The U.S. Securities and Exchange Commission (SEC) has proposed historic new rules requiring publicly traded companies to report all climate-related risks, emissions, and net-zero transition plans associated with running their business.
The big change? Companies will soon have to report scope 3 emissions. That means not only recording emissions created inside of the business (scope 1 and 2), but also all the emissions associated with goods and services outside of its walls. Companies will be expected to report employee work travel and its associated emissions. But a bulk of the work will be around collecting data on transportation and shipping efforts via air, ocean, rail, and truck.
Josh Bouk, Atlanta-based president of the supply chain management software company Trax, said that “most corporations really need to be spending 2023 putting in place the processes to calculate those emissions” to ensure they are ready for SEC changes coming in 2025. As a freight audit and payments business with 30 years of experience, Trax is helping many of those businesses prepare for such SEC changes.
A big part of that is understanding all the multiple different vendors used throughout the manufacturing, shipping, and fulfillment process. For bigger companies, that can mean understanding emissions coming from hundreds of different suppliers that work across a supply chain.
“The real problem with scope three is just the sheer number of third parties that are involved and the relative lack of consistency in capability of reporting across those third parties,” Bouk added.
New Rules, New Innovation
While the new reporting requirements are designed for public companies, Bouk said they could significantly impact all those working in supply chain and logistics.
“I don’t see a lot of companies yet who are willing to take a higher cost to drive down emissions. But once we get to 2025 and [businesses] have to report it, [they’ll] be held to revenue increases and emission decreases. Once that becomes transparent, we’ll start to see companies being willing to sacrifice more in one way or another to be able to drive down emissions,” said Bouk.
For Bouk, the changes to the SEC filing requirements could open up more innovation around “unlocking cost and emissions reductions” for vendors and shippers alike. That means big opportunities for those working on packaging solutions, warehousing options, and streamlined logistics solutions.
“Consumers and shareholders are now starting to vote with their wallets or their investment dollars based on [a company’s] ESG footprint of the strategy of the corporation.” Bouk told Hypepotamus. “Just like [no business] wants to see their revenue go down, nobody wants to see their emissions go up once they start sharing…Historically, [businesses] have made decisions about transportation based on cost and service time. Now, people are going to have to balance cost, service time and emissions.”