Comparing LCA for Business Models

Life Cycle Assessment (LCA) is a method to evaluate the total environmental impact of a product or business model. Traditionally used for products, LCA now helps businesses assess the efficiency of their overall models, like sales versus rental or subscription models. This approach highlights hidden impacts, such as carbon emissions from logistics or disposal, offering a clearer picture of how business decisions affect the planet.

Key takeaways from this article include:

• Business Model LCA (BM-LCA): Focuses on the environmental impact per dollar of profit, analyzing the entire business model instead of just the product.
• LCA Methods:
  • Attributional LCA (ALCA): Uses static data to measure an activity’s share of total impact.
  • Consequential LCA (CLCA): Examines broader effects of decisions, like supply-demand changes.
• Circular Models: LCA can verify if leasing, refurbishing, or resale models reduce overall impact, addressing risks like increased transportation emissions.
• Practical Challenges: Accurate data, functional unit definitions, and managing uncertainties are critical for reliable results.

Quick Comparison:

LCA provides actionable insights for executives to balance profitability with environmental goals, ensuring better decision-making and reduced risks of problem shifting.

Core LCA Frameworks and Methods for Business Model Comparison

ISO 14040/14044 Frameworks

The ISO 14040/14044 standards serve as the backbone for reliable LCA studies. ISO 14040:2006 outlines the four essential phases of an LCA: goal and scope definition, life cycle inventory (LCI) analysis, life cycle impact assessment (LCIA), and interpretation. Meanwhile, ISO 14044 provides the technical guidelines for carrying out these steps.

As ISO clarifies, "ISO 14040:2006 does not describe the LCA technique in detail, nor does it specify methodologies for the individual phases of the LCA." This flexibility allows for different modeling approaches, including attributional and consequential LCA. This adaptability is key when weighing the environmental trade-offs between various business models. Among these phases, the goal and scope definition is particularly critical. It establishes system boundaries and selects the functional unit, both of which heavily influence the study’s results. This framework is central to understanding the distinctions between attributional and consequential approaches.

Attributional vs. Consequential LCA

Attributional LCA (ALCA) focuses on assigning a share of existing environmental impacts to a product or activity using average, static data. It is particularly well-suited for sustainability reporting purposes. In contrast, Consequential LCA (CLCA) examines the broader economic and environmental effects triggered by a decision, such as supply-and-demand changes.

"Consequential LCA (CLCA) attempts to provide information on the environmental burdens that occur, directly or indirectly, as a consequence of a decision." – Thomas Schaubroeck, Research, Development and Innovation Unit on Environmental Sustainability Assessment and Circularity

For instance, when comparing a traditional sales model with a product-as-a-service approach, CLCA captures the ripple effects of such a strategic shift. However, it’s important to note that ALCA results should not be used to claim specific emissions reductions. As Richard J. Plevin from UC Davis points out, "The common interpretation of ALCA results assumes that the complete system… substitutes for the complete system… and that this substitution is valid at any scale and has no indirect effects."

Here’s a quick comparison of the two approaches:

In addition to these two methods, process-based and hybrid LCA approaches offer further refinement for analyzing complex business models.

Process-Based and Hybrid LCA

Process-based LCA examines unit processes across a product’s supply chain, from raw material extraction to disposal. While detailed, this method often excludes 20% to 50% of environmental flows due to system-boundary limitations. For large organizations managing diverse product portfolios, breaking down inventory data to the product level is often impractical.

Hybrid LCA bridges this gap by combining detailed process data with Economic Input-Output (EIO) data, filling in the gaps left by process-based models. This method is particularly valuable for comparing business models at an organizational scale, where capturing both upstream and downstream activities is essential. The Business Model LCA (BM-LCA) framework builds on hybrid principles by linking monetary flows to material and energy flows, providing a more complete picture for business model comparisons.

Business-Focused LCA Approaches for Comparing Business Models

Business Model Life Cycle Assessment (BM-LCA)

Traditional Life Cycle Assessment (LCA) evaluates environmental impact based on physical units, like kilograms or liters. While this approach works well for product design, it doesn’t account for how a business generates revenue. That’s where Business Model Life Cycle Assessment (BM-LCA) comes in. Developed by Professor Henrikke Baumann at Chalmers University of Technology, BM-LCA shifts the focus from the product to the business model itself.

"The key innovation is that BM-LCA centres its analysis on the ‘business model’ instead of the ‘product function’ as in conventional LCA." – Henrikke Baumann, Professor of Environmental Systems Analysis, Chalmers University of Technology

BM-LCA measures environmental impact in terms of profit over time (e.g., profit per year). This allows businesses to directly compare models – like traditional sales versus rental – by balancing profitability with environmental performance. The method also uses actor mapping to include the people, processes, and economic activities that help a product succeed commercially. For example, Baumann and researcher Daniel Böckin applied BM-LCA to a garment company, comparing a linear sales model with a rental model. Another study at Chalmers examined two sales models alongside three subscription-based alternatives within the same company.

Here’s how BM-LCA stacks up against conventional LCA:

By focusing on the business model, BM-LCA offers a broader perspective for evaluating strategies, especially when exploring circular approaches.

LCA for Circular Business Models

Circular business models, like leasing, refurbishing, and resale, are often seen as environmentally friendlier than linear ones. But assumptions aren’t enough – LCA provides the hard data needed to confirm whether these strategies actually reduce overall environmental impact.

"LCA – by providing quantified results on the environmental impacts of circular strategies – limits the risk of problem shifting and challenges the normative rule of closing the loop." – Marit Moe Bjørnbet, Researcher, NTNU

Take leasing as an example: while it might cut down on landfill waste, it could increase transportation emissions due to reverse logistics. These trade-offs, and the risk of “circular washing” (appearing sustainable without meaningful impact reduction), are revealed through LCA.

Applying LCA to circular models isn’t straightforward. It demands detailed data on factors like reverse logistics, maintenance schedules, refurbishment rates, and product lifespan. Since much of this information depends on distributors or end-users – and varies by region – a scenario-based approach is often recommended to address these complexities.

Life Cycle Management Integration

To go beyond one-off studies, Life Cycle Management (LCM) treats LCA as an ongoing tool rather than a single report. Continuous integration of LCA into business decisions helps align environmental data with operational strategies. This could include improving rental efficiency, optimizing transport, or extending product lifespans. It also fosters collaboration with suppliers, customers, and partners involved in end-of-life processes.

For example, a Norwegian composite LPG cylinder manufacturer conducted multiple LCA activities between 2014 and 2021, comparing their product to conventional steel cylinders. The results highlighted production and material sourcing as key environmental factors. This led to new sourcing strategies and collaborative efforts to model product lifetimes.

"LCA offers a common platform and encourages communication with stakeholders. These characteristics make LCA a well-suited tool for CBM development." – Marit Moe Bjørnbet and Sigurd Sagen Vildåsen

Key Method Choices When Comparing Business Models

Setting Goals, Scope, and System Boundaries

Start by defining a clear objective. Are you evaluating the sustainability of a circular model? Addressing investor concerns? Or perhaps aiming to strengthen your market position? This initial step shapes every decision that follows, from identifying what to measure and how far back in the supply chain to look, to determining which markets to target.

You’ll also need a reference system – typically a standard linear model – to serve as your baseline. For circular strategies like extending product lifespans or recovering materials, system boundaries should go beyond production to include use and end-of-life stages. If global data is unavailable, a scenario-based approach focusing on reliable, market-specific data can help. Finally, define a functional unit that accurately reflects the value delivered over time.

Choosing the Right Functional Unit

Once the system boundaries are set, the next step is defining the functional unit. This is the foundation of any Life Cycle Assessment (LCA) comparison. If the functional unit is poorly chosen, the results won’t hold up under scrutiny. For product comparisons, a physical unit works well. But when comparing business models – like a traditional sales model versus a subscription service – a time-based unit, such as "one year of service", often makes more sense. It reflects the true value delivered to the customer.

"The functional unit should as far as possible relate to the functions of the product rather than to the physical product." – Danish Environmental Protection Agency

This becomes even more critical when products have different lifespans. For example, a durable rental item used by multiple customers over several years requires a different reference flow than a single-use product sold once. To ground the functional unit in reality, define minimum performance standards needed for market substitution. In business model LCAs (BM-LCAs), the unit of analysis often shifts to an economic measure, like profit per year, linking monetary flows with the material and energy flows of the business model.

Data Needs and Allocation Challenges

Data gaps are a recurring challenge, especially for globally operating companies or those that sell through intermediaries. For example, B2B manufacturers often lack detailed insights into how their products are used or disposed of, making it difficult to gather accurate use-phase and end-of-life data. Geographic variations in recycling regulations, energy mixes, and end-of-life infrastructure add another layer of complexity.

Take composite LPG cylinders, for instance. They are estimated to last 30 years with maintenance every 10 years, but actual disposal behaviors often rely on estimates rather than hard data. A practical way to address this is by combining direct stakeholder engagement – through field visits, customer interviews, and supplier dialogues – with parameterized calculation tools. These tools can adjust for variables like transport distances or regional energy mixes. While this approach can’t completely eliminate uncertainty, it enhances the transparency of assumptions and makes the results more defensible.

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Reading and Using LCA Results in Business Decisions

Identifying Trade-Offs Between Business Models

LCA results rarely provide a straightforward answer. Instead, they often highlight trade-offs. For instance, one business model might excel in reducing carbon emissions but fall short in other areas, such as the environmental impacts tied to logistics. Research supports this complexity. Emma Johnson and Oksana Mont’s studies on garments, automotive subscriptions, and tool sharing reveal that the environmental impacts of Business Models for Sustainability (BMfS) can be comparable to, greater than, or less than those of traditional models.

When analyzing LCA results, the key is to pinpoint leverage points – those operational factors that create the biggest differences between models. These factors include rental efficiency, product lifespan, logistics, and customer behavior. For example, while a garment rental service might reduce production emissions, it could create higher impacts due to increased logistics demands. Identifying these areas helps businesses determine where to focus their efforts.

Recognizing these trade-offs also means addressing the uncertainties inherent in LCA data.

Managing Uncertainty and Data Quality

It’s important to remember that LCA results are estimates, not precise numbers. Both Attributional LCA (ALCA), which uses historical data, and Consequential LCA (CLCA), which relies on future projections, come with significant uncertainty. This uncertainty is even more pronounced for newer or less-established business models.

"In a scenario comparison, the uncertainty in LCA outcomes might mislead decision makers." – Zahir Barahmand, Researcher, University of South-Eastern Norway

To manage this, present results as ranges. Tools like Monte Carlo simulation can illustrate the variability in outcomes. Additionally, any LCA report intended for decision-making should include a qualitative discussion of the assumptions made and how they might influence the results. The pedigree matrix is a helpful tool for assessing data quality, rating factors like reliability and completeness, and translating qualitative judgments into quantifiable uncertainty measures.

These methods offer a clearer picture, making it easier to apply LCA findings to strategic decisions.

Applying LCA Findings to Business Decisions

For executives, understanding the nuances of LCA results is essential for aligning business strategies with environmental goals. By considering trade-offs and uncertainties, LCA findings can guide decisions and help compare competing business models more effectively.

For example, pricing strategies can reflect a product’s actual environmental performance, moving beyond vague notions of sustainability. Durability planning – determining how long a product must last to outperform a linear model – can be based on solid data, making comparisons between business models more reliable.

BM-LCA (Business Model Life Cycle Assessment) directly links economic and environmental performance, making it easier to identify ways to grow revenue while reducing resource use. This approach helps businesses find opportunities to reduce environmental impact while still expanding.

Executives ready to act on LCA insights should start with a sensitivity analysis. Focus on areas like customer logistics, pricing, and end-of-life processes, as these are often the biggest factors in determining whether a business model achieves its environmental goals at scale – or merely appears sustainable on paper.

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Conclusion: Key Takeaways for Executives

Life Cycle Assessment (LCA) offers a powerful way to evaluate business models, but its effectiveness hinges on careful planning, accurate interpretation, and selecting the right approach – whether attributional, consequential, or BM-LCA. Getting the functional unit and system boundaries correct from the outset is absolutely critical.

A key insight here is that adopting sustainable business models doesn’t automatically translate to reduced environmental impact. For example, circular or sharing-based models can fall short compared to conventional ones if factors like customer behavior, logistics, or product durability aren’t managed effectively. Relying on real data to validate environmental claims before scaling operations is essential to prevent costly mistakes.

The importance of precision in LCA methodology cannot be overstated. As the International Journal of Life Cycle Assessment notes:

"O-LCA and SO-LCA are no longer merely assessment tools but have become strategic drivers for organizations navigating regulatory pressures and sustainability transitions."

This transformation highlights the evolving role of LCA as more than an environmental evaluation tool – it’s becoming a strategic asset for executives facing new regulatory challenges, such as the CSRD and CSDDD. Increasingly, LCA is being leveraged to address governance issues like Scope 3 emissions, supply chain weaknesses, and procurement decisions.

For those looking to bridge theory and practice, platforms like CEO Hangout provide a space to exchange insights on BM-LCA, benchmark results, and share actionable strategies. These communities are invaluable as organizational-level assessments advance and best practices continue to take shape.

FAQs

When should I use ALCA vs CLCA for a business model decision?

To understand the portion of global environmental impacts linked to a product or business model, go with Attributional LCA (ALCA). This method focuses on accountability, using a standardized framework to evaluate impacts.

If your goal is to evaluate the environmental consequences of specific decisions – like shifts in demand or operational changes – Consequential LCA (CLCA) is the better choice. It’s designed to assess how decisions ripple through systems.

Make sure to discuss your objectives with stakeholders to ensure the chosen method aligns with your overall business strategy.

How do you choose a functional unit for sales, subscription, or rental models?

When evaluating sales, subscription, or rental models, concentrate on the service or function provided, rather than the physical product itself. Identify the unit in terms of its main purpose, quality, and the time or usage it covers – like transportation for a certain distance or lighting for a set number of hours. This approach creates a fair comparison across models, whether they involve ownership, leasing, or subscription.

What data is most important for running a reliable BM-LCA?

To conduct a dependable Business Model Life Cycle Assessment (BM-LCA), you’ll need data that ties your business activities directly to the environmental impact of your product. The key areas to focus on are monetary flows (like profit) and material/energy flows within your product or service system.

Start by mapping out all the actors involved in your product chain. Then, connect your business operations to specific transactions. To make comparisons meaningful, establish a profit-based functional unit – for instance, measuring profit over a set period of time. This approach ensures a clear link between your operations and their broader impact.

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