Stephan Stieren from Fraunhofer-Institut für Entwurfstechnik Mechatronik IEM presented “CSRD – a chore or the foundation for sustainable production?” at the “New Technology Forum” at Hall 16, Booth F11 on the 19-09-2023.
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Ladies and gentlemen and being a bit of a small group here but I’d like to welcome you most warmly today what we’d like to cover is sustainability now sustainability is no longer just a political Paradigm but we believe this is something that has become part and parcel of industrial production everyone’s
Talking about at these days and here’s why CS there’s the corporate sustainability reporting directive csrd for short which Is and this is a European directive that I’d like to um touch on here and there because people might be asking the question is that just an annoying obligation to fulfill the csrd requirement or is it the foundation for sustainable production I’m Stephan steering I’m um researcher at frover
Institute for mechatronic systems design in pador not far from here at all for those of you who don’t know the city it’s really beautiful and what we doing is we are investigating uh sustainability requirements and how that can be integrated to the development of mechatronic and cyber physical systems
Design I’m not a financial expert so the other experts that could uh focus on that I’ll be happy to forward the question if you have any I’m an expert in product development and this is what I’m going to cover today here and software development Etc and um that
Might be something we would want to talk about so let’s get started you see the EU flag and CS is it an an obligation the foundation for sustainable production I said before the corporate sustainabil reporting directive is a directive by the European Union which stipulates reporting obligations for the majority of
Companies in Europe that have a capital Market orientation what that means well tell you a moment and it covers a number of reporting or disclosure obligations by those companies along the lines of sustainabil kpis like the carbon footprint for instance I’m going to explain to you
First what this is about how that can be um segmented into scope 3 U reporting and this is something the that we addressed in earlier discussions I’m also going to talk about the impact that the csrd has for many companies essentially for all manufacturing businesses we’re here at emo which looks at manufacturing
Businesses this is what I put my focus on then I will offer a solution when it comes to um product and process accounting so um sustainability accounting of products production and production processes and I’ll tell you what we do at the frover institute for mechatronic systems design how we
Do I’ve always talked about sustainable production throughout my talk just to give you an impression of what it looks like on the shop floor or what it could like on it look like on the shop floor and then uh when I finish I’m going to circle back to the earlier question of
Whether for you this is an annoying obligation or truly becomes a foundation for sustainable production we have plenty of time for Q&A I’ve been told so um it’s an Omnibus question obviously I could go on and talk forever about it we’ll try to make do with the time we
Have so there we are you see this building which um stands for a piece of legislation legislation published by the European Union who’s affected by that legislation generally it refers to all companies that have a capital Market orientation it’s independent of the size of the company I mean there is a
Staggered applicability of the law for companies but it’s fair to say the Criterion is to have has been to have more than 500 employees this is no longer going to be the case the non financial reporting directive is about 10 years old it will be replaced by the new one by the C
Csrd but the nonfinancial reporting directive was referring only to larger companies larger than 500 employees that and it’s going to be relevant for the bigger for bigger companies larger than 250 employees now um must have a balance sheet total of2 million and sales revenues of40 million and a capital Market orientation is not
Required any longer and here’s where it gets interesting I’ve been talking about the Capital Market here for a while well this time around we’re here in Hanover at a Trade Fair where companies need to report that are not working on the capital market and that originally were
Not obliged to report however by the csrd they will be affected for two reasons I’m going to give you a uh tell you a story here just a couple weeks ago I traveled to a banking event and the banks were talking about this and the banks and financial institutions are
Already preparing now to uh structure their loans based on csrd requirements so they’re going to uh they’re developing some mechanisms and how to structure their bank loans in the future so those who have better csrd values will get a back better bank loan than the ones that don’t at the end of
The day it would lead to a market Advantage so Banks agree and we also agree in the research environment that there are products that can be produced in a more sustainable fashion I’ll give you an example in a minute so we are truly facing disruption in product development for uh Machine
Tool makers imagine I mean obviously all of you are using a smart phone you know how these are produced well they have a number of obligations to meet recyclability Etc and the same is here in our industry it will meet it will lead to upheaval and changes it’s going
To be relevant for every manufacturing business because they need to deliver at the end of the day what are these numbers against you against which you have to deliver now this is the architecture of the European sustainability reporting standards esrs for short the csrd refers to those standards and it’s saying that these
Standards have to be implemented by reporting or by the reports sent by companies it’s a repetitive process there are occasional Publications here and there and amendments to those Publications what you see here is 3 months old and last month another amendment has been made but I think this picture is
Relatively up to dat and mind you these are not only environmental or climate standards it’s also about social issues governance interdisciplinary standards Etc all of these are involved here there’s a total of 85 disclosure obligations now 27 of them are obligatory read something about 18 but I
Think 27 is what I read that must be reported in other words and then there will be materiality assessments by companies so which companies need to report which ones don’t but this essentially is the gist of the matter these are the standards that you need to report when
Will it come into Force well it has been adopted already I must say this year the csrd was um adopted and still needs to be transposed into National legislation but normally in the EU once Europe takes a decision it takes a time there’s a transition period before it gets transposed into National legislation
However it becomes active for for companies that already have reported by the non-financial reporting directive as early as next year 2024 now obviously that’s not many those who had reported so far because there’s also a graded system the beginning 2025 it will be large corporation and group of companies always referring to the
Financial year right Financial or fiscal year of 2025 they will have to report in by 2026 but 2026 will also include small and mediumsized Enterprises that are not Capital Market oriented so those also need to report their figures interestingly enough it’s going to be relevant for non-eu companies so large
Operations that have a subsidiary in the European Union will also need to report beginning fiscal 2028 well there’s one condition they have to have a balance sheet total of more than 140 million euros in the EU but still it’s going to be relevant for them even if they’re not European
Corporations they will have to submit their reports now who’s in charge of that at the end of the day uh now I’m not an auditor so I think can skip that rather quickly for management positions or the supervisory board there will be new management functions that have to be
Appointed for this and also an external review will have to be in place and a monitoring of the reporting process this is currently being rolled out now how do these audits uh take place there will be external audits uh there are mandatory external aits of content by um an accountant or an external
Auditor or independent uh auditing organizations that can provide um unqualified ordered statements if you have more questions feel free to ask me but I can uh forward that to my colleagues because we do research and prototype development but be it as it may what is the whole legislation based on the sustainability reporting
Directive well there’s the greenhouse gas protocol which is the foundation for this report and the ghg protocol um is applied to the organizational level of a company so an example our Institute um has done a sustainability assessment of what we do and it only refers to our organization there are three three
Scopes scope one refers to emissions from your own activities now imagine you have a vehicle Fleet if your company cars in other words that company car fleet has a certain level of emissions like your fuel emissions related to fuel consumption scope two are emissions from gen energy generation electricity heat steam
Everything you use in organization has to be calculated and that can be done reasonably easily so so the figures are there you can read it you can capture it why because the big one is the most complex one scope three are all other remissions all of them so these refer to
Indirect emissions from other sources scope three takes an overall uh stance to analyze the LCI the life cycle inventory now what we did in our Institute we have an office building with copying machines and copying paper the paper that sits in our offices has a carbon footprint that carbon footprint
Also has to be reported has to be part of your accounting needs to be part of your overall uh carbon footprint now what’s interesting in scope 3 you also need to account for your products that you are producing and then used on the customer side and all the
Processes that you use within your company to produce a certain product now just behind me I’ve been told there’s a milling machine that’s the one that’s so noisy now that milling machine would also have to be factored in in your carbon footprint calculation now how do
You do that how do you calculate for a machine that has a thousand Parts in it all of them come from different suppliers different Supply chains ET so on the CSR wants you to report all scope 3 emissions now what do we do in our research and when we talk uh to our
Clients to deal with it imagine the overall um carbon footprint calculation is something that is uh Upstream everything that goes into the company everything that’s Downstream leaves the company or the organization anything that is uh more or less related to sustainability for society and for the product as far as it affects your
Company and that’s a huge amount of data many indicators kpis a lot of money at the end of the day it’s about Innovation and finally also I should say that it’s about uh surviving in the market for the entire system to work you need to be able to survive in
Reporting we have come up with one proposed solution uh the digital twins coming back this time it’s green the digital green why it’s not just greenwashing we’re doing mind you all we did was to try and come up with answers to how you can use existing methodologies and approaches and turn
Some that into something that takes companies forward we are in that chapter are coming from Theory down to practical Hands-On and I’m doing that for a reason because we work a lot uh in research at frover Institute so let us use uh the V model the green digital
Canvas we made a publication a couple years ago before the co pandemic I think it was 2018 or 2019 where that notion was relevant we started our work at the time and uh looked at the product development process using the V model now how could you support that with a digital tool to
Connect all the sustainability indicators it’s a bit of a global problem it which is ranges from requirements definition requirements definition at the top all the way to product disposal or the end of life and recycling so throughout that product development process you create a carbon footprint and that’s normal you are creating a
Footprint otherwise you cannot produce a material or physical item and the green digital twin is the digital image of your product or service or of a process for that matter it includes and connect virtual models and data that draws onto different environmental and sustainable um factors of a product life cycle the
Objective of the green digital twin is to make sustainable sustainability potentials transparent and optimize Recycling and utilization processes now that’s a mouthful what does that mean for us at uh our Institute when we talk about the digital twin now imag you have a technical asset could be a robot U
That does some pick and place applications and in the Second Step you have your R&D Department the R&D Department creates models even in a small company use cat models could be comprehensive data models in big Erp or PLM systems be it as it may digital models exist in most organizations sry
Would say um sometimes on a very interactive level model based systems engineering for instance is very intricate but you also have the production and the operation where I’m standing in front of that image right here on the left and this is where data is captured also at times very good energy
Data captured that you need for the calculation and carbon frb calculation we call it the Digital Shadow now if you merge those two the Digital model and the Digital Shadow you get the digital twin sounds very theoretical and the way how to put it into practice is a
Different uh kettle of fish which I’m going to talk about in a moment so we wanted to get from the technical asset to the digital twin first how do you turn it green well you have emissions data from production showing on the top left in your Digital Shadow and on the right for
Your life cycle assessment you can do an LCA model well you don’t the production company but you can use your processes and products uh and have them evaluated by someone else so the uh technology comes from the 1990s it’s there fairly sophisticated so there’s a way to model
Your life cycle assessment and there software available to do that as well this life cycle assessment is a way to get a handle on all of your data now here’s how this works and how you could do that and what software on the software level to do that to make sure
That the individual products for which that you need to capture can actually be captured using a carbon footprint approach here we are this is the life cycle assessment that’s a definition of a life cycle assessment it’s a compilation and assessment of the input output and potential environmental impact of a
Product system throughout its entire life Cyle this methodology comes from the 1990s U well you can do uh a paper based process of course and there’s a standard out there to do that we are not doing that in a paper based process we have a software based process we also assess different potential global warming potential um acidification potential
Water consumption resource consumption Etc and it rests on two specific standards you see there so that standard exists out there and you can use different Frameworks to conduct your own life cycle assessment but these are the most important ones the two ones you see on the
Right so what I’m saying is there is an international standard system so what does it look like how could you model your kpis we come from modelbased development in our group I should say in our department so what we do is we assume anything that’s calculated ated or
Modeled can be based on an existing software so this is how you could do it life cycle assessment is the first thing you do you define your objective and uh your investigation scope what you want to investigate what’s the system for which you want to analyze the process now the
CNC system or the milling machine behind me that would be a process right and there different targets and limit and functional units for your assessment for instance we have CO2 per kilo of shipped Goods or Co two per cubic meter of soil liters front headlight of a vehicle what have
You and then you want to understand what is your scope of investigation and then you do a life cycle inventory analysis it looks like a flowchart you’ll see it in one of the next p pictures you identify systems limitations which you normally do when you model mechatronic systems and then you capture
Data allocate them calculate them and if you have a good data quality at the end of the day you end up with a good robust model and a good carbon footprint or let’s say a realistic carbon footprint where do uh they come from data I mean that’s a main problem if you
Want to have a software based process you need to get data from somewhere there are three ways to do that one is primary data it’s been our experience when we work with companies and larger production lines that the primary data are often not sufficient the primary
Data is not captured in the first place so fact of life and there’s nothing you can do about that the system is too Global but then there’s also secondary data the databases you can use to capture your secondary data Eco invent is one the big database or garby is one and different um
Documentation capabilities that are already out there and then final uh finally environmental product declarations epd there are existing declarations for different use cases that have been developed in different institutions across uh the U and uh that can used for which you can actually that you can access in order to do your carbon
Footprint calculations or you can use uh estimations estimated data sometimes you need to estimate because you don’t have reliable databases all these are incomplete they may include fals or questionable numbers for different processes and here comes the question who’s going to estimate your process of your your milling machine that sits
Behind me or who’s going to do it who captures the data who accounts for them is that someone doing that with my own interest in mind or their own interests in mind which could be detrimental for me in the final analysis and that’s not uh trivial because it’s about uh real
Money at the end of the day so in the final analysis there’s a life cycle assessment or impact assessment where you classify and assess different foot print scenarios and also allows you to understand how can you change your product and process in such a way that it becomes energy efficient or with a
Low carbon footprint the different categories are resource consumption glal warming potential ozone depletion potential ACI acidification potential AR just some of those I said it’s a lot of theory and now let’s move over to the practical part and I’ll tell you how you can turn these data into a digital product there
Are solutions and Technologies out there that can do that that can also connect you to existing databases Eco invent for instance is a database you see here or garby as a database which we don’t have in the picture here I understand but different software products what we are currently using is
A uh freeware called open LCA now what’s the advantage of open LCA many are facing problem that when they’re reporting they need to pay license fees open LCA is free weere so it comes with no fee and it’s much better uh than uh not having anything at all open LCA allows
You to do something that was going to be a challenge in the years to come to connect your data to an Erp program like sap now sap is saying yes we can do that but it doesn’t really work that well they still to develop a conduit for that
And our research responsibility is to uh develop something so methods and technologies that exist should also become compatible with existing software Landscapes leacy landscapes in companies and that can be done so um carbon footprinting works all you need to do is to get started with it and understand what you
Need what input data you need for your process it takes me to another topic here that I am showing you which was epd or environmental product declarations I believe it’s the foundation for sustainable production why is that just to give you an example uh during Easter I went on a cruise
Um with my wife cruise ship journey by a German ship Builder and had a Blue Angel icon at uh at the stern of the the ship and I was wondering following concrete cruise ship tourism is the second worst environmental disaster and why do they have the Blue Angel uh carbet footprint
Symbol well and they told me that ship runs on LNG liquefied natural gas and not diesel fuel or heavy oil which so then I thought well that’s interesting um you still have the same energy assumption although your fuel is uh eco-friendly the Blue Angel icon is an environmental product declaration
Level one different requirements uh lower requirements in level one so you can say okay I use my Blue Angel Gru ship but there are also product requirements or epds environmental product declarations on level three which is based on life cycle assessment of products and product systems now how could could that work
Let me say again and it’s also what you see here on the slide you cannot manage what you cannot measure what does that mean it means there are things that you don’t understand by measure your own products or systems so you have to embark on a different Journey r
Now it starts with product category roles in ISO 14025 these are specific rules and requirements for the uh establishment of an for the preparation of an epd of an environmental product declaration why do you need product category rules well because the standard tells you so you
Have to do an LCA a life cycle assessment for your process and then once you’re done you end up with an environmental product declaration that has been or can be determined by by different institutions based on a life cycle assessment with defined requirements for a given industry why am I telling you
This because this is industry specific there are epds but those are not complete some Industries don’t exist at all in terms of an epd and some Industries are actually fighting against those because they haven’t quite understood they need it the indust the construction industry is very uh very advanced in that already
Done that because the construction industry over the past years has been cleaning up its act and has done an awful lot I mean when you build your own home you get a public subsidy if you do a carbon footprint and that’s what my banking advisor told me but in other
Industries Machine Tools uh production systems they don’t have those epds yet and this is where the problem is epds are the only scientific reporting instrument to communicate environmental data meaningfully no other instruments exist and this is what’s going to happen all new instruments in the future will
Have to use epds nothing else works as things stand now if the industry is not writing their epd someone else will do that they will uh assess the carbon footprint of your product or process what does that mean I show that in a large type font here
It’s happening by the instruments and uh interest that this stakeholder group prefers now that’s dangerous for entire Industries I’m not going to compare that to other industries that have had a harder time here in Germany but if those Industries don’t uh don’t stick with those rules they will be suffering competitive disadvantages significant
Ones in the years to come we have to caption figures and we have to report there’s no way around it we must do it full stop and this is why the EU came up with a csrd they started through the financial markets right so it’s not just a report
That you’re writing and it’s deposited and shelf somewhere no it’s used to adapt your products product development will be changed based on csrd I talked about epds before this is what it may look like okay this comes from the construction industry products designs and phases that can be involved and it also spells
Out what type of uh uh carbon accounting you do just uh use it because the construction industry has been doing it for a while now and here comes my last Theory slide before we continue with practice examples if you do your reporting and it works really well and um as a modeling
Expert uh I become uh alert when you say that you can optimize your processes in aist table type of way different potentials you see here and the color coding here refers to the modeling of a product uh and its impact onto individual effect categories they come in different sizes
Bars are longer or shorter and you can play around with it so for instance just recently I had a good partner that we worked with in one of our research projects and they did exactly that and then they realized for whatever reason we don’t need such a large power pack in our
Machining Center so they used to Big a power pack for that machine not to uh boot four minutes but only one minute and then we said maybe we adjust just one category and get a better result in the carbon footprint calculation so for the entire life cycle assessment there
Will be changes here and there as As a matter of ongoing Innovation so that was a lot of talk I admit so let’s talk about examples from here applications and results and uh I’m going to tell you more about this nalysis is one of our research projects where we’re currently developing a
Digital Green Twin you see the partners that are involved in the project many car makers in there supported by the Federal Ministry of Education and Research Foria hel well formerly hel liip is involved BMW cestro gab they do recycling Solutions different univers University as well AA as a domestic appliance
Manufacturer is there as well because they want to apply the findings to domestic appliances because they will have to do it at some point and then the University of pbor and The frover Institute the imem are there as well now what can you see in this slide you see
In this slide that the automotive industry has not had anything yet there’s a lot of innovation out there in the past that originally came from the car industry not here not in this case so the car industry is currently facing a major problem this o BMW approaches um it suppliers because they
Want numbers and then they ask us how can we do that so this is exactly how the project came into existence so this is how we want to okay so we had a lot of discussions of how to involve that in the project business so what would be
The most sustainable headlight and I didn’t mention that this is about the LED headlight design of Foria so in a car car headlight what is the most sustainable headlight ever built so that was our research question remember ww beetle the beetle used to have two headlights in the
Front now imagine you take the light bulb out and put an LED so imagine that’s a new headlight so think headlight it was just a clamping ring and a lens um through which the light was dissipated onto the road all of that made in Germany Etc and so on and with
That headlight uh you can actually disassemble it tear it down completely I don’t know if that was true I didn’t do a life cycle assessment of the old headlight but it meets all the requirement for your product needs to be recyclable and dismountable so we took the existing headlight module
By heli and tried to tear it down so anywhere between 200 or 300 parts go into a model headlight all of that plastic material bonded together and I think it took us 45 minutes until we decided we just um take a hammer and just smash the whole
Thing so what car makers do is they don’t want to do that smash it with a hammer but irrespective of the csrd they have to meet other requirements for those systems to be uh recyclable and dismountable imagine what it would look like if you just use buls rivets and clamps for it
To be able for it to be Tor down it would look design wise it would look quite differently so there we are end of story what would a life cycle assessment look like well there we are it looks like a structural a structural decision tree here that you can build up
Like this and what you see there in purple or red reddish purple boxes are production processes shown in the system it’s open LCA used as a software in the background you’ll find the Eco invent database and many other primary data so you see a life cycle process of a headlight
Assem now this comes from a project so I canot disclose further details here what I could say as an example this comes from an injection molding system from the front lens okay but I should also say when you model such a process and when you’re saying um the
Carbon footprint of the inject molded headlight lens also includes Supply an entire supply chain but it must come in one value so there’s a certain level of obstruction you create in reporting but those who uh account for the injection molding machine also do that based on
Some other data that need to be stored in some database so well they didn’t uh they didn’t just buy their own injection molding machine and did their calculations though they did an estimation and that’s the problem you get estimated data that may not be corresponding to ity so we need to focus on
That there’s another chart that’s interesting that’s the evaluation of it all what you see there in red those red bold lines um means the Bolder the lines are the bigger your impact on carbon footprint I’m not going to say what process this one is so you see quite clearly which
Processes contribute to the carbon footprint more than others and it could also mean that that smaller things like this one here it still has a carbon footprint but you see the line is very thin so you way want to optimize this process because that line is bolder different recycling different materials
Etc in other words in product development we need to optimize the relative boxes that are more crucial when it comes to carbon footprint and we shouldn’t stop there no I’m wrapping up and I think I’ve been talking plenty now this what are the important takeaways going
Forward and uh once I’ve done that um I am ending there so this is only the beginning csrd is not the end of the story so there’ll be more regulation more regulation also in terms of uh density and speed will be increasing we also see that in the automotive industry there will be
Future requirements on decomposition and uh tear down of end of life Vehicles it’ll happen in other Industries as well it’s not going to be the beginning it’s just the foundation where people need to get ready for in order to uh brace up to that challenge we suggest companies to check your own data
Availability do you have data available emissions related data that can be molded into a digital Green Twin do you have processes do you have infrastructures you can get ready now so get ready for automated sustainability reporting we have another part partner to do that from the electronics
Industry and they do 14 to 16,000 products all derivatives but you know individual 16,000 product items a couple years ago they said well Let’s do an LCA of those products what do we need they want to understand all of that how all of this can be optimized process
To be op to automate to inte integrate that into their existing data repositories and quite a few companies have been doing an excellent job already I should say that so the upshot is if you don’t if you stop there uh well you will have to partner with external sources and you
Necessarily don’t want that I said before you need to identify identify relevant kpis you can do that in small projects with some Partners we’re one of them and I’ll tell you what we do about that and to understand the status quo so I’m currently facing have that
Have that task on my plate does it have an impact on my business yes or no and how do I go about it and then finally you want to uh integrate and uh develop your sustainability reporting forward it’s going to be a reality for every company even smaller
Ones I was a bit astounded that smmes will be affected by the csrd but um it will be a reality something that’s not in slight here talk to your auditor right Auditors know that they know something will be happening and they know that they will have to audit your
Company and they know what can be done what remedial action can be taken and they can also support you well what do we do and this is really my final slide that I’m showing you today we wanted to uh offer a new research area um something you don’t find on our
Web page this is the first time I’m showing this we are calling it sustainable systems development and I’ll be chairing that division in my Institute we’re going to support companies in that in two areas one sustainability assessment so that’s something you can do today so you need to wrap your head
Around it and then see what you have uh LCA then um product assessment for the potential on circular economy haven’t talked about that yet the circular economy and then energy transparency we have that on board as well energy flows material flow in the companies part of that and then in the
Second Step once you know once you know what it is you can optimize it combine it with other lcas based on your data sets with model based development that can be compounded as well we do that already quite a few approaches no Solutions yet though so
Fundamentally it can be done we need to develop that forward we’re currently developing tools for that support function and finally also what’s get what what’s included here as well as energy management and load management and my final an today I wanted to share with you because I was
Not only at emo but also at the eworld show in Essen and the eworld is the leading exhibition for the energy industry which also focused on Energy Management so how can you prepare companies for better Energy Management in the future and I talked to one uh
Person from a company and had a bit of an argument and I said well can’t we um do more flexibility and load Management in uction equipment and production management and he said the guy said you can only do that by uh shutting down or reducing the output of
Your production system and it turns out it’s not true not for every process no frer has a big project that has been looking into this so even if your processes are optimized for lean management you can still uh tap Energy Efficiency pools depends on your industry depends on your
Processes of course but this is something we offer as a service as well okay this has taken me to the end of my presentation thank you so much for listening in this small group here I’ll be happy to talk to you U even even more
A question is we can go back full circle to my earlier question is it an annoying obligation or is it the foundation for sustainable production thank you very much it was nice talking to you and I’ll be looking forward to your questions and a little discussion if you feel so inclined