Scope 3 CO2 Reporting is in the Spotlight

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 deadline, as Eric Geerts (pictured), Senior Director of Product Management at Descartes, outlines.

The second wave

Sustainability has long since ceased to be a semi-vague term that companies use within their marketing and corporate communications to appease customers, partners and investors. Today, sustainability must be tangible and demonstrable in terms of performance and ethics. Stakeholders not only want to see the finances, but also want to know, for instance, a company’s CO2 emissions, 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.

To regulate this, the European Union has developed a reporting requirement – the Corporate Social Responsibility Directive (CSRD). Under CSRD, from January 2024 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: General principles and general disclosures.
• Environmental: Climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy.
• Social: Own workforce, workers in the value chain, affected communities, consumers and users.
• Governance: Business conduct.

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 EUR 25 million in total assets; and / or at least EUR 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) that operate in the EU may now 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 EUR 150 million for each of 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 EUR 40 million in the previous financial year.

For shippers, this means having the capability to provide detailed information on their Scope 3 CO2 emissions. And of course, this can only be done on the basis of the right data and insights. In most organisations, this should be well 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; factors 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.

Everything, therefore, starts with the right data: both in-house data and data coming from external parties, such as carriers. On top of that you need a lot of master data, such as for example the carbon intensity indicator of every vessel, and the right calculation algorithms. All that then needs to be integrated to generate insights for reporting and compliance. Manually collecting this information and tying it 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 a vast amount of time and money in making that information transparent.

Transport Management System

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

A TMS is therefore an indispensable tool to aid 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, a TMS implementation can easily take three to six months. So to be ready by January 2025, businesses due to comply need to get started immediately.

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 obviously cause severe reputational damage. After all, you don’t want to be a violator of CO2 measures. 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. In addition, depending on the jurisdiction, there is the treat of imprisonment for company directors to keep compliance and legal teams on their toes.

Of course, many organisations have been working on their sustainability credentials and value proposition for some time; well presented and demonstrable, sustainability is without doubt an asset to gain a competitive advantage. Customers actively seek out companies that care about the planet. They want to get sustainable delivery options and be able to choose the solution with the smallest ecological footprint. So those businesses that have detailed information from a TMS and can offer the right options have more than one advantage over competitors that don’t. In turn, this will also improve financial figures – after all, eco-friendly delivery options are a lot more efficient and make it possible to consolidate deliveries.

Don’t be put off by the looming deadline of CSRD compliance. With the right data and insights, being able to show sustainability throughout the supply chain accurately and with transparency offers a raft of opportunities. So take advantage now to embrace compliance ahead of time and gain a strategic edge over the competition.

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