Traditional LCA is limiting

The conventional approach to LCA solutions is a form of ‘bottom up’ (BU) data analysis. It uses data to piece together factors that result in a specific outcome, leading to insights into the complex systems further up the information ladder.

When using BU analysis for LCA, we start with a single, defined product that is the subject of the study. The materials and processes used to make it are systematically mapped back through the value chain that resulted in that product so that the environmental impacts of those inputs can be quantified.

This is a complex task, requiring specialist knowledge and software tools. Inevitably, it is time-consuming and costly. It would need to be applied to every product a company makes and would have to be repeated if any changes are made to those products. This makes BU inadequate for monitoring or measuring the progress on sustainability across an organization as this would require insights across all products and processes, repeatedly. Hence a BU approach to LCA falls short of giving businesses the insights needed to drive sustainability.

LCA as a management tool

With ‘activity-based footprinting’, we can make LCA scalable and work as a sustainability management tool.

If we are to measure and manage the environmental consequences of decisions made on material sourcing, manufacturing processes, product design, and routes to market, an LCA on all products is essential as part of the same regular management reporting routines used to track every other KPI in the organization. To deliver on their net-zero commitments and transition to the circular economy, companies need to have the capability to track those KPIs and make informed decisions. At TCS, we take our inspiration from how successful companies manage other complex changes.

Environmental impacts pass through value chains in a similar way to financial costs. Just like there is a measurable cost associated with all activities in a value chain whether it is producing, transporting, or processing materials, there is an environmental cost attributed to each of those activities. Like financial costs, environmental impacts can be reduced by optimizing efficiencies—finding ways of ‘doing more, with less’. Importantly, as with cost, all environmental impacts are passed down the value chain, becoming embodied in, and accountable for, in the final product.

This analogy between financial cost and environmental impact shows us how we can make LCA into a management tool. In management accounting, activity-based costing (ABC) is a method that identifies activities in a company and assigns the cost of each activity to all products and services according to the actual consumption by each. This makes ABC an example of ‘top down’ (TD) data analysis, in which the overarching system of data collection and analysis is captured, allowing detailed models of subsystems to be refined as appropriate. BU methods are the best approach when cause and effect need to be explored and when problems need to be defined; TD approaches are more effective when business problems are known, and the need is to understand and manage them systemically. 

Many leading companies use ABC to accurately measure all the elements that define unit costs to a high degree of granularity, thereby facilitating strategic decisions such as pricing, outsourcing, identification, and measurement of process improvement initiatives. What if we use the same allocation methodology but use the environmental impact factors developed for LCA to measure those activities? 

In ABC, we might say that every kWh of electricity used in the production of that product costs $0.33 and indicate how energy prices contribute to the unit cost. It would be equally true to say that every kWh of electricity used in the production of the product produced 230g of carbon dioxide equivalent or CO2 e, and we would then understand how the carbon intensity of that energy supply contributes to the carbon footprint of each unit produced.