With the second deadline for Corporate Social Responsibility Directive (CSRD) compliance on the horizon, now is the time for shippers that qualify as “large undertakings” to take action – or risk not meeting the impending Scope 3 deadline, as Eric Geerts, Senior Director of Product Management at Descartes, outlines.

Sustainability has long since ceased to be a semi-vague term companies use in their marketing and corporate communications to appease customers, partners and investors. Stakeholders not only want to see the finances but also want to know, for instance, a company’s CO2 emissions, which are increasingly important in the context of so-called Scope 3 emissions – indirect emissions caused by another organisation’s activities in another’s value chain, such as the transport of goods.

The EU has developed a reporting requirement, the Corporate Social Responsibility Directive (CSRD), to regulate this. Under the CSRD, the first wave of businesses—those listed on an EU-regulated market exchange—had to comply with disclosure requirements across 12 European Sustainability Reporting Standards (ESRS), covering four categories: Cross-cutting, Environmental, Social, and Governance.

From January 2025, the second wave of EU-based business – those classified as “large undertakings” (any listed or non-listed company that has at least €25 million in total assets and/or at least €50 million in net turnover and/or at least 250 employees (average) will also have to be able to report on these disclosure requirements.

Non-EU companies (including EU subsidiaries of a UK parent) operating in the EU may also fall under the CSRD scope. They shall be required to provide sustainability disclosure if their net turnover generated in the EU (at the consolidated or individual level) exceeds €150 million for the last two consecutive financial years. They have at least one subsidiary (listed or defined as a “large undertaking”) in the EU or an EU branch with an annual net turnover exceeding €40 million in the previous financial year.

For shippers, this means being able to provide detailed information on their Scope 3 CO2 emissions. Of course, this can only be done with the correct data and insights. In most organisations, this should be high on the corporate agenda. But for those who have yet to start, it is now five minutes to midnight—and the clock is ticking.

Lack of data and insights

Being able to measure Scope 3 CO2 emissions is a challenge. Typically, companies do not have sufficient data or fail to extract the right insights from that information. Moreover, the CSRD requires far more accurate data reporting than has previously been expected of them. Historically, for example, organisations may have relied on the emissions of one container to determine the impact of hundreds of others. In practice, however, numerous factors affect emissions, such as type of vessel, route, weather, speed, or load. You also need a solution for the different transport modes.  Under CSRD, extrapolation of data won’t be an option; everything will have to be done at a far more granular level. 

Therefore, everything starts with the correct data: in-house data and data from external parties, such as carriers. On top of that, you need a lot of master data, such as the carbon intensity indicator of every vessel and the correct calculation algorithms. All that then needs to be integrated to generate insights for reporting and compliance. Collecting and tying this information together in an Excel sheet is obviously a hopeless task. Fortunately, technology can lend a hand. Many organisations – particularly those who became bound by the compliance requirements of CSRD in wave one – have therefore opted for a Transport Management System (TMS) to gain access to a vast amount of accurate data and CO2 reports, saving an extensive amount of time and money in making that information transparent.

Transport Management System

So, what exactly does a TMS do? A TMS is a software application that manages the planning, execution, and tracking of physical movements of goods and freight settlement. The technology helps shippers face various challenges, from order planning and transport selection to transport execution and financial settlement. A TMS brings together business-critical data and saves organisations considerable administrative work, such as transport documentation, cost calculation, invoicing, and preparing CO2 reports.

Therefore, a TMS is an indispensable tool for aiding with CSRD compliance (and other sustainability reporting standards, such as IFRS S1 and IFRS S2—as well as future standards being assessed). However, as with most software systems, implementing a TMS can take three to six months.

Turning an obligation into an Asset

Companies that fail to comply with the reporting obligation may face unpleasant penalties. First, non-compliance will be made public. In a market increasingly striving for sustainability, this can cause severe reputational damage. In addition, organisations also risk legally imposed fines. And while these amounts have not yet been officially established, it is estimated that they could be at least tens of thousands, if not several million euros.

Many organisations have been working on their sustainability credentials and value propositions. Well presented and demonstrable, sustainability is undoubtedly an asset for gaining a competitive advantage. 

Customers actively seek out companies that care about the planet. They want sustainable delivery options and the ability to choose the solution with the smallest ecological footprint. Businesses with detailed information can offer more than one advantage over competitors that don’t. This will also improve financial figures—after all, eco-friendly delivery options are much more efficient and allow for consolidation of deliveries.

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