Gaining rapid traction with an expected implementation date of early 2025, every publicly traded company will soon find it mandatory to promptly provide their climate reports from the previous year (2024) to the Securities and Exchange Commission (SEC). The coming climate disclosure requirements will compel leaders in all industries to establish a plan of action to detail the emissions they are responsible for. 

While this novel change may seem abrupt, the case for carbon transparency from U.S. public corporations has been long anticipated from a global perspective. The EU, Japan, United Kingdom, and New Zealand have already been pursuing nearly identical advancements to improve the environment.  

Despite the powerful catalyst this could be for the future of sustainability in business, corporations are struggling to accurately report their Scope 3 emissions. This is no fault of their own. Complexity is inherent in supply chain logistics, but harmonization is possible when the right solution is presented. The following insights will help clarify the ruling along with steps that should be taken to prepare your company for this change.

Deciphering the Categories of Reporting 

Being well aware and informed about the implications of the nearing disclosure rule is critical. As a CEO or CFO, having a firm grasp on proposed amendments that will affect the company gives you an edge in getting ahead of the curve to avoid a last minute frenzy. There are three categories in which climate disclosure should be reported; these categories are:  Scope 1, Scope 2, and Scope 3. 

As far as collecting data and reporting goes, Scope 1 and 2 are very manageable. Both of the aforementioned categories will boil down to the company’s purchased energy and its own power. Public companies can keep a tighter record of this since all of these factors come from one place, but Scope 3 emissions are not so simple. 

To correctly define Scope 3, SEC’s Enhancement and Standardization of Climate-Related Disclosures Fact Sheet states that it is, “Indirect emissions from upstream and downstream activities in a registrant’s value chain.” 

Efficiently managing a supply chain is already an arduous obstacle to overcome, but added difficulty comes from receiving precise carbon data from all vendors. North American lead for climate advisory firm Vivid Economics, Shally Vengopal details the dilemma business leaders will face, “The question is, how do you quantify the small share not covered? And what about emissions in other countries, particularly where there are no disclosure mandates? Therein lies the challenge with Scope 3.”

The most significant share of greenhouse gasses in North America come from transportation on land, air, ocean, or anything in that logistics space. In that industry are third party vendors that have their own method by which they function and measure their CO2 emissions. This results in notoriously unreliable reporting that must be addressed and rectified to meet the new climate disclosure requirements. 

A Case for Assembling Scope 3 Reporting Sooner than Later 

Let’s say you have 20 transportation vendors in your supply chain, and you ask them each to provide you with their CO2 emissions data. Their respective reports won’t be consistent because these vendors come in all shapes and sizes, so you will receive 20 different versions of how they calculated their individual data. This also does not take into account that there is no standard or explanation in how it is measured.

Thankfully, there is a proven method to add up emissions called the European Standard EN 16258, which defines universal general principles to quantify data. There are numerous factors that are required to use EN 16258 like vehicle type, fuel type, and distance. If you have a partner to track each transportation company’s every move, you can achieve accurate reporting through the invoices they collect.  

Once this concrete data is sent to the SEC, you will also have a plan on how to realistically reduce your carbon footprint. Despite the ability to simplify the reporting, time is still of the essence. Transportation leaders must take the initiative as soon as possible, or they could risk distressing circumstances while hastily trying to make the deadline. Seeking a solution in the present will save the headache in the future.

Aside from following regulations in a timely manner, carbon transparency along with sharing future targets for decreasing your CO2 usage statistically makes business sense and helps to improve our planet for the forthcoming generations. It’s clear the time for transportation leaders to collect and process carbon data is now. 

 

Josh Bouk is the President at Trax Technologies, the global leader in Transportation Spend Management (TSM) solutions. Trax elevates traditional Freight Audit and Payment (FAP) with a combination of industry-leading cloud-based technology solutions and expert services to help enterprises with the world’s more complex supply chains better manage and control their global transportation costs and drive enterprise-wide efficiency and value. For more information, visit www.traxtech.com.