As we wrote recently, EU businesses will need to report their greenhouse gas (GHG) emissions across their whole supply chains – including emissions from transportation and distribution - in the near future.
Now that the new Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) have been passed, what are the next steps?
The CSRD and ESRS do not directly apply to companies; by mid-2024, EU member states must adopt their own domestic laws (or extend existing frameworks) to implement CSRD. Their laws must be at least as strict as the CSRD and ESRS, but they can also be stricter and include more companies in their scope.
National laws will define how non-compliant companies are penalized. Penalties can range from public denunciation to orders to change conduct and financial punishment, as well as exclusion from public contracts for a period of time.
Some EU members states already had similar laws in place (such as France), while others have passed laws recently (like Germany).
Examples of ESG reporting laws in EU member states
France passed the Corporate Duty of Vigilance Law (Loi de vigilance) in 2017. The law established a duty for companies to disclose and prevent risks and serious abuses of fundamental rights, health, safety of persons and the environment related to their business activities, and provide reparation and liability mechanisms in case they breach their obligations. This law may form the basis for France’s implementation of CSRD.
Germany’sSupply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) took effect in January 2023. Like the French law, it establishes a range of ESG-related disclosures, and requires mitigation plans for risks concerning human rights, social, health and environmental abuses. It too foresees mechanisms that allow for reparations and liabilities in case of breaches.
Penalties for non-compliance to ESRS
The German law includes stringent penalties for non-compliance:
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Periodic penalty payments of up to EUR 50k
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Fines amounting up to EUR 8 million
- Offences by companies with annual revenue of over EUR 400 million: administrative fines of up to 2% of a company’s global revenue.
Lawsuits for failing to meet ESG obligations
Having a legal framework in place also opens the door to lawsuits by aggrieved parties.
In both France and Germany, any party with standing can demand a non-compliant company to comply with the law. Such parties can include any affected persons, NGOs, trade unions or public municipalities.
In addition to fines and penalties, companies may ultimately have to pay reparations if a damage occurs that could have been prevented if the company had fulfilled its obligations.
Example: French NGOs take Total to court
The first case based on omission to report and provide a vigilance plan was launched in 2019: a group of French NGOs has taken the oil company Total to civil court. Total is headquartered in France, but the case concerns its large oil project in a protected natural park in Uganda. The NGOs argue that Total’s published vigilance plan fails to include the Ugandan project, provisions for compensating local property owners, or protection measures for local biodiversity.
This could become a landmark case if the court rules against Total, leading to more lawsuits as EU member states adopt similar laws and activist organizations strive to hold companies accountable. As of today, the outcome is not yet foreseeable.
Implications for Shippers and Transport Managers
Failure to collect and publish emissions from your transportation network could lead to administrative fines for your company in EU countries with ESG disclosure laws. Such failure to disclose emissions could also lead to lawsuits: with transportation accounting for about 25% of GHG emissions in Europe, there is a potentially large pool of parties with standing.
ESRS - WHAT COMES NEXT?
Get started now! Working with your supply chain and setting up robust reporting takes time. Keep your eyes on possible upcoming additional requirements: the EU is working on sector-specific ESG disclosure requirements that will be discussed in late 2023.
With the right TMS tools, you can make this a win-win situation: increase your operational efficiency and comply with the reporting standards. Features in our TMS can help you avoid carbon emissions across your whole logistics process; this can contribute towards reducing your company’s overall carbon footprint.
Discover our TMS solution and reach your sustainable-transportion-goals with Alpega TMS.
