Challenges in Emissions Reporting for Supply Chain Sustainability

New rules finalized by the Securities and Exchange Commission (SEC) focus on climate disclosures for public companies, emphasizing the need to report emissions from direct operations and energy use. However, the absence of Scope 3 emissions in current regulations presents challenges for comprehensive emissions reporting across supply chains.

Understanding the Scope of Emissions

The SEC's climate disclosure rules require public companies to report Scope 1 and Scope 2 emissions. Scope 1 emissions pertain to direct emissions from a company’s operations, while Scope 2 covers indirect emissions primarily from the energy that companies purchase. Notably absent from these regulations is Scope 3 emissions, which encompass all other indirect emissions occurring in a company’s value chain. This omission highlights a significant gap in the current regulatory framework, as Scope 3 emissions often represent the largest portion of a company’s carbon footprint.

In contrast, California has taken a step further by mandating the reporting of Scope 3 emissions, setting a precedent that may influence other regions. Despite this, emissions reporting remains inconsistent across companies, with only 50% of firms disclosing some Scope 3 emissions and a mere 10% comprehensively reporting across all emissions scopes. A survey of 1,850 executives from 23 countries confirms that regulatory mandates are increasingly driving carbon reporting activities, particularly in the U.S. and EU.

The Impact on Business Decision-Making

As regulatory pressures mount, companies are increasingly recognizing the importance of measuring greenhouse gas emissions. Carbon reporting is becoming a critical factor in business decision-making, influencing choices from operational practices to supplier selection. Estes, for example, plans to release its first sustainability report in 2023, highlighting its compliance with the California Air Resources Board (CARB) emissions standards. The company has installed solar-generating arrays at seven of its terminals, with plans for three more installations by 2024, underscoring its commitment to sustainable practices.

Similarly, Schneider National leads the charge in electric vehicle integration with 92 battery-electric trucks, marking a significant milestone by surpassing one million zero-emission miles. The trucking industry, however, continues to face challenges in carbon reporting due to the lack of a central repository for emissions data.

Technological Tools and Industry Challenges

The University of Tennessee has developed the Fleet Sustainability Index to address some of these challenges. Utilizing data from multiple government sources, the Index analyzes emissions profiles for over 400,000 carriers, comprising over 4 million emissions observations. Emissions factors, measured in grams of CO2 per mile, are used to assign a score to each fleet, providing a basis for reporting Scope 1 and Scope 3 emissions.

This database offers a baseline emissions report, allowing companies to understand their emissions profile better and compare it to the Environmental Protection Agency's (EPA) miles-per-gallon ratings. The Index’s software accommodates various truck classes and fuel types, assisting shippers in tracking freight miles and calculating emissions rates per mile for carriers. This comprehensive approach enables shippers to prefer carriers with lower emissions scores, thereby reducing their overall carbon footprint.

The Push Toward Carbon Neutrality

The trucking industry faces significant compliance risks and potential fines associated with diesel emissions, as one gallon of diesel emits 22.4 pounds of CO2. The transition to electric vehicles (EVs) supports carbon neutrality goals, offering benefits such as improved on-site air quality and reduced noise levels. As shippers experience increased pressure to minimize their carbon footprint, the demand for EV trucks is likely to grow.

In conclusion, while recent regulatory developments and technological advancements are propelling the industry toward more robust emissions reporting, significant hurdles remain. The lack of standardized reporting for Scope 3 emissions and a central data repository poses ongoing challenges. Nevertheless, as companies adapt to these demands, the pursuit of sustainability in supply chain operations continues to gain momentum.