European legislation surrounding environmental, social and governance (ESG) has developed a remarkable dynamic in recent years. This is due in part to the European Green Deal and the associated legal obligations. In this context, the logistics industry, as an important element of global supply chains, is confronted with increased legal requirements at European and national level. The key ESG requirements for the transport and logistics industry are now outlined below.
Corporate Sustainability Reporting Directive (CSRD) and its national implementation
One of the driving forces behind the trend towards sustainability is the Corporate Sustainability Reporting Directive (CSRD) and the national implementation law (not yet in force). The CSRD came into force on 1 January 2024 and extends the previous Non-Financial Reporting Directive (NFRD). Its aim is to ensure that companies’ sustainability reports are comprehensive, comparable and transparent. Although the CSRD has been criticised due to the considerable amount of documentation required, the Directive provides clarity in important aspects.
The reporting follows the principle of double materiality, which considers both the impact of business activities on sustainability and the impact of this on the company. The reports must comply with the European Sustainability Reporting Standards (ESRS) and be reviewed by independent bodies, initially with the result of limited assurance and later with the result of reasonable assurance. The standards for sustainability reporting are set out in Article 29 of the Directive. According to this, the main content of sustainability reports is the description of sustainability goals, the role of company management in the ESG strategy and the integration of ESG factors into remuneration systems.
The CSRD will be gradually applied to various company sizes. However, the transposition law is currently still being coordinated, even though the CRSD should have already been transposed into national law by 6 July 2024. In addition to the obligations contained in the CSRD, the current version of the Implementation Act also regulates specific sanctions for violations, ranging from fines to personal liability of the management and supervisory board, for example in the event of false or insufficient disclosures.
Supply Chain Due Diligence Act
The Supply Chain Due Diligence Act (LkSG), which came into force on 1 January 2023, obliges companies based in Germany with at least 1,000 employees to comply with extensive due diligence obligations to avoid human rights violations and environmental offences along their supply chains. Relevant requirements for the logistics sector include Section 2 (2) and (3) LkSG:
- Ensuring safe working conditions
For the transport and logistics sector, this means that direct and indirect suppliers must guarantee the occupational health and safety stipulated in Section 2 (2) no. 5 (c) LkSG, such as compliance with working and rest times for lorry drivers or compliance with workplace safety (Section 2 (2) no. 5 (a) and (b)).
- Payment of an appropriate wage
Section 2 (2) no. 8 LkSG requires the guarantee of an appropriate wage, which must be based at least on the minimum wage stipulated in the applicable law or the other law of the place of employment. Companies in the logistics sector should ensure that subcontractors - especially those outside the EU - also comply with the minimum standard of remuneration required by the LkSG.
- Environmental protection
Section 2 (2) no. 9 LkSG provides for measures to prevent air and water pollution as well as the reduction of emissions caused by transport. In this context, the obligation to purchase greenhouse gas certificates must also be highlighted. In addition, the environmentally friendly storage, collection and disposal of pollutants must be ensured, whereby the LkSG integrates specific environmental obligations from three international conventions that must be complied with by companies.
The LkSG also sets out general requirements, such as the introduction of risk management, preventative and remedial measures and the establishment of a complaints procedure. To ensure transparency, companies are also obliged to document their measures on an ongoing basis and report annually to the Federal Office of Economics and Export Control (BAFA). Violations can result in substantial fines and exclusion from public tenders for up to three years.
Corporate Sustainability Due Diligence Directive (CSDDD)
In June 2024, an EU-wide due diligence directive, the Corporate Sustainability Due Diligence Directive (CSDDD), was adopted. Both the personal scope of application, such as the consideration of temporary workers, and the material scope of the CSDDD differ from and require a future adaptation of the LkSG. While the LkSG primarily focusses on direct business relationships, the CSDDD potentially includes indirect business relationships. In this respect, companies in the transport and logistics sector must check on a case-by-case basis whether they will have to comply with the requirements of this directive in future, even if they do not currently fall within the scope of the LkSG. The directive must be transposed into national law by mid-2026.
Carbon Border Adjustment Mechanism (CBAM)
The Carbon Border Adjustment Mechanism (CBAM), which came into force in May 2023, serves to create a CO2 border adjustment system. Since January 2024, importers have been subject to comprehensive reporting obligations on the CO2 emissions generated during the production of goods. This data must be provided by the manufacturers or suppliers. In addition, the obligation to purchase CBAM certificates will apply from 2026 (Art. 33 CBAM). For the logistics and transport sector, the directive increases the regulatory requirements for the import of certain goods such as steel or aluminium, for example when manufacturing or purchasing means of transport.
Deforestation Regulation (EUDR)
From December 2024, the EU Deforestation Regulation (EUDR) will apply to all large and medium-sized companies and from June 2025 to small and micro enterprises. The regulation prohibits the placing on the market, supply and export of certain raw materials (cattle, cocoa, coffee, oil palm, rubber, soya and wood), as well as products made from these raw materials, such as conveyor belts and drive belts made from vulcanised rubber (HS code 4010), pneumatic tyres made from rubber (HS codes 4011 and 4012) and other shapes such as rods, bars, tubes and profiles or goods such as discs and rings made from non-vulcanised rubber (HS code 4006). Companies that export affected goods, for example as spare parts, must prove that they have been produced sustainably.
EU Taxonomy Regulation
Companies that fall under the CSRD are also obliged to report in accordance with the EU Taxonomy. The EU Taxonomy Regulation, which has been in force since 1 January 2022, is a central component of European sustainability policy. It defines standardised criteria to define the concept of sustainability for economic activities in a clear and legally binding manner. The aim is to promote the comparability of investments and reports while effectively preventing greenwashing - the misleading presentation of products or companies as sustainable. Logistics companies, especially those focussing on low-emission technologies or sustainable supply chains, benefit from the clear distinction between sustainable and non-sustainable investments.
Conclusion
The ESG requirements, led by the CSRD and the LkSG, pose significant challenges for logistics companies. The implementation of the LkSG measures and the CSRD reporting obligation equate to increased administrative effort and costs for the industry. However, in addition to fines and penalties, companies that fail to comply with the regulations could ultimately face the cancellation of business relationships.
To implement the corporate due diligence obligations in a sustainable manner, it is essential that both the relevant laws and the companies concerned consider the complex subcontractor relationships. In addition to the reporting obligation, transport and logistics companies are therefore required to minimise emissions in their supply chains, comply with the relevant environmental requirements throughout the entire business cycle and strengthen employee protection systems. This is particularly relevant as the industry is often criticised for its high emissions and working conditions.
