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The Importance of High-Quality Data in ESG Reporting: Embracing LCA and Activity-Based Methodologies


By Ayna Custovic

With the new CSRD regulations in place, companies are facing growing pressure to disclose their environmental, social, and governance (ESG) performance and impacts.

Robust data collection and analysis methodologies are essential for gathering quality data and measurements for accurate ESG reporting. Traditionally, a spend-based method has been used which is unable to provide the accuracy and detail that is required for the new and upcoming ESG regulations.

neoeco’s state-of-the art software uses a Life Cycle Assessment and activity-based methodology to deliver the gold standard in data quality. Read on to find out more about what this means and book a free neoeco demo to see our ESG reporting solution in action.

The limitations of a spend-based approach

Traditional spend-based accounting has been the go-to for ESG reporting thus far. The spend-based methodology calculates ESG impacts based solely on financial expenditures. This method falls short in capturing the complexities of modern supply chains and production processes, leading to inaccuracies and an incomplete representation of a business’ true impacts.

Spend-based methods can be particularly problematic in industries with complex supply chains, where financial data may not accurately reflect the environmental and social impacts associated with specific activities or processes. Additionally, these methods may overlook important factors such as energy efficiency, material optimization, and labour practices, which can have significant ESG implications.

neoeco’s solution: Activity-based methodology

The activity-based method allocates environmental and social impacts based on the actual activities and processes involved in producing goods or services. Unlike traditional spend-based methods that rely on financial data alone, the activity-based method takes into account operational data, such as energy consumption, material usage, and labour hours, to accurately reflect the true drivers of environmental and social impacts.

Activity-based methods provide a more granular and accurate representation of a company's ESG performance. This level of detail is essential for identifying opportunities for impact reduction, seeing actionable insights, setting meaningful targets - and ultimately driving tangible progress toward sustainability goals.

neoeco’s solution: Life Cycle Assessment

Life Cycle Assessment (LCA) is a methodology that looks at the environmental impacts associated with a product, process, or service throughout its entire life cycle - from raw materials to end-of-life disposal.

By considering all stages of a product's life cycle, LCA provides a comprehensive picture of its ESG impacts, including greenhouse gas emissions, water consumption, and waste generation.

LCA is particularly valuable for businesses seeking to understand and reduce their environmental impacts across their value chains. By identifying hotspots and areas for improvement, LCA enables companies to make informed decisions that can drive sustainability initiatives and mitigate their environmental footprint.

High Quality Data: Essential for ESG Reporting

To achieve accurate and credible ESG reporting, companies must prioritise data quality and adopt rigorous methodologies like LCA and activity-based accounting. By embracing these approaches, sustainability leads, finance teams, and accountants can gain a comprehensive understanding of their business’s environmental, social, and governance impacts, enabling them to see actionable insights, make informed decisions, set achievable targets, and drive real progress toward sustainability goals.

Many ESG solutions still only focus on carbon accounting with a spend-based approach, limiting your sustainability reporting data quality. With neoeco, our LCA and activity-based methodology ensures that our AI automated system gathers robust and accurate data to create instant audit-ready reports across all of sustainability - not just carbon.

In today's rapidly evolving business landscape, stakeholders and governments are demanding accountability and transparency and the importance of high-quality data for ESG reporting is crucial. By embracing the Life Cycle Assessment and activity-based approach, organisations can not only meet ESG requirements but also gain a competitive advantage by demonstrating their commitment to sustainability and responsible business practices - transforming ESG from a regulatory requirement into a strategic advantage.

Elevate your sustainability strategy with our LCA and activity-based methodology that reports across all of sustainability. Book your free neoeco demo now to see how it works.

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