|  April 3, 2024

🕓 Reading time 12 minutes

Table of contents

1. Basic principles and objectives of the EU Taxonomy

2. Overview of the Product Carbon Footprint

3. The importance of the Product Carbon Footprint in taxonomy reporting

4. Implementation in corporate practice

1. Basic principles and objectives of the EU Taxonomy

The EU taxonomy is a classification system developed by the European Union to clearly define which economic activities can be considered environmentally sustainable. It is a central component of the European Green Deal and aims to promote the green transition by directing investments into sustainable projects.

Who is affected?

The EU taxonomy affects a wide range of actors who large companies, financial market participants and certain small and medium-sized enterprises (SMEs) that are listed on the stock exchange. Corporate Sustainability Reporting Directive (CSRD) Affected companies are also subject to the reporting obligations of the EU taxonomy.

From when?

The taxonomy entered into force gradually, beginning in 2021, with different elements taking effect at different times. Disclosure obligations began in 2022, with the requirements gradually becoming more stringent. Starting with the 2025 reporting year, all "large" companies (as well as for the CSRD) must report fully.

What must an affected company do?

Affected companies must take various steps:

1. Assessment of economic activities: Companies must assess their economic activities in terms of whether they contribute to one or more of the six environmental objectives of the taxonomy contribute: Climate protection, Adaptation to climate change, sustainable use and protection of water and marine resources, transition to a circular economy, prevention and control of pollution, and protection and restoration of biodiversity and ecosystems.

2. Compliance with the technical evaluation criteria: For every relevant economic activity there is specific technical screening criteria, that determine what is considered ecologically sustainable. These are aimed, for example, at the goal Climate protection according to the greenhouse gas emissions of the products sold (PCF).

3. Transparency and Disclosure: Companies must disclose the extent to which their activities comply with the Taxonomy through their sustainability reports or specific declarations. These reports should include information on the proportion of revenues, investments, and operating expenses associated with economic activities classified as sustainable.

2. Overview of the Product Carbon Footprint

The PCF eprecisely captures the CO₂ emissions of a product. It measures the total amount of greenhouse gas emissions directly and indirectly associated with the product. It takes into account the entire product life cycle, from raw material extraction, production, and transport to product use and disposal. 

Read more about the PCF in this blog post: What is a PCF? | How companies use the Product Carbon Footprint

3. The importance of the Product Carbon Footprint in taxonomy reporting

The Product Carbon Footprint (PCF) plays a crucial role in taxonomy reporting, as it is a key indicator for the environmental sustainability of products and corporate activities. EU taxonomy the PCF is considered essential measure used to evaluate, to what extent companies and their products belong to the Climate protection goals contribute.

The PCF as a technical assessment criterion for measuring climate impacts

The PCF enables companies to reduce greenhouse gas emissions quantify, associated with the life cycle of a product. This measurement is crucial for assessing whether an economic activity is consistent with the environmental objectives of the Taxonomy, in particular with the goals for the Climate protection, matches.

Basis for investment decisions

Investors use the PCF information disclosed in taxonomy reporting to make informed decisions. Products and companies with lower PCFs may be viewed as more sustainable investments, making them more attractive to environmentally conscious investors.

Incentives to reduce emissions

The requirement to disclose PCF as part of taxonomy reporting motivates companies to identify their emission sources and take measures to reduce their carbon intensity, contributing to the achievement of the EU's overarching climate targets.

Compliance and risk management

Compliance with taxonomy requirements, including PCF reporting, is not only a matter of regulatory compliance for companies, but also an important aspect of risk management. Companies that proactively manage their emissions and report transparently can minimize regulatory risks and strengthen their market position.

Overall, the PCF is of high importance in taxonomy reporting, as it provides companies and investors with a clear indicator of the climate compatibility of products and activities and thus plays a central role in the transformation to a more sustainable economy.

4. Implementation of the PCF in corporate practice

Identification of relevant products

In the first step, a company should Economic activities with the list of EU taxonomy compare, to find out which products require greenhouse gas indicators.

The document of the EU taxonomy can be found here: https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en

Selection of a service provider or software tool for product accounting

The second step is to select a service provider or software tool to calculate your product carbon footprints. If you have carbon accounting specialists in-house, a software tool may be a suitable approach. Companies newly subject to reporting typically don't have an in-house specialist in greenhouse gas accounting and are best positioned to work with a professional service provider who can perform audit-proof calculations.

Demarcation and data collection

Together with your specialized service provider bDetermine the required boundaries of the life cycle assessment (e.g., from raw material extraction to disposal). Then collect data on raw material extraction, production, transport, use, and disposal of the products and compile specific information, for example, on energy consumption, material use, and waste generation.

In the calculation, we used methods recognized by Green Vision Solutions to Product Carbon Footprint (PCF) by relying on established standards of the Greenhouse Gas Protocol. We conduct a comprehensive calculation that captures both direct and indirect emissions across all phases of the product life cycle. This includes emissions from raw material extraction through production and use to product disposal. We ensure that all relevant emission sources are identified and included in the calculation to provide a complete and accurate picture of the PCF.

Reporting and improvement

Communicate PCF data transparently to stakeholders, including customers, investors, and regulators. Ensure appropriate reporting of results to provide auditable evidence of the data.

View an example of a precise PCF report here

The PCF report provides you with information about the main drivers of emissions within the product life cycle. This helps you develop strategies to reduce PCF, for example, through more efficient production processes, selecting more sustainable materials, or optimizing logistics.