The Evolving Demand for Carbon Reporting
As sustainable innovations continue to evolve, it becomes clear that this is driven by growing demand in the marketplace.
But consumers only form part of this demand. The real drivers come from the government, and their desire to solve one problem that has continued to worsen year upon year: climate change.
And climate change isn’t just a small problem.
It’s arguably the largest issue facing the world today, with the internationally agreed limit to keep the world’s temperature below 2°C seemingly becoming more difficult to meet, and with intense heatwaves, heavy rainfall and droughts increasing not only in frequency but in intensity too.
Scope 3 and Transport
Scope 3 emissions are by far the most difficult for companies to measure and report, divided into 15 different categories. As a result, many organisations focus on improving the efficiency of their Scope 1 and Scope 2 emissions before tackling Scope 3.
Among Scope 3 categories are categories 4 and 9: upstream and downstream transportation, and distribution. These relate to a company’s supply chain (or value chain), where third-party logistics providers transport goods on a company’s behalf.
Because external organisations conduct these activities, calculating Scope 3 emissions becomes considerably more challenging. It means that companies need to obtain accurate emission data from various logistics partners, often across complex global supply chains.
Transport is the UK’s largest source of greenhouse gas (GHG) emissions, accounting for approximately 29% of the country’s total emissions in 2023.
Ultimately, it all comes back to one word: demand. Demand for action and innovation in transport decarbonisation is reshaping the industry, but how are governments driving this? Through emerging regulations and policies, governments are accelerating the shift towards carbon-smart transport.
EU and UK Regulations & Policies
CSRD
What is CSRD?
One of the most demanding sustainability regulations in the European Union is the Corporate Sustainability Reporting Directive (CSRD), which came into effect in 2024.
This requires companies to report on their Environmental, Social and Governance (ESG) impacts in a way that is transparent and consistent, allowing comparison between all companies and how they operate.
Who is Affected by CSRD?
Broadly speaking, CSRD applies to all large companies in the EU, all SMEs with securities listed on the EU market, and many non-EU companies that have significant turnover and/or presence within the EU.
The CSRD’s impact extends beyond the EU, making it so influential. It pushes the narrative of sustainability reporting going from voluntary to necessary.
For large undertaking companies to be affected by the CSRD, they must meet two of the criteria:
- Total assets exceeding €25 million
- Annual net turnover exceeding €50 million
- An average workforce of more than 250 employees during the financial year.
However, the CSRD sets different eligibility criteria for different types of companies, and the requirements have evolved. Because of this, it’s worth checking whether your business is now affected by the CSRD or whether it remains within its scope. You can find out more about this here.
What does it involve?
Under the CSRD, the European Sustainability Reporting Standards (ESRS) set specific standards for reporting on several environmental, social, and governance issues. The ESRS is extensive, so companies must ensure they have the correct measures in place to gather reliable, accurate data.
The key feature of the CSRD is its role within double materiality. Companies must report on how sustainability issues impact their financial performance and how their business operations impact the social and environmental pillars.
Ultimately, the CSRD increases the demand for affected companies to gather environmental supply chain data, even from suppliers, whether inside or outside of the EU, and allows all stakeholders to have a reliable and trustworthy overview of the company’s long-term sustainability risks and opportunities.
SECR
What is the SECR?
In 2019, the Streamlined Energy and Carbon Reporting (SECR) replaced the Carbon Reduction Commitment (CRC) to help improve transparency. It is a mandatory framework, and like the EU’s CSRD, it sets out requirements for affected companies to disclose their carbon emissions and energy use in their annual reports, influencing businesses to become more energy efficient.
SECR’s primary focus falls within Scopes 1 and 2 rather than Scope 3 when it comes to energy consumption and GHG emissions. However, it does require certain transport-related emission data, such as company-owned vehicles.
Who is Affected by SECR?
Generally, the UK’s SECR applies to large companies, unquoted and limited liability partnerships (LLPs) that meet two of the following criteria:
- More than 250 employees
- Annual turnover of £36 million
- Balance sheet assets of more than £18 million
SECR is a seemingly narrower framework compared to the CSRD, which is perhaps why the UK is now looking to launch the UK Sustainability Reporting Standard (SRS).
UK SRS
What is the UK SRS?
The UK Sustainability Reporting Standard (UK SRS) is the UK’s new sustainability disclosure framework, akin to the EU’s ESRS. Much like the CSRD, the purpose behind the framework is to give stakeholders a complete picture of a company’s sustainability risks and opportunities that could impact its financial performance.
The SRS has two different categories.
- UK SRS S1: General requirements for disclosure of sustainability-related financial information
Section 1 provides companies with guidance on calculating and managing governance, strategy, metrics, targets, and risk management. It explains how companies should identify and disclose their sustainability-related risks and opportunities, and how this could affect their cash flow and performance.
- UK SRS S2: Climate-related disclosure risks
Section 2, on the other hand, focuses on climate change and how businesses should disclose climate-related information, for example, GHG emissions within Scopes 1, 2 and, if material, Scope 3. It also expects plans on how a business looks to transition and manage climate issues.
All of this is to lay the foundation for carbon reporting in the UK and empower companies to see that carbon reporting is only going to ramp up, rather than be something left behind.
CSDDD
What is the CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU regulation designed to identify, prevent, and mitigate negative impacts on human rights and the environment. The CSRD, ESRS, UK SRS and the SECR are all sets of reporting frameworks, which is why the CSDDD is so valuable, and its approach is more action-based.
Key requirements expected of companies include incorporating due diligence into policies and publicly communicating these activities. This creates compliance mechanisms for stakeholders who may be affected by negative impacts they have identified and assessed, as well as monitoring their due diligence efforts.
All of this is expected to make companies more accountable for issues such as forced labour, unsafe working conditions, discrimination, pollution, deforestation and biodiversity loss.
Alongside the CSRD, the CSDDD looks to improve overall corporate transparency.
What is the CSDDD’s impact?
The CSDDD is expected to apply from July 2029 and is thought to have a significant impact on global supply chains. This is because it will create the need for companies to work much more closely with their business partners and, perhaps more importantly, their suppliers, to meet new due diligence obligations, even where suppliers are located outside the EU.
However, this is not unique to the CSDDD. The CSRD, like the CSDDD, has implications that reach beyond the EU, influencing suppliers and business partners across the UK and the rest of the world. Together, these regulations are driving the commercialisation of ESG, particularly around the measurement and reporting of Scope 3 emissions.
Both EU and non-EU companies with a significant presence in the EU will favour suppliers demonstrating strong ESG performance who can provide accurate, transparent, and auditable Scope 3 and supply chain emissions data. This is not only becoming a competitive advantage, with both customers and investors placing greater value on sustainable business practices, but also becoming a legal necessity for companies subject to these regulations.
How will these regulations affect YOU?
The sustainability landscape is rapidly changing; regulatory requirements are becoming increasingly stringent, and stakeholder expectations continue to evolve. As a result, suppliers that cannot provide accurate value chain emissions data risk losing business opportunities and partnerships with large organisations that increasingly depend on reliable emissions data to meet their own reporting obligations.
The demand for credible ESG and carbon emissions data is pushing companies to invest in better, more robust sustainable practices, and these expectations are beginning to transpire across global supply chains.
To remain competitive, you cannot remain unprepared.
Want to learn more about how these regulations can affect you?
Contact our team today!
