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ESG: The promise of e-liability reporting for modern value chains

by Ludwig Reinhard
Technical Specialist, Microsoft

In 1824, Joseph Fourier described a phenomenon that is nowadays known as the greenhouse effect. Even though Fourier was primarily focusing on the physical effects of gases in the atmosphere and their effects on the temperature on earth rather than on human-made climate change, he was one of the first scientists focusing on this phenomenon.

Another 75 years later, the Swedish meteorologist Nils Gustaf Ekholm pointed out that the burning of coal could eventually double the atmospheric concentration of CO2, resulting in a rise of the mean temperature on earth.

Despite this early scientific evidence, it almost took another century to convince also the most notorious skeptics about human-made climate change and to establish an intergovernmental panel on climate change (IPCC) whose reports establish the current knowledge in this area.

From macro to micro

Against the background of scientific findings, a major question remained: How to implement the global environmental or ‘macro’ effects into the ‘micro’ perspective of corporations?

Probably one of the first ideas in this respect was developed by Arthur Pigou who introduced the idea of a tax to internalize negative external effects – such as air pollution – from economic activity. Even though a Pigouvian tax sounds easy and convincing, it comes with a couple of practical implementation problems related to determining the ‘correct’ tax rate.

Another idea that was developed is the one of a cap-and-trade system, where a government agency puts a limit on the total amount of emissions and issues certificates that allow the holder to emit a specific amount of output, for example CO2. A perceived advantage of such a cap-and-trade system is to reduce emissions in the most cost-effective way. Yet, emission trading schemes also come with practical implementation problems such as overallocation, windfall profits, and others.

Despite those practical implementation problems, several Pigouvian taxes and trading systems have been implemented in various countries and regions that aim to control the behavior of economic agents, such as consumers or corporations. Examples include carbon taxes, sugar taxes, alcohol taxes, the EU emissions trading scheme, etc.

Europe as the torchbearer for sustainability reporting

Europe has a long tradition of advancing environmental, social, and corporate governance (ESG) aspects of business. For over a decade, the European Union has enforced ESG reporting standards that other countries have emulated. Keeping up with the rapid changes in European sustainability regulations is a major challenge for both corporations and consumers. Some of the latest and most prominent regulations include:

  • CSRD (Corporate Sustainability Reporting Directive)
  • ESRS (European Sustainability Reporting Standards)
  • SFDR (Sustainable Finance Disclosure Regulation)
  • EU Taxonomy
  • CSDDD (Corporate Sustainability Due Diligence)
  • CBAM (Cross border carbon mechanism

To cope with the large amount of data and reporting required, specialized tools that automate sustainability reporting are essential. The Microsoft Power Platform is a perfect candidate, as it enables the automation of previously manual sustainability reporting tasks.

But before we jump to conclusions, let's examine some recent developments in the sustainability reporting area.

From GHG protocol to e-liability reporting

The greenhouse gas protocol (GHG) is the most widely used framework for measuring and reporting greenhouse gas emissions. It distinguishes between three scopes of emissions, as shown in the figure below.

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About Ludwig Reinhard

Dr. Ludwig Reinhard is a Microsoft Technical Specialist from Germany specializing in the finance and project area. Dr. Reinhard holds a bachelor's degree in business administration, an MBA, and a PhD in finance, as well as a number of Microsoft Dynamics certificates. He is an active member in the Microsoft Dynamics community and has his own Dynamics blog ( In June 2017, he was awarded the Microsoft MVP award for business applications. More information about Dr. Reinhard can be found on his blog and LinkedIn.