Carbon footprint: is it legally required?
Summary
The article explores the question of whether carbon footprint reporting is legally required, outlining regulations in Europe and particularly in France. It delves into the distinction between Carbon Footprint and Greenhouse Gas (GHG) emissions assessments, as well as the requirements and potential sanctions for non-compliance. Furthermore, it highlights the importance of using carbon accounting software like D-Carbonize to ensure regulatory compliance and reduce emissions effectively.
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Introduction
Companies often ask whether a carbon footprint is legally required.
The answer is: it depends on the size of the company. Companies that meet certain criteria (turnover, number of employees, etc.) must report on their environmental impact. Legislation changes rapidly and these criteria are frequently modified, so it’s important to stay informed to avoid penalties.
That being said, the trend in environmental legislation is for carbon reporting to become mandatory for all companies, regardless of size. However, in France, there already exist the National Low Carbon Strategy aiming to lead companies toward carbon neutrality by 2050, in compliance with the Paris Agreements. This strategy is not directly mandatory, although it establishes a public policy framework that influences and dictates the legal and regulatory obligations in various sectors.
As well as being mandatory, many companies are measuring their carbon footprint to reduce operating costs, improve their employer brand and stand out from their competitors, among other reasons. It remains essential for all companies to measure and reduce their carbon footprint to protect the environment for future generations.
The regulatory framework in Europe
The regulatory framework in Europe requires companies to assess and report on their carbon footprint.
In 2018, the European Union published the Regulation on the Monitoring, Reporting and Verification (MRV) of greenhouse gas emissions, which introduced a harmonised accounting methodology for assessing emissions. This regulation is mandatory for large emitters – particularly those in the transport, energy, waste management, manufacturing and construction sectors.
In January 2024, the Corporate Sustainability Reporting Directive (CSRD), will mandate that large organizations and listed SMEs report their CO² emissions for scopes 1, 2, and 3 by 2028.
France – Article 75 of the Grenelle Act
In France, Article 75 of the Grenelle 2 law requires companies to take steps to reduce their carbon footprint. As part of this initiative, companies must establish and implement an environmental management system (EMS) – including objectives, performance indicators and processes for monitoring emissions reductions. They are therefore subject to the obligation to carry out a greenhouse gas emissions balance (BEGES).
Companies concerned:
- Legal entities governed by private law with more than 500 employees in mainland France
- Legal entities under private law with 250 employees in the French overseas regions.
Differentiating between Carbon Footprints and GHG Emissions Inventory
When assessing their environmental impact, companies need to distinguish between two different types of calculation: Carbon Footprint and Greenhouse Gas Emissions Inventory.
- The Carbon Footprint is the most comprehensive way of carrying out a greenhouse gas assessment since it includes data on the energy used in production processes or the fuel consumed by company vehicles, as well as other indirect emissions associated with the organisation’s activities.
- On the other hand, the GHG Inventory does not involve the same reporting scope. It covers direct emissions, whereas consideration of scope 3 is only recommended. This type of assessment can be particularly useful for companies wishing to perform their first assessment in a simplified way.
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The provisions of the CSRD
The provisions of the European CSRD (Corporate Sustainability Reporting Directive) require companies to assess their carbon emissions and take steps to reduce them. Companies must monitor and report on their progress in reducing emissions, as well as the measures they are taking to achieve this. This also applies to the financial and social aspects of their activities, as well as their governance practices.
Technical advice is also required for certain activities, such as construction projects or industrial installations. These opinions cover a range of subjects, including potential environmental impacts, pollution prevention and climate change mitigation measures.
Companies affected from 2024 to 2028:
- Companies with more than 250 employees
- SMEs (small and medium-sized enterprises) listed on the stock exchange
- Non-European companies with a turnover of more than €150 million in the EU market.
What are the penalties for companies that fail to meet their obligations?
Companies that fail to comply with carbon footprint regulations may face a variety of penalties, depending on the jurisdiction in which they operate. In France, for example, companies can be fined up to €15 million for failing to comply with the requirements of Article 75 of Regulation (EU) 2018/841.
To avoid these financial penalties, companies must assess their carbon footprint by the applicable regulations and take steps to reduce greenhouse gas emissions.
What is a mandatory carbon footprint?
In the European Union, companies must assess and report their carbon footprint by the Regulation on Monitoring, Reporting and Verification (MRV).
Types of emissions measured by the carbon footprint
The mandatory carbon footprint must include all direct and indirect emissions associated with an organisation’s activities, including those from energy production and consumption, transport, and emissions generated by all parts of the supply chain. It also includes emissions from waste management processes, such as composting or incineration.
In addition to greenhouse gas emissions, depending on the regulations in force, companies must also measure their environmental impact, such as land use and water management. This type of assessment provides valuable information on how an organisation’s decisions impact the local environment.
Some legislation such as the CSRD goes even further by including the social impact on the community (e.g. diversity and inclusion in the company’s workforce) and governance practices (e.g. whistleblower protection).
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Carbon footprint calculators: an essential tool
The best way for companies to meet their environmental commitments is to use a carbon footprint calculator. For other types of impact (social, governance and technical advice), specialist consultants are needed. Together, these actions help companies to comply with the various applicable laws.
With D-Carbonize, companies can benefit from the support of a carbon consultant. These experts are best placed to help companies understand and meet their obligations
Explore the concept of a carbon footprint in-depth by clicking here, or read our comprehensive overview on carbon footprint calculators here. Reduce your company’s carbon footprint by booking a demo with our experts at D-Carbonize.
