Sustainability

Increasing competitiveness with product-centric ESG reporting

ESG compliance is no longer a nice-to-have. It has become essential for competing in an increasingly sustainability-conscious market, saving resources and costs, and meeting ever-stricter regulatory requirements. Regulations such as the European Commission’s Corporate Sustainability Reporting Directive (CSRD) or the Supply Chain Act require companies to report ESG data transparently. While many organizations still rely on document-centric approaches and struggle with isolated solutions, a strategic competitive advantage is emerging elsewhere: product-centric ESG reporting.

What is ESG reporting?

Sustainable business practices have many facets. The ESG approach breaks them down into three core dimensions:

• E = Environmental
• S = Social
• G = Governance

In an ESG report, companies provide information on all three areas. This includes data such as CO₂ footprints, energy consumption in production and operations, as well as information on promoting biodiversity and reducing waste. It also covers aspects like compliance with fair labor conditions and human rights, ensuring diversity, implementing effective risk management and compliance practices.

Data management is key in ESG reporting

This data – especially environmental KPIs – are often scattered across multiple sources: internal IT tools, external environmental databases, or supplier and partner systems. For many companies, preparing an ESG report therefore comes down to one central question: How can reliable ESG data from diverse sources across the entire value chain be collected and analyzed?

A bar chart with three bars on the topic — Companies consider the multitude of data sources and the varying data quality to be among the biggest challenges in ESG reporting. (BARC GmbH 2024)

One key solution lies in anchoring ESG reporting directly within product development – specifically, in the PLM system. This is where crucial data across the entire product lifecycle is stored: information about the product portfolio, the materials used and their sourcing, emissions from production and the supply chain, as well as data from later lifecycle phases such as use, disposal, and recycling. With this structured and traceable data foundation, a PLM system provides the ideal basis for a precise, transparent, and strategically valuable sustainability assessment.

Product-centric single source of truth as an enabler

An open integration platform like CONTACT Elements offers another crucial advantage for ESG reporting: it seamlessly incorporates information from a variety of internal and external sources. Through APIs, it exchanges data with third-party systems such as ERP tools. Supply chain information can be integrated via standardized exchange formats like the Asset Administration Shell (AAS) or data ecosystems (such as Pontus-X or Catena-X). This makes the platform a single source of truth for company-wide ESG reporting.

A schematic representation of ESG reporting based on the CONTACT Elements platform. — ESG reporting powered by CONTACT Elements.

Ideally, such a solution comes with built-in capabilities to assess and analyze the data. For example, CONTACT Elements uses AI methods to evaluate data quality. In the next step, powerful modules – such as for calculating the Product Carbon Footprint – then generate a compliant ESG report. This creates a comprehensive, audit-ready reporting that meets all market-specific requirements.

From ESG reporting to a sustainability strategy

Companies that rely on product-centric, integrated solutions like CONTACT Elements don’t just tackle the mandatory task of ESG reporting – they have the chance to strategically embed sustainability across the organization. For example, ESG data in CONTACT Elements can be directly linked to product structures and development processes. This allows developers to make early assessments of potential CO₂ emissions across the product portfolio or in specific manufacturing processes, and to optimize them in a targeted way.

The result: sustainable innovations, more attractive products, streamlined processes, and lower costs. The foundation for this is always a software platform like CONTACT Elements: open, scalable, and equipped with powerful business applications.

Learn in this article by consulting firm CIMdata how companies can systematically embed sustainability in PLM to reduce their environmental impact across the entire product lifecycle.

Sustainability as a competitive edge: one step ahead with PLM

Sustainable thinking is no longer a “nice-to-have” – regulations and customer demands have made it a central pillar of modern innovation. A growing number of companies are realizing that ecological responsibility and economic success can go hand in hand. This is especially evident in product development: where cost-effectiveness used to dominate, sustainability has emerged as another key factor.

The right balance between economic and ecological aspects

While cost and efficiency remain crucial, staying competitive in the future requires taking the environmental balance into account when making business decisions. The challenge lies in finding the right balance between economic performance and ecological responsibility. This is most successful when sustainability is considered from the very beginning – at the design stage – rather than at the very end.

Why the product development process is crucial

Around 80% of a product’s environmental impact is already determined during the development phase. Decisions about materials, manufacturing processes, energy use, and recyclability made during this stage play a decisive role. Leveraging reliable and transparent data in the decision-making process enables companies to lower the environmental impact of their products.

LCA vs. PCF: Two key terms briefly explained

Anyone involved in sustainable product development will inevitably encounter these two concepts:

Life Cycle Assessment (LCA): The assessment of a product’s environmental impact throughout its lifecycle, from raw material extraction to disposal.
Product Carbon Footprint (PCF): The environmental footprint of a product, expressed in CO₂ equivalents. The PCF is often part of a broader LCA.

Implementing sustainability directly in the PLM system

CONTACT’s sustainability solution allows this environmental data to be recorded and used directly in CIM Database PLM. This enables a systematic evaluation of materials, processes, and product structures. Whether entered manually or imported automatically from environmental databases, a product’s environmental impact can be analyzed and improved directly within the system.

Asset Administration Shell: a key to data exchange in the supply chain?

Sustainability is not a solo effort. Especially for complex products involving multiple suppliers, effective data exchange is crucial. This is where the concept of the Asset Administration Shell (AAS) comes into play – a standardized representation of digital twins for industrial components.

Using AAS submodels like the Carbon Footprint, companies can communicate environmental data in a standardized way, both internally and externally. This creates a seamless data foundation across the entire value chain. Using submodels like the Carbon Footprint, companies can communicate environmental data in a standardized way – both internally and externally, enabling them to integrate data from purchased components.

Three key takeaways:

Sustainability starts with engineering, where crucial decisions are made.
Standardized data formats enable the integration of environmental data into the product lifecycle.
With IT tools like CONTACT Elements Sustainability Cloud, companies can not only plan eco-friendly operations but also implement sustainability early in the development process.

Conclusion

Developing sustainable products is no longer a vision for the future – it’s a reality today. Companies that adopt the right tools at an early stage and rely on standardized processes gain not only ecological advantages but also economic benefits.

Scope 3 emissions: A challenge for companies

Reducing greenhouse gas (GHG) emissions is crucial in the fight against climate change. Many companies face the challenge that indirect emissions in their value chain, so-called Scope 3 emissions, are often the largest contributors. Since these emissions fall outside the direct control of the company, they are usually the most difficult to determine (and optimize). How can companies address these central challenges within their value chains?

What are Scope 1, 2, and 3 emissions?

The Greenhouse Gas (GHG) Protocol classifies emissions into three categories: Scope 1 for direct emissions from company-owned sources, Scope 2 for indirect emissions from purchased energy, and Scope 3 for all other indirect emissions, including those from upstream and downstream processes within the value chain. Scope 3 is particularly important because it often accounts for the majority of GHG emissions. The GHG Protocol defines 15 categories of Scope 3 emissions that arise from both upstream and downstream activities. These include raw material extraction, production and transportation of purchased components, and the use of the manufactured products by end consumers. These emissions are difficult to capture as they are not directly under the company’s control.

Corporate Carbon Footprint (CCF) vs. Product Carbon Footprint (PCF)

There are two central approaches to calculating emissions: the Corporate Carbon Footprint (CCF), which encompasses all activities of a company, and the Product Carbon Footprint (PCF), which focuses on the lifecycle of a specific product. The PCF is particularly important when it comes to determining emissions along the value chain. Companies that aim to measure their Scope 3 emissions also need data from their suppliers regarding the PCF of the components they purchase.

Why is measuring Scope 3 emissions important?

Companies can directly influence and therefore more easily calculate Scope 1 and Scope 2 emissions. However, Scope 3 emissions should not be overlooked when aiming to assess the entire value chain. Since emissions from upstream and downstream processes often are the largest sources of GHGs, this is the only way to identify and reduce “hotspots” within the value chain.

For many SMEs, significant emissions lie in the upstream processes. However, this is also particularly relevant for industries that rely on complex and globally distributed supply chains. The automotive industry, for instance, depends heavily on purchased components and services, which significantly impact the GHG balance. According to the study “Climate-Friendly Production in the Automotive Industry” by the Öko-Institut e.V., an average of 74.8% of Scope 3 emissions occur during the usage phase, while in-house production (Scope 1 and 2 emissions) only accounts for about 1.9%, and 18.6% originate from the upstream value chain with purchased components. As the industry focuses more and more on e-mobility, the Scope 3 emissions of purchased components – and thus those from suppliers – come into sharper focus as a key lever.

Challenges in the supply chain

The pressure on suppliers to make their production more efficient and sustainable is growing, along with the need for transparency regarding the emissions of the supplied parts. Key challenges in the supply chain include data quality and availability. To tackle this and reduce greenhouse gas emissions, companies need to break new ground, ranging from material selection to production methods. A solid data foundation supports these necessary decisions, as well as the accurate documentation of emissions.
Capturing Scope 1 and Scope 2 emissions is already mandatory under the GHG Protocol Corporate Standard, while Scope 3 reporting is currently optional. However, the importance of Scope 3 reporting is increasing, as demonstrated by EU regulations like the Corporate Sustainability Reporting Directive (CSRD) and the associated European Standards (ESRS). These regulations emphasize the disclosure of emissions as a central aspect of climate action and sustainable business practices.

Three key steps to reduce Scope 3 emissions

Optimize data management: Companies should collect comprehensive data on their products and their lifecycles to make design and portfolio decisions in favor of sustainability.
Ensure data sovereignty and trust: Accurate calculation of Scope 3 emissions requires control over data, particularly in the context of the upstream and downstream value chains.
Use open interfaces: Open data interfaces are essential for seamless integration and communication within the value chain. Approaches like the Asset Administration Shell (AAS) and concepts such as the Digital Product Passport (DPP) can provide valuable support.

Conclusion

Measuring and optimizing Scope 3 emissions is one of the greatest challenges for companies seeking to improve their GHG balance. By leveraging better data, optimizing collaboration within the supply chain, and ensuring transparent reporting, companies can meet regulatory requirements and make progress toward a more sustainable future.

Read a more detailed article on Scope 3 emissions on the CONTACT Research Blog.