• The scope of the environmental assessment
• Locate where the company interacts with nature
• Evaluate: Identify actual and potential environmental impacts
• Prioritise the most significant environmental impacts
• Documenting the assessment and preparing the expected outputs
• Periodic review and continuous improvement
• Related resources

Understanding a company’s environmental impacts is a key step toward managing them responsibly. Under requirement ESC 1.7 of the Environmental Stewardship & Circularity Impact Topics of the B Lab Standards, companies are required to identify and assess their most significant actual and potential environmental impacts, both in their direct operations and across their value chain. For ESC 1.7, environmental impacts refer to the effects — positive or negative — that a company’s activities have on the environment, both in its direct operations and across its value chain. The primary focus is on negative impacts.

This assessment enables a company to understand where and how its activities interact with nature — including effects on climate, water, biodiversity, land and resource use, as well as different forms of environmental pollution — and to prioritize the impacts that require the greatest attention. The objective is to develop a clear, structured, and well-documented understanding of the most relevant impacts in order to guide strategy and continuous improvement.

This guide provides a practical approach to carrying out this assessment and progressing toward compliance with requirement ESC 1.7 of the B Lab Standards. This requirement applies to Medium, Large, Extra-Large, and Extra-Extra-Large companies across all sectors, except for service companies with a minor environmental footprint. The guide is primarily intended for organizations whose operations or value chains may generate significant environmental impacts.

To assess the company's environmental impacts, B Lab recommends following an approach built on the first two phases of TNFD's LEAP methodology. The TNFD LEAP approach covers more ground than B Lab requires: it also assesses nature-related dependencies, risks, and opportunities, which can be valuable — particularly where similar analysis is mandated by legislation. However, the B Lab Standards focus specifically on impacts and their management. Hence, the B Lab Standards reference an adjusted version of the TNFD LEAP approach.

The scope of the environmental assessment

ESC1.7 requires the assessment to cover the company's operations and value chain. This scope is set by the standard — the objective is to avoid excluding significant impacts from the analysis and to ensure a broad understanding of where the main environmental risks and impacts may occur.

The scope must include:

Direct operations, for example:

• offices

• production facilities

• logistics centres

• retail locations or points of sale

Upstream value chain activities (depending on context):

• raw materials

• manufacturing processes

• transport and logistics

• key suppliers

Downstream activities, where there is a clear cause-and-effect relationship between the company's product or service and the environmental impact, and where it is reasonable to expect the company to understand and manage that impact. For a manufacturing company, this may include impacts arising during product use or at end-of-life. For a construction or tourism company, relevant downstream impacts may occur in the course of delivering the service to customers.

Locate where the company interacts with nature

Mapping the value chain

Map the company’s operations and value chain, including its downstream products or services, to the ecosystem they operate in. Under ESC1.5 the company already mapped the geographic location of its facilities and whether those are in ecologically sensitive areas. To complement that, here the company also looks at its value chain (to the extent possible), and determines whether those are in locations that are ecologically sensitive. Proximity to ecologically sensitive areas and changes in the state of biodiversity can increase the severity and likelihood of an impact,

Want to learn more about how to assess ecologically sensitive areas? Check the article: ESC 1.5: How to assess biodiversity impacts of your facilities.

When mapping its value chain within this scope, the company may consider:

• which stages are likely to concentrate the most significant potential impacts

• the geographic regions where it operates

• activities or products most likely to have relevant interactions with the environment

• any direct relationships between the product or service and a specific environmental impact.

The depth of the mapping should be proportional to the company's size, sector, and complexity, and may be expanded progressively as more information becomes available.

Expected outcome of this step

By the end of this stage, the company should have:

• A documented scope for the assessment

• An overview of its value chain

• Potential activities in ecologically sensitive areas

• A preliminary identification of where the most relevant impacts may occur.

This will serve as the foundation for identifying and prioritizing environmental impacts in the following steps.

Evaluate: Identify actual and potential environmental impacts

The next step is to identify the actual and potential environmental impacts associated with the company’s operations and the most relevant activities in its value chain.

The objective of this stage is to understand how the company’s activities may generate negative environmental effects and at which points in the value chain these impacts are most likely to occur.

Analyse impacts across the value chain

To help understand how the company’s operations and value chain may interact with ecosystems, what natural resources are used, and how they are exploited, companies are recommended to follow these steps: 

1. Identify Environmental Pressures: First, identify the pressures resulting from the company's activities. These are measurable quantities of natural resources used as inputs (e.g., water, land) or quantifiable outputs (e.g., emissions or waste) that affect nature. 

2. Analyze changes in Environmental Assets: Next, companies can analyze how these pressures cause changes in environmental assets, the living and non-living components of the Earth (e.g., freshwater, ecosystems, minerals, atmospheric systems). For example, a specialty coffee roaster whose sourcing from water-stressed regions contributes to reduced stream flow and loss of riparian vegetation; a sustainable fashion brand whose textile dyeing processes discharge chemicals that alter freshwater quality and affect aquatic ecosystems. In this step, consider the direct drivers of biodiversity loss: 

• land/sea-use change (habitat loss), 

• direct exploitation of organisms, 

• climate change, 

• pollution, 

• invasive species.

For each stage included within the scope of the assessment, the company can consider the following questions:

• What activities take place at this stage?

• How do these activities interact with the local environment?

  • One key focus here is to evaluate any high risk commodities: Are there specific raw materials that are associated with environmental impacts, like deforestation, excessive water use, toxic pollution? 

• What environmental impacts could be generated, both direct and indirect?

This analysis should cover both actual impacts (already occurring) and potential impacts (which could occur under certain conditions).

Sources of information

The sources used to identify impacts will vary by company. Sector-level materiality tools or industry databases may provide a sufficient starting point for some. For others — particularly where supply chain impacts are material — direct engagement with suppliers or data collected from them may be necessary.

Phasing the assessment

Companies may approach the value chain assessment in phases:

• Begin with a high-level screening, then investigate a small number of highly material issues in depth — drawing on publicly available tools or sector-specific materiality guidance for other impacts

• Review and update the assessment at least every 36 months, deepening the analysis over time.

Include animal welfare where relevant

When a company’s activities involve the use of animals, the production of animal-derived inputs, or potential impacts on species, animal welfare should be considered as part of the environmental assessment.

This may apply, for example, when:

• Animals are used in production processes

• Animal-derived raw materials are sourced

• There is limited information about animal welfare conditions in the value chain

In cases where the company has no information on the animal welfare conditions in its operations and value chain (the five freedoms of animal welfare), the company treats animal welfare as a material impact.

Use internal and external information

Impact identification can be based on different sources of information, such as:

• Internal company data (energy, water, waste, emissions)

• Supplier information

• Sector-specific or scientific tools

• Existing studies

• Consultations with relevant stakeholders

Companies are not expected to have perfect information from the outset. However, they are expected to use the best available information and document the sources used to support the identification of impacts.

Key resources:

• The ENCORE tool and the SBTN Materiality Screening Tool provide materiality ratings for direct drivers associated with different standardized activities.

• LEAP Approach of TNFD for more details and examples.

• Nature Compass Tool provides over 70 tools to support assessing nature-related impacts.

Expected outcome of this stage

At the end of this step, the company should have:

• A list of actual and potential negative environmental impacts

• An identification of the activities or value chain stages where they occur

• A clear basis for prioritising the most significant impacts in the next step

Prioritise the most significant environmental impacts

Not all environmental impacts carry the same level of relevance. For this reason, the standard focuses on identifying those that are most significant based on severity and likelihood.

Once actual and potential environmental impacts have been identified, the next step is to determine which are the most significant and require priority attention from the company.

The company may use simple tools, such as prioritisation matrices, or a documented qualitative analysis, as long as the reasoning used is clear and consistent.

The significance of an actual negative impact is determined by the severity of the impact. The significance of a potential negative impact is determined by the severity and likelihood of the impact.

Note that climate change is a material impact for all companies. It is addressed in more detail under the Climate Action topic.

Assess the severity of the impact

Severity refers to the level of harm that an impact can cause. To assess severity, the company may consider:

• Scale — how serious is the impact?

• Scope — how widespread?

• Ease of remediation — how difficult to restore?

Impacts that result in severe, long-lasting, or difficult-to-reverse damage are typically considered higher in severity.

Assessing likelihood of occurrence

For potential impacts, it is important to analyse how likely an impact is to occur. This may include considering the following categories:

• High = continuous

• Medium = regular (several times per year to several times per month)

• Low = occasional (e.g. only during a specific project phase)

When assessing likelihood, you can take a qualitative or quantitative approach — whatever best suits your context and available data. This might mean using descriptive terms like likely or very likely, or expressing it numerically as a probability (e.g. 10%) or frequency (e.g. once every three years).

In general, impacts that have a high likelihood of occurring should receive greater attention. For example, an impact associated with a daily or continuous activity is likely to have a higher probability than one linked to infrequent events. However, severity should outweigh likelihood, so that highly severe impacts — even if they are unlikely — are still prioritized.

Document the prioritisation

The company is expected to document:

• The impacts that were identified

• The impacts that are considered most significant

• The criteria were used to prioritise them

This documentation will help justify why certain impacts are prioritised within environmental management and will serve as a basis for defining actions, objectives, and improvement plans.

Illustrative example of an impact prioritisation matrix

Companies may use different approaches to prioritise impacts. There is no single mandatory methodology. What matters is that the process is reasonable, documented, and allows the company to justify why certain impacts are considered more significant than others.

Many organisations use severity–likelihood matrices as a practical tool to support this prioritisation. An illustrative example is provided below.

Environmental impact prioritisation matrix (example)

This matrix provides a simple way to visualise which impacts require greater attention. In general, impacts that combine high severity and high likelihood tend to be the most significant.

Adapting the methodology to the context

Companies may adapt the prioritisation approach to their size, sector, and complexity. What matters most is that the methodology is coherent, proportionate, documented, and clearly explains why certain impacts are considered priorities.

Expected outcome

At the end of this stage, the company should have:

• a list of prioritised environmental impacts

• a clear explanation of the criteria used

• a foundation for defining actions, objectives, and environmental strategies

These prioritised impacts form the main focus of the company’s environmental management under the subsequent requirements in the Environmental Stewardship & Circularity Impact Topic.

Documenting the assessment and preparing the expected outputs

The previous sections described the steps to define the scope of the assessment, identify environmental impacts, and prioritise the most significant ones. This section brings those elements together in practical terms, explaining how the assessment should be documented to demonstrate that the process was reasonable, coherent, and aligned with requirement ESC 1.7.

The goal is not to produce a specific template or duplicate information, but to ensure that the analysis carried out is clearly documented and can be understood by people outside the organisation. The documentation should make it possible to explain what was assessed, how it was assessed, and why certain impacts were considered priorities.

Elements that should be documented

In a way that is proportionate to the company’s size, sector, and complexity, the documented assessment should include:

1. Overview of the value chain
A simple description (visual or written) of the main value chain stages included in the analysis, indicating where relevant impacts were identified.

2. Identification of environmental impacts
 A record of the environmental impacts identified, indicating:

• An overview of the process to assess actual and potential impacts

• The activities, processes, or value chain stages in which they occur

• Whether they are current or potential impacts.

3. Prioritised impacts
 A list of the impacts considered most significant, including:

• The type of impact,

• Where it occurs,

• The process and criteria for prioritisation (for example, severity and likelihood) should be documented.

4. High-impact commodities or products

Where relevant, the company should identify the commodities or raw materials it procures that are associated with severe environmental impacts.

5. Justification when certain issues are not considered priorities
If water, biodiversity, and waste were not deemed material, the company records a written explanation why. The written explanation: 

• includes credible scientific evidence 

• is approved by the highest governing body or executive team.

Together, these elements should result in a documented assessment that clearly explains:

• What was assessed

• How it was assessed

• Which impacts are most significant

• Why they were prioritised

This documentation provides the foundation for defining improvement actions, setting objectives, managing environmental impacts, and demonstrating compliance with requirement ESC 1.7.

Consider relevant information from the Risk Tool (where applicable)

When the company has identified “potential impacts” through the B Lab Risk Tool (FR3.1), these risks are expected to be considered within the environmental impact assessment.

To “consider” means:

• Analysing how the identified risk relates to the company’s operations or value chain, and

• Determining whether it should be prioritised within the assessment of the most significant impacts.

Not all identified risks are expected to automatically become material impacts. However, the company should document how these risks were reviewed and what decisions were made in relation to them.

Periodic review and continuous improvement

The environmental impact assessment is not a one-time exercise. Companies are expected to review and strengthen it periodically to ensure it continues to accurately reflect their operations, value chain, and changes in the environmental context.

Requirement ESC 1.7 states that the assessment must have been completed or updated within the last 36 months. Many companies choose to review it more frequently when relevant changes occur, for example:

• Changes in operations or the value chain,

• Introduction of new products, markets, or suppliers,

• Shifts in the environmental or regulatory context,

• Availability of new information or improved data.

As the company strengthens its environmental management practices, the assessment is also expected to evolve. This may include:

• Improving the quality of data used,

• Expanding the scope of the analysis,

• Deepening the assessment of the most significant impacts,

• Incorporating new information sources or analytical tools,

• Strengthening engagement with relevant stakeholders.

Many organisations adopt a phased approach: they begin with a high-level assessment and, over time, deepen their analysis of priority impacts and areas where risk or impact magnitude is greatest.

Keeping the assessment up to date enables the company to:

• Make more informed decisions,

• Anticipate environmental risks,

• Guide improvement actions, and

• Demonstrate a systematic approach to environmental management within the B Lab Standards framework.

Related resources

To explore this topic further, you may find the following resources helpful:

• Environmental Stewardship and Circularity Impact Topic overview
  Available in multiple languages.

• Evidence examples for the Environmental Stewardship and Circularity Impact Topic

Available in multiple languages.