How do the SEC climate risk disclosure rules impact your business?
We live in challenging times, from inflation and supply chain issues to ongoing COVID variants and changes in how people work and more. Many of these issues will hopefully fade over time. What is not fading is the continuing threat of climate change and the growing need for sustainability. As noted in a recent blog, worsening severe weather events like hurricanes, floods, and drought in North America cause hundreds of billions of dollars in damage, impact human lives, and threaten businesses. When referring to climate-related events and the financial impact on companies, a Harvard Law Review article noted that “In a 2019 survey, CDP, an international nonprofit focused on environmental disclosure, found that 215 of the largest global companies faced nearly $1 trillion in risk from climate impacts.”
One of the risks that businesses face is a reduction in investor confidence that a company is doing all it can to figuratively and literally “weather the storm.” The article cited above also states that “over 4,000 investment firms managing over $120 trillion in assets support the United Nations-sponsored Principles for Responsible Investment.” Yet, what companies say they are doing when it comes to environmental, social, and governance (ESG) issues and greenhouse gas (GHG) emissions may not always be the case and the lack of accurate reporting has been an ongoing issue.
The SEC and climate reporting
Back in March of this year, the Securities and Exchange Commission (SEC), in a nearly 500-page document, proposed new rules that would require public companies to provide information regarding climate-related risks. According to SEC Chair Gary Gensler, these rules “would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.”
Among those risks, specifically those dealing with GHG, the SEC-proposed rules would mandate required disclosure of a registrant’s Scopes 1 and 2 emissions and Scope 3 emissions if applicable, on the Form 10-K disclosures. Scope 1 emissions are direct GHG emissions from a company which include emissions associated with fuel combustion in owned and leased vehicles. Scope 2 emissions are indirect emissions associated with the purchase of energy. Scope 3 emissions are indirect upstream or downstream emissions from the supply chain.
The SEC provided a public comment period which ended on June 17th, 2022. When finally adopted, the final rules would be applied to FY 2023 reporting and FY 2024 filing.
Why private companies also need to take notice
Although the disclosure requirements apply to public companies, private companies should not think they have no skin in the game. The fact is that ESG and GHG initiatives and strategy are important, not just to investors, but to customers as well. A 2019 McKinsey report supports this. The report noted that “ESG can also drive consumer preference. McKinsey research has shown that customers say they are willing to pay to ‘go green.’ Although there can be wide discrepancies in practice, including customers who refuse to pay even 1 percent more, we’ve found that upward of 70 percent of consumers surveyed on purchases in multiple industries, including the automotive, building, electronics, and packaging categories, said they would pay an additional 5 percent for a green product if it met the same performance standards as a non-green alternative. In another study, nearly half (44 percent) of the companies we surveyed identified business and growth opportunities as the impetus for starting their sustainability programs.”
Meanwhile, The Global Sustainability Study 2021 conducted by Simon-Kucher & Partners, “a major study of more than 10,000 people across 17 countries shows that sustainability is becoming increasingly important in consumers’ purchasing decisions, especially as consumers see themselves, along with for- profit companies, as the primary catalysts for change.”
So, sustainability (and the publication of sustainability reports) should be an important goal for any company, public or private, as a way to increase both sales and customer loyalty while improving the brand image. It’s also a way of saving money for businesses, especially those that operate fleets. The blog referenced earlier referred to the EPA’s SmartWay program and how Corcentric was proud to be a SmartWay Affiliate. A SmartWay 2020 Report stated that, since its inception in 2004, SmartWay along with its Affiliates have helped SmartWay Partners save “6 billion gallons of fuel, lowered fuel costs by $20.6 billion and reduced carbon emissions by over 60 million metric tons.”
How Corcentric helps its customers provide accurate data
As a company in the transportation business, Corcentric is really focused on the Scope 1 mobile GHG emissions disclosure rules for our customers. Scope 1 mobile GHG emissions are produced as fossil fuels are burned. Carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) are emitted directly through the combustion of fossil fuels in different types of mobile equipment.
Most fleets have neither the expertise nor technology to accurately measure their emissions. That’s where we come into play. We can not only assist companies in measuring and reporting their emissions; we work to help them become more fuel-efficient so they can reduce costs and increase profitability and productivity.
Whether a customer leases all or only a portion of their trucks through Corcentric, we measure emissions on a monthly basis for their entire fleet using data from their vehicles’ onboard computer. Our GHG emissions reporting suite reports on Scope 1 direct GHG emissions resulting from the operation of owned or leased mobile combustion sources which are within an organization’s inventory boundary. The combustion of fossil fuel results in three of the seven constituent GHGs including CO2, CH4 and N2O. To maximize the accuracy of emissions calculations, information utilized in monthly data ingestion includes fuel type, fuel use, distance traveled, fuel economy, vehicle type and model year. The methodology utilized in calculating GHG emissions within this reporting suite is from the Greenhouse Gas Protocol Corporate Accounting and Reporting Standards. The numbers from the reporting we provide go right on the 10K disclosure forms.
Besides eliminating the burden of handling this Scope 1 mobile emissions reporting on their own, we also can illustrate to fleets how replacing older assets with newer models can save money and reduce emissions. We compare the GHG emissions data between new trucks and a truck that got replaced and quantify how newer trucks get better fuel economy which translates to lower emissions. And, with the volatile nature of diesel prices, fuel efficiency is a major benefit for fleets.
What is most important for organizations to realize is that these disclosure rules are coming. If you’re a public company, you need to start preparing now. If you’re a private company, you should still be looking for ways to increase efficiency and decrease emission levels.
Contact us to learn how we can help your business calculate emissions and maintain business continuity at [email protected].