Challenges in Supply Chain Emissions Reporting and Regulation

The complexities of emissions reporting and regulation in supply chains are increasingly coming into focus as new rules and requirements are introduced. The Securities and Exchange Commission (SEC) has finalized new rules for climate disclosures, specifically targeting public companies and their emissions. This regulatory shift is part of a broader trend that sees both the United States and European Union accelerating sustainability mandates, impacting how businesses report and manage their carbon footprints.

Understanding Emissions Scopes and Reporting Challenges

The SEC's new climate disclosure rules emphasize Scope 1 and Scope 2 emissions. Scope 1 comprises direct emissions from a company's operations, while Scope 2 includes indirect emissions from energy consumption. However, the current regulations do not include Scope 3 emissions, which cover a broad range of indirect emissions throughout the supply chain. In contrast, California is set to require reporting of Scope 3 emissions, highlighting the lack of standardization across regions and regulatory bodies.

A recent survey of 1,850 executives across 23 countries revealed that while 50% of firms disclose some Scope 3 emissions, only 10% provide comprehensive reports across all emission scopes. The growing regulatory mandates are pushing companies to expedite their carbon reporting activities, influencing business decision-making and increasing interest in measuring greenhouse gas emissions.

Technological and Operational Innovations

As companies grapple with the new requirements, technological solutions are being developed to assist in emissions tracking and reporting. The University of Tennessee has created a Fleet Sustainability Index, which uses data from multiple government sources to analyze the emissions profiles of over 400,000 carriers. The database contains over 4 million emissions observations, with emissions factors measured in grams of CO2 per mile, allowing fleets to be assigned an emissions measurement or score. This tool helps shippers track freight miles by carrier and calculate emissions rates, forming the basis for reporting Scope 1 and Scope 3 emissions.

In the trucking sector, companies like Estes and Schneider National are making strides in sustainability. Estes plans to release its first sustainability report in 2023 and is CARB-certified for emissions compliance. The company has installed solar-generating arrays at seven terminals, with three more planned for 2024. Schneider National operates 92 battery-electric trucks and was the first major carrier to surpass 1 million zero-emission miles. Despite these advancements, trucking operations continue to face challenges in carbon reporting, largely due to the absence of a centralized repository for emissions data.

Supply Chain Disruptions and Resilience

Supply chains have faced significant disruptions in recent years, with global disruptions jumping nearly 40% in 2024. Events such as the pandemic and natural disasters like the Thailand floods have highlighted vulnerabilities in supply chains, particularly in the automotive and electronics sectors. In a notable incident, 47,000 U.S. port workers went on strike, leading to the shutdown of 36 major East and Gulf Coast ports and stranding billions of dollars' worth of goods.

In response, companies are shifting focus from efficiency to resilience, emphasizing the need for transformation that centers on people and not just technology. Automation, such as Boston Dynamics' 'Stretch' robot for trailer unloading, is reducing injuries and turnover, freeing employees to focus on problem-solving. Additionally, AI and digital twins are being used to model demand scenarios, contributing to a future of logistics that is both high-tech and human-centered.

Regulatory Landscape and Future Directions

The regulatory landscape for supply chain emissions is constantly evolving, with stakeholders demanding greater transparency and sustainability compliance. Changes to the Corporate Sustainability Reporting Directive (CSRD) aim to increase transparency, raising the threshold to 1,000 employees for reporting. However, regulatory uncertainty remains a significant challenge, with risks including potential lawsuits and supply chain disruptions.

Looking ahead, the next era of supply chains will require systems that are resilient and adaptable, capable of bending without breaking. This transformation will involve collaboration with customers and long-term planning, accounting for climate resilience and the ongoing changes in regulatory requirements. As companies navigate these challenges, the only certainty is the need for sustained commitment to resilience and sustainability in supply chains.