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Category 9 Downstream Transportation and Distribution – The best read

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Category 9 Downstream Transportation and Distribution

Category description – Category 9 Downstream Transportation and Distribution includes emissions that occur in the reporting year from transportation and distribution of sold products in vehicles and facilities not owned or controlled by the reporting company.

Overview – Category 9 Downstream Transportation and Distribution

Reporting on Category 9 Downstream Transportation and Distribution involves a comprehensive analysis of the logistical processes and operations involved in transporting goods from production facilities to end consumers. Here’s an executive overview:

  1. Scope and Definition: Category 9 Downstream Transportation and Distribution encompasses the movement of goods from manufacturing plants or warehouses to various distribution centers, retailers, or directly to customers. It involves multiple modes of transportation such as road, rail, sea, and air, as well as associated warehousing and distribution activities.
  2. Key Components:
    • Transportation Modes: Assess the utilization of different transportation modes and their efficiency in terms of cost, speed, and reliability.
    • Distribution Network: Evaluate the design and optimization of distribution networks to ensure timely delivery and minimize costs.
    • Warehousing: Analyze the efficiency of warehousing operations in terms of inventory management, storage capacity, and order fulfillment.
    • Last-Mile Delivery: Focus on the final stage of delivery to customers, addressing challenges and strategies for improving efficiency and customer satisfaction.
  3. Performance Metrics:
    • On-Time Delivery: Measure the percentage of deliveries made according to schedule to assess reliability.
    • Transit Time: Evaluate the average time taken for goods to move through the transportation and distribution network.
    • Cost per Unit: Analyze the cost incurred per unit of goods transported, considering transportation, warehousing, and handling expenses.Category 9 Downstream Transportation and Distribution
    • Inventory Turnover: Assess the rate at which inventory is sold and replaced, indicating efficiency in managing stock levels.
  4. Challenges and Opportunities:
    • Infrastructure: Address challenges related to transportation infrastructure, such as road congestion, port capacity, and airport efficiency.
    • Sustainability: Explore opportunities for reducing the environmental impact of transportation and distribution operations through alternative fuels, route optimization, and packaging innovations.
    • Technology Integration: Highlight the role of technology in optimizing logistics processes, including the use of IoT devices, predictive analytics, and automation to improve efficiency and visibility across the supply chain.
  5. Regulatory and Compliance:
    • Compliance with Regulations: Ensure adherence to regulations governing transportation safety, labor practices, environmental standards, and customs procedures.
    • Trade Policies: Monitor changes in trade policies and tariffs that may impact transportation costs, lead times, and supply chain resilience.
  6. Strategic Recommendations:
    • Network Optimization: Identify opportunities to streamline the transportation and distribution network to reduce costs and improve service levels.
    • Technology Investment: Recommend investments in transportation management systems (TMS), warehouse management systems (WMS), and tracking technologies to enhance visibility and control.
    • Collaboration: Encourage collaboration with transportation partners and suppliers to leverage economies of scale, share resources, and mitigate risks.
  7. Future Outlook:
    • Market Trends: Anticipate emerging trends such as e-commerce growth, omnichannel distribution, and the adoption of electric and autonomous vehicles.
    • Resilience Planning: Prepare for disruptions such as natural disasters, geopolitical tensions, and pandemics by enhancing supply chain resilience and flexibility.

In summary, reporting on Category 9 Downstream Transportation and Distribution involves assessing the efficiency, reliability, and sustainability of logistics operations while identifying opportunities for improvement and strategic investment to meet evolving market demands and challenges.
A worked example – EcoFoods Inc.

For this example, let’s consider a fictional company, “EcoFoods Inc.,” which produces organic food products and distributes them to retailers and customers across the country.

1. Scope and Definition:

EcoFoods Inc. operates a complex downstream transportation and distribution network, involving the movement of perishable organic food products from its manufacturing plants to various distribution centers and ultimately to retail outlets and consumers.

2. Key Components:

a. Transportation Modes:

EcoFoods utilizes a combination of refrigerated trucks for land transportation, as well as partnerships with shipping companies for sea transportation of bulk goods. Additionally, it employs air freight for urgent deliveries of high-value or time-sensitive products.

b. Distribution Network:

The company operates multiple distribution centers strategically located across the country to ensure efficient coverage and timely delivery. These distribution centers are equipped with temperature-controlled storage facilities to maintain the freshness and quality of the organic products.

c. Warehousing:

EcoFoods’ warehousing operations focus on efficient inventory management to minimize storage costs and ensure optimal stock levels. It employs barcode scanning and RFID technology for accurate tracking of inventory movement within its warehouses.

d. Last-Mile Delivery:

The company collaborates with local courier services and offers direct-to-customer delivery options, especially for online orders. It leverages route optimization software to ensure cost-effective and timely last-mile deliveries.

3. Performance Metrics:

a. On-Time Delivery:

EcoFoods consistently achieves an on-time delivery rate of over 95%, ensuring reliability for its retail partners and customers.

b. Transit Time:

The average transit time for products from manufacturing to retail shelves is maintained within industry standards, with continuous efforts to optimize routes and minimize lead times.

c. Cost per Unit:

The company closely monitors the cost per unit transported, including transportation, warehousing, and handling expenses, to ensure competitiveness while maintaining profitability.

d. Inventory Turnover:

EcoFoods maintains a healthy inventory turnover ratio by closely managing stock levels and implementing just-in-time inventory practices to minimize carrying costs.

4. Challenges and Opportunities:

a. Infrastructure:

EcoFoods faces challenges related to infrastructure constraints, particularly road congestion during peak hours and limited capacity at certain ports. The company explores alternative transportation routes and invests in infrastructure improvements where feasible.

b. Sustainability:

Recognizing the importance of sustainability, EcoFoods invests in hybrid and electric vehicles for its transportation fleet and implements packaging innovations to reduce environmental impact.

c. Technology Integration:

The company continuously invests in transportation management systems (TMS) and warehouse management systems (WMS) to optimize logistics operations and enhance visibility across the supply chain.

5. Regulatory and Compliance:

EcoFoods ensures compliance with food safety regulations, transportation safety standards, and environmental regulations governing its operations. It maintains robust procedures for quality control and traceability throughout the supply chain.

6. Strategic Recommendations:

a. Network Optimization:

Continuously assess and optimize the distribution network to minimize transportation costs and improve delivery efficiency, considering factors such as customer demand patterns and geographic distribution.

b. Technology Investment:

Further invest in advanced tracking and monitoring technologies to enhance real-time visibility into the supply chain, enabling proactive management of logistics operations and quicker response to disruptions.

c. Collaboration:

Strengthen partnerships with transportation providers, suppliers, and retailers to foster collaboration and streamline end-to-end supply chain processes.

7. Future Outlook:

a. Market Trends:

Anticipate and adapt to emerging market trends such as increasing demand for organic products, growth in e-commerce sales, and advancements in sustainable transportation technologies.

b. Resilience Planning:

Develop robust contingency plans to mitigate risks posed by potential disruptions, including natural disasters, geopolitical tensions, and supply chain disruptions.

By conducting comprehensive reporting and analysis across these key components, EcoFoods Inc. can effectively manage its downstream transportation and distribution operations, ensuring reliable and sustainable delivery of organic food products to its customers nationwide.

 

This category also includes emissions from retail and storage. Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 includes only emissions from transportation and distribution of products after the point of sale. See table 5.7 in the Scope 3 Standard for guidance in accounting for emissions from transportation and distribution in the value chain.

Emissions from downstream transportation and distribution can arise from transportation/storage of sold products in vehicles/facilities not owned by the reporting company. For example:

  • Warehouses and distribution centers
  • Retail facilities
  • Air transport
  • Rail transport
  • Road transport
  • Marine transport.

In this category, companies may include emissions from customers traveling to and from retail stores, which can be significant for companies that own or operate retail facilities. See chapter 5.6 of the Scope 3 Standard for guidance on the applicability of category 9 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from downstream transportation and distribution include the scope 1 and scope 2 emissions of transportation companies, distribution companies, retailers, and (optionally) customers.

If the reporting company sells an intermediate product, the company should report emissions from transportation and distribution of this intermediate product between the point of sale by the reporting company and either (1) the end consumer (if the eventual end use of the intermediate product is known) or (2) business customers (if the eventual end use of the intermediate product is unknown).

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Category 4 Upstream Transportation and Distribution – The best calculation guidance

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Category 4 Upstream Transportation and Distribution

Category description – Category 4 Upstream Transportation and Distribution includes emissions from:

  • Transportation and distribution of products purchased in the reporting year, between a company’s tier 1 suppliers1 and its own operations in vehicles not owned or operated by the reporting company (including multi-modal shipping where multiple carriers are involved in the delivery of a product, but excluding fuel and energy products)   – link to figure 7.3 in the Scope 3 Standard
  • Third-party transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and third-party transportation and distribution between a company’s own facilities.

This guidance page for Category 4 Upstream Transportation and Distribution serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Overview – Category 4 Upstream Transportation and Distribution

Category 4 Upstream Transportation and Distribution refer to a specific classification within greenhouse gas (GHG) emissions accounting, focusing on indirect emissions associated with the transportation and distribution of products and materials upstream in the supply chain. These emissions occur outside of a company’s operational boundaries but are essential to the production and delivery of goods and services. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: Greenhouse gas emissions are categorized into three scopes by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources owned or controlled by the company, while Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions, including upstream and downstream activities not directly controlled by the company.
  2. Category 4 Emissions: Within Scope 3 emissions, Category 4 specifically focuses on upstream transportation and distribution. These emissions result from the transportation of raw materials, components, and products from suppliers to the company’s facilities or from one stage of production to another.

Characteristics:Category 4 Upstream Transportation and Distribution

  1. Indirect Nature: Category 4 emissions are considered indirect emissions because they occur outside of the company’s direct operational control but are associated with its supply chain activities.
  2. Supply Chain Impact: Transportation and distribution activities are crucial components of the supply chain, influencing the efficiency, cost, and environmental impact of sourcing materials and delivering products to customers.
  3. Global Reach: Upstream transportation and distribution activities often involve complex logistics networks, including road, rail, sea, and air transport, which can span multiple regions and countries.

Examples:

  1. Raw Material Sourcing: Emissions associated with the transportation of raw materials, such as minerals, metals, agricultural products, and lumber, from extraction sites or farms to manufacturing facilities.
  2. Component Transport: Emissions from the transportation of components, parts, and sub-assemblies between suppliers, subcontractors, and assembly plants in the production process.
  3. Product Distribution: Emissions related to the distribution of finished products from manufacturing facilities to warehouses, distribution centers, retailers, or directly to consumers via various modes of transportation.
  4. Reverse Logistics: Emissions from the transportation of returned goods, recycling materials, or waste products back through the supply chain for disposal, recycling, or refurbishment.

Importance:

  1. Supply Chain Efficiency: Managing Category 4 emissions is essential for optimizing supply chain efficiency, reducing transportation costs, and minimizing environmental impact through more sustainable transportation and distribution practices.
  2. Risk Management: Addressing upstream transportation and distribution emissions helps companies mitigate risks associated with volatile fuel prices, regulatory changes, geopolitical instability, and supply chain disruptions.
  3. Carbon Footprint Reduction: By identifying opportunities to reduce emissions in upstream transportation and distribution activities, companies can lower their overall carbon footprint and contribute to climate change mitigation efforts.

Considerations:

  1. Mode Selection: Choosing the most appropriate transportation modes, such as rail, sea, or inland waterways, can help minimize emissions and reduce environmental impact compared to road or air transport.
  2. Route Optimization: Optimizing transportation routes, consolidating shipments, and improving logistics efficiency can reduce fuel consumption, emissions, and transportation costs.
  3. Collaboration with Suppliers: Collaborating with suppliers to implement sustainable transportation and distribution practices, such as using eco-friendly packaging, optimizing load sizes, and leveraging alternative fuels, can help mitigate Category 4 emissions.

Conclusion:

Category 4 Upstream Transportation and Distribution emissions represent a significant aspect of a company’s indirect emissions profile, reflecting the environmental impact associated with the movement of products and materials throughout the supply chain. By addressing these emissions and implementing sustainable transportation and distribution practices, companies can enhance supply chain efficiency, reduce costs, and minimize their environmental footprint, contributing to both environmental stewardship and long-term business sustainability.

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Category 3 Fuel and Energy Related Activities – The best calculation guidance

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Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category description – Category 3 Fuel and Energy Related Activities includes emissions related to the production of fuels and energy purchased and consumed by the reporting company in the reporting year that are not included in scope 1 or scope 2.

This guidance page for Category 3 Fuel and Energy Related Activities serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 3 excludes emissions from the combustion of fuels or electricity consumed by the reporting company because they are already included in scope 1 or scope 2. Scope 1 includes emissions from the combustion of fuels by sources owned or controlled by the reporting company. Scope 2 includes the emissions from the combustion of fuels to generate electricity, steam, heating, and cooling purchased and consumed by the reporting company.

Overview – Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 (often abbreviated as Category 3 emissions) refer to indirect emissions associated with a company’s value chain, which are not directly controlled or owned by the organization but result from its activities. These emissions primarily stem from sources such as upstream and downstream activities, including extraction, production, and distribution of fuels and energy that a company utilizes but does not directly manage. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: The categorization of greenhouse gas (GHG) emissions is defined by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources that are owned or controlled by the company, such as onsite fuel combustion. Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions along the value chain, including both upstream and downstream activities.
  2. Category 3 Emissions: Within Scope 3 emissions, Category 3 specifically focuses on fuel and energy-related activities that are not included in Scopes 1 or 2. These emissions arise from sources outside the company’s direct control but are associated with the company’s activities, such as the extraction, production, and transportation of fuels and energy sources used by the organization.

Characteristics:

  1. Indirect Nature: Category 3 emissions are indirect emissions, meaning they result from activities associated with the company’s value chain but occur outside of the company’s operational boundaries.
  2. Complexity: Assessing and managing Category 3 emissions can be challenging due to the complexity of tracing emissions throughout the supply chain, as well as the diverse range of activities involved in fuel extraction, production, and distribution.
  3. Scope and Coverage: Category 3 emissions cover a broad spectrum of activities, including but not limited to upstream activities such as extraction and processing of raw materials, transportation of fuels, and downstream activities like refining and distribution.

Examples:Category 3 Fuel and Energy Related Activities

  1. Upstream Activities: Emissions associated with the extraction of fossil fuels such as oil, natural gas, and coal, including drilling, mining, and processing.
  2. Transportation: Emissions from the transportation of fuels and energy sources, including shipping, pipeline transport, and road transport of crude oil, refined products, and natural gas.
  3. Refining and Processing: Emissions generated during the refining and processing of crude oil and natural gas into usable fuels and energy products, such as gasoline, diesel, and electricity.
  4. Distribution: Emissions related to the distribution of fuels and energy sources to end-users, including storage, handling, and transportation to retail outlets or industrial consumers.

Importance:

  1. Comprehensive Emissions Accounting: Addressing Category 3 emissions allows companies to achieve a more comprehensive understanding of their carbon footprint and environmental impact, enabling better-informed decision-making and targeted emission reduction efforts.
  2. Supply Chain Management: Managing Category 3 emissions necessitates collaboration and engagement with suppliers and partners throughout the value chain, promoting sustainability and environmental stewardship across the entire supply network.
  3. Risk Mitigation: Understanding and mitigating Category 3 emissions can help companies reduce their exposure to regulatory, market, and reputational risks associated with climate change and carbon-intensive activities.

Considerations:

  1. Data Availability and Accuracy: Assessing Category 3 emissions requires access to reliable data on emissions factors, energy consumption, and supply chain activities, which may pose challenges due to data availability and accuracy issues.
  2. Supply Chain Engagement: Engaging with suppliers and partners to address Category 3 emissions requires collaboration, transparency, and alignment of goals and objectives, which may necessitate developing partnerships and implementing supply chain sustainability initiatives.
  3. Lifecycle Analysis: Conducting lifecycle assessments of products and services can help identify hotspots and opportunities for emissions reductions across the entire value chain, including Category 3 activities.

Conclusion:

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 represent a significant component of a company’s indirect emissions profile, reflecting the environmental impact associated with the extraction, production, and distribution of fuels and energy sources used in its operations. By comprehensively addressing Category 3 emissions and integrating sustainability principles into supply chain management practices, companies can enhance their environmental performance, mitigate risks, and contribute to global efforts to combat climate change.

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Category 2 Capital Goods Scope 3 emissions – The best calculation guidance

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Calculating Scope 3 Emissions GHG Category 2 Capital Goods

Category description – Category 2 Capital Goods includes all upstream (i.e., cradle-to-gate) emissions from the production of capital goods purchased or acquired by the reporting company in the reporting year. Emissions from the use of capital goods by the reporting company are accounted for in either scope 1 (e.g., for fuel use) or scope 2 (e.g., for electricity use), rather than in scope 3.

This guidance page for Category 2 Capital Goods serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Overview – Category 2 Capital Goods

Category 2 Capital Goods refer to a specific classification within capital goods, a broad category encompassing durable assets used by businesses to produce goods or services. These goods are essential for the operation and expansion of a business, serving as long-term investments rather than short-term expenses. Category 2 Capital Goods typically include machinery, equipment, vehicles, and other tangible assets that facilitate production processes but have a shorter lifespan compared to Category 1 Capital Goods.

Here’s an overview of Category 2 Capital Goods:

Definition and Classification:

  1. Capital Goods: Capital goods are tangible assets used by businesses to produce goods or services. They are distinguished from consumable goods by their longevity and role in the production process.
  2. Category 2 Classification: Capital goods are often categorized based on their lifespan, with Category 2 referring to assets that have a medium-term lifespan compared to Category 1, which includes long-term assets like buildings and land.

Characteristics:

  1. Durability: Category 2 Capital Goods are durable assets designed to withstand regular use over an extended period but typically have a shorter lifespan compared to Category 1 assets.Category 2 Capital Goods
  2. Utility in Production: These goods are essential for the production process, directly contributing to the creation of goods or services by a business.
  3. Depreciation: Like all capital assets, Category 2 Capital Goods undergo depreciation, losing value over time due to wear and tear, technological obsolescence, or market fluctuations.
  4. Investment: They represent significant investments for businesses, requiring substantial financial outlay upfront but offering long-term returns through increased productivity and efficiency.

Examples:

  1. Machinery and Equipment: This includes manufacturing machinery, assembly line equipment, packaging machines, and other industrial tools necessary for production processes.
  2. Vehicles: Trucks, vans, forklifts, and other vehicles used for transporting raw materials, finished goods, or employees within the production facility or to external locations.
  3. Tools and Instruments: Hand tools, power tools, precision instruments, and other equipment used by workers to perform tasks related to production, maintenance, or quality control.
  4. Technology and Software: Computer systems, software applications, and technological infrastructure used to automate processes, manage operations, or analyze data for decision-making purposes.

Importance:

  1. Enhanced Productivity: Category 2 Capital Goods play a crucial role in enhancing productivity and efficiency within a business, allowing for faster production cycles and higher output levels.
  2. Competitive Advantage: Investing in modern, efficient capital goods can provide a competitive edge by reducing costs, improving quality, and enabling innovation in products or processes.
  3. Capacity Expansion: These assets enable businesses to expand their production capacity, meet growing demand, or enter new markets by investing in additional machinery, equipment, or technology.
  4. Risk Management: Upgrading or replacing Category 2 Capital Goods can mitigate risks associated with equipment breakdowns, technological obsolescence, or changes in market demand.

Considerations:

  1. Cost-Benefit Analysis: Businesses must conduct thorough cost-benefit analyses before investing in Category 2 Capital Goods to ensure that the benefits in terms of increased productivity or cost savings outweigh the initial investment and ongoing operational costs.
  2. Maintenance and Upkeep: Proper maintenance and timely upgrades are essential to prolong the lifespan and optimize the performance of Category 2 Capital Goods, reducing the risk of downtime and costly repairs.
  3. Technological Advancements: Rapid advancements in technology may render certain capital goods obsolete sooner than expected, necessitating careful consideration of the asset’s lifespan and future market trends.
  4. Regulatory Compliance: Businesses must comply with regulations and standards governing the use of capital goods, particularly regarding safety, environmental impact, and industry-specific requirements.

Conclusion:

Category 2 Capital Goods form a vital component of business investment, facilitating production processes, enhancing productivity, and driving economic growth. By understanding their characteristics, importance, and considerations, businesses can make informed decisions regarding the acquisition, maintenance, and utilization of these essential assets to achieve long-term success and competitiveness in the marketplace.

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Category 1 Purchased Goods and Services – The best calculation guidance

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Calculating Scope 3 Emissions GHG Category 1 Purchased Goods and Services

Category description – Category 1 Purchased Goods and Services includes all upstream (i.e., cradle-to-gate) emissions from the production of products purchased or acquired by the reporting company in the reporting year. Products include both goods (tangible products) and services (intangible products).

This guidance page for Category 1 Purchased Goods and Services serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 1 includes emissions from all purchased goods and services not otherwise included in the other categories of upstream scope 3 emissions (i.e., category 2 through category 8). Specific categories of upstream emissions are separately reported in category 2 through category 8 to enhance the transparency and consistency of scope 3 reports.

Emissions from the transportation of purchased products from a tier one (direct) supplier to the reporting company (in vehicles not owned or controlled by the reporting company) are accounted for in category 4 (Upstream transportation and distribution).

Companies may find it useful to differentiate between purchases of production-related products (e.g., materials, components, and parts) and non-production-related products (e.g., office furniture, office supplies, and IT support). This distinction may be aligned with procurement practices and therefore may be a useful way to more efficiently organize and collect data (see box 5.2 of the Scope 3 Standard).

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Metrics in use for ESG Reporting- 1 Best and complete read

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Metrics in use for ESG Reporting

Here is a list of Metrics in use for ESG Reporting that companies can use to start communicating on the ESG issues. The metrics have been divided into four categories:

Each category contains recommended disclosure metrics (both qualitative and quantitative) that have been marked either as minimum disclosures (relevant to all companies) or additional disclosures (that might not be relevant to all companies).

The selection of recommended disclosure metrics has been informed by relevant regulatory initiatives i.e. the CSRD and the ESRS as well as the Warsaw Stock Exchange corporate governance code. Moreover, to address increasing investors’ data needs, they have been also aligned with the mandatory PAI indicators for corporate investments required by the SFDR (see mapping in the Appendix – Relevance of the Guidelines to investors). References have been added below each section to other frameworks and resources that companies may also consider (Appendix – Alignment with EU regulations and other frameworks).

It should be emphasized that the Guidelines do not provide an exhaustive list of indicators and topics. Rather they aim to offer less advanced companies a minimum set of carefully selected disclosure metrics that will help them to prepare for the upcoming requirements stemming from the CSRD and the ESRS and better respond to investors’ ESG data needs. Companies in scope of the CSRD should use the ESRS to prepare their disclosures on material sustainability topics.

Metrics in use for ESG Reporting – General information

General information metrics provide essential context to understand the company business activities and value creation model, it’s material ESG impacts, risks and opportunities, and how it is managing them.

General information

What should be disclosed:

I

M 1

Business model
  • Short description of the company business model and value chain.
  • Whether the company is active in the following sectors: fossil fuel (coal, oil and gas), controversial weapons along with related revenues.

Companies may consider including the following characteristics when describing their business model: economic activities; products and services offered; markets of operation, company size (in terms of workforce, business locations, revenue, etc.)

I

M 2

Sustainability integration
  • Whether and how sustainability matters are integrated in the company strategy and business model.
  • Resilience of the company strategy and business model(s) to material sustainability risks.
  • Policies and actions adopted to manage material sustainability matters.
  • Targets related to management of sustainability matters.

I

M 3

Sustainability governance
  • Governance bodies roles and responsibilities with regard to sustainability matters (e.g. in relation to risk management, target setting, sustainability disclosure).
  • Whether governance bodies are informed about sustainability matters, and how they are addressed by administrative and/or management bodies.
  • Whether incentive schemes are offered to members of governance bodies that are linked to sustainability matters.

I

M 4

Material impacts, Risk and Opportunities
  • The processes used to identify material impacts, risks and opportunities.
  • Sustainability due diligence process.
  • Outcome of the materiality assessment (identified material impacts, risks and opportunities).
  • How material impacts, risks and opportunities interact with the company strategy and business model.

I

M 5

Stakeholder engagement
  • Description of the company main stakeholders, and how the company engages with them.
  • How the interests and views of stakeholders are taken into account by the undertaking’s strategy and business model.

Metrics in use for ESG Reporting- Environmental disclosures

Environmental metrics cover issues that arise from or impact the natural environment.

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The Statement of Cash Flows

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Statement of Cash Flows

IAS 7.10 requires an entity to analyse its cash inflows and outflows into three categories:

  • Operating;
  • Investing; and
  • Financing.

IAS 7.6 defines these as follows:

‘Operating activities are the principal revenue producing activities of the entity and other activities that are not investing or financing activities.’

‘Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.’

‘Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.’

1. Operating activities

It is often assumed that this category includes only those cash flows that arise from an entity’s principal revenue producing activities.

However, because cash flows arising from operating activities represents a residual category, which includes any cashStatement of cash flows flows that do not qualify to be recorded within either investing or financing activities, these can include cash flows that may initially not appear to be ‘operating’ in nature.

For example, the acquisition of land would typically be viewed as an investing activity, as land is a long-term asset. However, this classification is dependent on the nature of the entity’s operations and business practices. For example, an entity that acquires land regularly to develop residential housing to be sold would classify land acquisitions as an operating activity, as such cash flows relate to its principal revenue producing activities and therefore meet the definition of an operating cash flow.

2. Investing activities

An entity’s investing activities typically include the purchase and disposal of its intangible assets, property, plant and equipment, and interests in other entities that are not held for trading purposes. However, in an entity’s consolidated financial statements, cash flows from investing activities do not include those arising from changes in ownership interest of subsidiaries that do not result in a change in control, which are classified as arising from financing activities.

It should be noted that cash flows related to the sale of leased assets (when the entity is the lessor) may be classified as operating or investing activities depending on the specific facts and circumstances.

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Accounting for mergers – Best 2 Read

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Accounting for mergers

Mergers and acquisitions (business combinations) can have a fundamental impact on the acquirer’s operations, resources and strategies. For most entities such transactions are infrequent, and each is unique. IFRS 3 ‘Business Combinations’ contains the requirements for accounting for mergers, which are challenging in practice.

This narrative provides a high-level overview of IFRS 3 and explains the key steps in accounting for business combinations in accordance with this Standard. It also highlights some practical application issues dealing with:

  • how to avoid unintended accounting consequences when bringing two businesses together, and
  • deal terms and what effect they can have on accounting for business combinations.

The acquisition method in accounting for mergers

IFRS 3 establishes the accounting and reporting requirements (known as ‘the acquisition method’) for the acquirer in a business combination. The key steps in applying the acquisition method are summarised below:

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Example Disclosure financial instruments

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Example Disclosure financial instruments

The guidance for this example disclosure financial instruments is found here.

7 Financial assets and financial liabilities

This note provides information about the group’s financial instruments, including:

The group holds the following financial instruments: [IFRS 7.8]

Amounts in CU’000

Notes

2020

2019

Financial assets

Financial assets at amortised cost

– Trade receivables

7(a)

15,662

8,220

– Other financial assets at amortised cost

7(b)

4,598

3,471

– Cash and cash equivalents

7(e)

55,083

30,299

Financial assets at fair value through other comprehensive income (FVOCI)

7(c)

6,782

7,148

Financial assets at fair value through profit or loss (FVPL)

7(d)

13,690

11,895

Derivative financial instruments

– Used for hedging

12(a)

2,162

2,129

97,975

63,162
Example Disclosure financial instruments

Financial liabilities

Liabilities at amortised cost

– Trade and other payables1

7(f)

13,700

10,281

– Borrowings

7(g)

97,515

84,595

– Lease liabilities

8(b)

11,501

11,291

Derivative financial instruments

– Used for hedging

12(a)

766

777

– Held for trading at FVPL

12(a)

610

621

124,092

107,565

The group’s exposure to various risks associated with the financial instruments is discussed in note 12. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. [IFRS 7.36(a), IFRS 7.31, IFRS 7.34(c)]

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Definition of provision – IAS 37 Complete easy read

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Definition of provision

The definition of provision is key to IAS 37. A provision is a liability of uncertain timing or amount, meaning that there is some question over either how much will be paid or when this will be paid. In the past, these uncertainties may have been exploited by companies trying to ‘smooth profits’ in order to achieve the results they believe that their various stakeholder may want.

As part of the attempt of IASB to further restrict this type of earnings management within IFRSs, IASB adopted an update of IAS 37 in April 2001 originating from September 1998. IAS 37 was further updated for Onerous contracts – Costs of fulfilling a contract in May 2020.

IAS 37: ‘Onerous Contracts – Cost of Fulfilling a Contract’

lAS 37 defines an onerous contract as one in which the unavoidable costs of meeting the entity’s obligations exceed the economic benefits to be received under that contract. Unavoidable costs are the lower of the net cost of exiting the contract and the costs to fulfil the contract. The amendment clarifies the meaning of ‘costs to fulfil a contract’.

The amendment explains that the direct cost of fulfilling a contract comprises:

The amendment also clarifies that, before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract.

The amendment could result in the recognition of more onerous contract provisions, because previously some entities only included incremental costs in the costs to fulfil a contract.

The key definition of provision

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