How Might the CSRD Affect the Road Transport Industry?

Coyote Logistics - How might the CSRD affect the road transport industry - Coyote

Road transport and environmental protection –two areas of human activity that seem to be in complete opposition to each other. We cannot give up the supply of goods, and at the same time, the ongoing climate crisis requires taking a number of actions that will make road logistics more sustainable. On the one hand, we have an increasingly rapid development of alternative drives, and on the other hand, we have legislative initiatives at the level of states and international organizations aimed at accelerating the process of green transformation of the most emission-intensive sectors of the economy, including road transport.

Data published by the European Commission in November last year indicate that in the entire European Union, the transport and storage industry was responsible for nearly 13% of all greenhouse gas emissions in the second quarter of 2023. It was also the only sector of the economy where an increase in emissions was recorded compared to the second quarter of 2022 (by 1.7%). Road transport is responsible for nearly 70% of greenhouse gas emissions from transport and storage in the EU.

The European Union is aiming to reduce carbon dioxide by 55% by 2030, as part of the European Green Deal announced four years ago. On the way to implementing the goals of the Green Deal, the EU is introducing new regulations that are intended to bring Member States closer to achieving the goals of the EU green transformation. One of such regulations is the CSRD (the Corporate Sustainability Reporting Directive).

What is the CSRD?

The purpose CSRD is to increase the transparency of companies’activities in the field of sustainability. It is intended to enable interested parties, such as customers, employees, future investors and business partners, to obtain reliable and comparable data on how companies’activities impact the environment, society and management.

What are the regulations of the CSRD?

The CSRD introduces requirements for non-financial reporting and replaces and extends the existing regulations previously introduced by the Non-Financial Reporting Directive (NFRD).

The following companies will be covered by the CSRD:

  • Large entities within the meaning of the EU definition, i.e. those that meet two of the three following criteria: their balance sheet exceeds EUR 20 million, annual net turnover exceeds EUR 40 million, the average annual number of employees exceeds 250 people.
  • Public enterprises, regardless of their size, which have the value of securities admitted to trading on a regulated market in the European Union.
  • Subsidiaries of large enterprises and public enterprises that may not meet the size criteria but are part of a larger group covered by the CSRD regulations.
  • Non-EU companies operating in the EU through their branches or daughter companies and meeting a certain threshold of net turnover in the EU.

As PwC analysts pointed out, the CSRD may cover approximately 50,000. companies from the EU or operating in the EU (12,000 of them by the end of this year). This group will, of course, include entities active in the logistics and transport industry.

The CSRD requires companies to include detailed environmental, social and governance information in their annual reports. In the first case, it concerns data regarding the impact of the company’s activities on the environment, i.e., among others: greenhouse gas emissions, waste management, and adaptation to climate change. In the case of social information, it concerns issues of employee rights and working conditions, respect for human rights in the workplace and the prevention of all forms of discrimination. In the area of governance, the CSRD will require companies to provide information on their sustainability policies and practices and on managing risks related to environmental and social factors.

As you can see, the catalog of information that companies covered by the directive will be obliged to present in annual reports is wide and does not concern strictly environmental issues. It is important that the reported data should be transparent and comparable, which will increase their credibility. To make this possible, these reports will have to be prepared in accordance with uniform EU standards.

The CSRD was published in December 2022, and since then there has been an 18-month period during which EU Member States had time to implement the directive into their national legal systems. The CSRD will not immediately apply to all companies that meet the criteria described. In this case, it was decided to gradually extend these regulations to subsequent groups of enterprises, based on the size of employment, so as to ultimately reach the estimated number of 50,000 entities. Thus, from January 1, 2024, the CSRD Directive will cover large public companies with employment exceeding 500 people and subject to the NFRD (they will have to submit the first report in 2025). Then, from January 1, 2025, large companies that are not subject to the NFRD and meet two of the three criteria mentioned earlier will also report (from 2026). Finally, from January 1, 2026, small and medium-sized listed companies and other companies meeting the criteria (in this case, reporting will start in 2027, but SME entities can request a deferral of 12 months).

How might the CSRD affect the logistics industry?

While in the first period the obligation to submit reports in accordance with the CSRD will apply only to a small number of enterprises in the EU, in the following years this number will regularly increase, which means that these regulations will also cover entities from the logistics and transport industries. This sector, a crucial element of the supply chain, and at the same time one of the most emission-intensive industries in Europe, will have to adapt to the new requirements of the CSRD. Below are some predictions on how these regulations may affect the functioning of the industry in the coming years.

First, perhaps the most obvious issue –logistics companies will be required to provide more detailed information on their impact on the natural environment and society. It will contribute to increasing the transparency of their functioning, because carriers and logistics service providers will provide information in their annual reports on the scale of greenhouse gas emissions, how they manage waste, whether they effectively use their resources, etc. This will, of course, be provided by these companies in order to first learn how to obtain and communicate such data, especially if they have not done so in their previous activities at all or only to a limited extent.

Companies in the industry are also facing a change in their approach to creating strategies and business models. According to “Deutsche Verkehrs-Zeitung”, it will be necessary to move away from an exclusively financial approach to these areas. It will be necessary to develop an assessment process that will enable logistics companies to manage sustainable development processes, i.e. define their goals, plan how they will be achieved and record them.

Legal requirements will be one of the factors that will push companies in our industry to increase expenditure on sustainable technologies. Expanding alternative-powered truck fleets or implementing fuel management systems will reduce the negative impact on the environment. For the same reason, shippers may undergo supply chain transformation processes so that they can move closer to achieving their sustainability goals by choosing carriers and 3PL companies more committed to pro-ecological and pro-social practices.

The need to adapt to the CSRD may involve additional costs for companies in the logistics and transport industry related to collecting data for the report and preparing the annual report, as well as training or employing new employees delegated to perform related tasks or hiring an external company to do so. these issues will be entrusted. Reporting achievements in the area of sustainability may also be a temptation for some companies to engage in whitewashing, and such practices may be associated with large financial and image losses when they come to light.

The CSRD Directive is another step that the European Union is taking on the path to achieving climate neutrality in 2050. Thanks to these regulations, companies will operate in an increasingly sustainable way and increase the scope of their pro-ecological activities in the coming years. Of course, this directive does not operate in a vacuum, but is part of a larger EU legal ecosystem, the implementation of which will allow the EU economy to remain competitive and at the same time become environmentally friendly, which –in the face of the climate crisis –is an absolutely key goal. For the logistics industry, which –despite progressing processes towards green transformation –is still responsible for a significant level of emissions in the EU, these regulations will be a challenge, but at the same time they are an opportunity for logistics and transport to accelerate their march towards sustainability.