions. If you’re only getting data at a macro view, it’s difficult to understand where your opportunities for reduction lie and what will really move the needle.
How can Mavarick help you Comply with Carbon Reporting in Manufacturing?
Mavarick’s award-winning software provides a full-service Carbon Emissions Management solution integrated seamlessly with a Production Management System and an Energy Management System.
The Mavarick Carbon Emissions Management solution tracks CO2 emissions from each of your activities and centralises reporting in an easy-to-use interface, where you can analyse trends and emissions versus targets. This helps you ensure accurate tracking of your Scope 1 emissions.
Mavarick’s Carbon Emissions Management software builds upon the technologies used in Energy Management solutions to accurately cover your Scope 2 emissions.
Finally, Mavarick’s Carbon Emissions Management solution can be integrated directly with your supplier’s systems, and with your downstream customers’ systems. These integration capabilities help ensure accurate data for your Scope 3 reporting, and cuts down on human error risks from manual data uploads.
Contact Mavarick today to learn more about our Carbon Management Solution.
