Sustainability programs and the demand to accurately measure, track—and ultimately reduce—greenhouse gas (GHG) emissions are moving into a new chapter, thanks to new rules finalized earlier this year by the U.S. Securities and Exchange Commission (SEC). And that is bringing about new challenges for fleet operators, third-party logistics service providers (3PLs), brokers, and shippers as they develop and refine strategies, practices, and tools to gather, validate, and effectively report emissions not just from direct operations but from other activities up and down the supply chain.
At issue is the SEC’s adoption this past March of new business reporting rules for “Climate-Related Disclosures for Investors.” Under study for over two years, the final rules reflect some 24,000 comment letters and input from dozens of groups. And while focused on publicly traded companies, the new rules also affect nonpublic businesses whose services—like trucking and warehouse operations—contribute to the carbon footprint of a public company.
WHAT THEY COVER
The new regulations will require disclosure by public companies of so-called Scope 1 and Scope 2 emissions. Scope 1 emissions are typically defined as emissions produced by assets that are owned or controlled by the operator, like fleet trucks, yard tractors that move trailers around trucking yards, or fossil-fuel powered forklifts used in a warehouse. Scope 2 emissions are those that are generated indirectly, such as purchased energy (electricity and natural gas) used in operating facilities, manufacturing plants, or offices.
Not included in the current SEC regulations are so-called Scope 3 emissions (although California will soon require businesses to report their Scope 3 emissions within the state). These are other emissions, not generated by a company itself, but which occur up and down the business’s supply chain and are generated by other related parties that touch the business or its products in some fashion. One example would be emissions produced to make fabric that goes into clothing, or those related to a consumer using a product.
The SEC noted that some 40% of affected companies currently report Scope 1 and 2 emissions, often as a component of an overall sustainability program, but not in a standardized manner. “The rules will provide investors with consistent, comparable, and decision-useful information [to guide investment decisions] and issuers with clear reporting requirements,” said SEC Chair Gary Gensler in a March 6 news release.
A SLOW GRIND
While most businesses, particularly those in transportation, have had some awareness and started preparing for emissions-related reporting, it’s been a slow grind, which likely now will gain some traction with the new SEC mandate.
A study done by the Boston Consulting Group late last year found that while some 50% of firms surveyed were disclosing at least some Scope 3 emissions, “virtually no progress has been made on the proportion of companies comprehensively reporting” across all scopes. The report surveyed 1,850 executives with emissions-reporting and reduction responsibility, at organizations with at least 100 employees and revenues of $100 million to $1 billion, across 18 major industries and 23 countries.
One of its findings was that only 10% of surveyed companies comprehensively measure and report Scope 1, 2, and 3 emissions, making no progress on improvement in the past year.
However, the lack of progress on carbon-reporting and reduction goals didn’t diminish recognition among survey respondents of the significant benefits of decarbonization (and the upside of formal sustainability programs). More than half of respondents cited advantages to reputational value, as well as lower costs (50%), higher valuations (41%), higher revenues (41%), and the ability to attract the best talent (38%). Forty percent of respondents also estimated financial benefits of at least $100 million from meeting emissions-reduction targets.
STEPPING UP
Some logistics companies already are well underway with tackling the challenge, as are existing transportation-related software providers and some emerging new technology offerings (see sidebar).
“I’ve been in this field for 15 years,” notes Stephan Schablinski, vice president of the “Go Green” program at global 3PL DHL Supply Chain. “In the past three to five years, sustainability has made its way into board meetings and business review meetings with customers. It’s gone mainstream with much more interest by real decision-makers to understand and address the need.”
He says DHL is seeing increasing demand from shippers to help them 1) understand and quantify the true nature and scope of their carbon footprint, and 2) look at the totality of a supply chain and uncover opportunities to change and decarbonize it. “This is something we have been doing very frequently with customers,” he notes, adding that regulatory mandates in both the U.S. and EU are accelerating activity.
“Carbon reporting has changed from being something you do [just] for reporting’s sake, to an active influence on real decision-making” in how you plan and run a business, he notes. And in a nod to the old saw “You can’t manage what you don’t measure,” he notes that interest in accurately measuring and consistently reporting GHG emissions naturally leads to follow-on plans to reduce them.
It’s about quantifying the “abatement cost” (for example, the cost of investing in energy-saving devices or hybrid or all-electric vehicles for freight transport) and the opportunity for economic as well as climate benefits, says Schablinski. A typical measure is the equivalent dollar amount per carbon ton reduced. “We do these calculations for customers and help them understand the tradeoffs and opportunities.”
As of year-end 2023, DHL operated a fleet of more than 123,000 road vehicles, of which over 37,000 had alternative drive systems (electric, hydrogen, LNG, CNG, LPG, etc.).
DATA IS THE BIG ASK
Trucking firms are embracing the challenge as well, building out or buying reporting tools to provide emission reports to shippers, partnering with startups pioneering new carbon-reduction or -capture technologies, and taking action on their own to track and measure emissions, as well as instituting programs and making investments to reduce them.
“Being sustainable and being environmentally responsible has been part of our DNA since our founding in 1931,” says Sara Graf, vice president of sustainability, culture, and communications at less-than-truckload (LTL) carrier Estes Express Lines. “Data is the big ask right now, and how and what we are doing to reduce our carbon footprint,” she notes. “Many shippers are prioritizing sustainability not only to address regulatory risk but also to respond to investor and consumer sentiment.”
The company plans to issue its first comprehensive sustainability report this year, including disclosures of its Scope 1 and 2 carbon emissions. It is working with some customers to pilot an emissions calculator that will produce allocated emissions reports per shipper. “That’s the biggest challenge,” Graf says. “LTL networks are complex; it’s not as easy as truckload [where emissions reporting means] producing one report on one truckload going from point A to B. We continue to refine that [reporting] to be able to provide a per-shipment per-customer measure.”
As for reducing emissions, Estes has 12 all-electric Class 8 tractors in service in Southern California, all in local pickup and delivery routes with ranges of between 150 and 270 miles. Additionally, Estes is a CARB (California Air Resources Board)-certified company, which ensures all its trucks operating in California comply with the state’s emissions standards. This has led to new awarded business, Graf says.
Across its network, Estes has 330 electric forklifts in deployment and this year took delivery of two electric yard tractors, which it is testing in its Charlotte, North Carolina, terminal, with plans to buy more. It also has installed solar-generating arrays at seven terminals and has three more on the drawing board for 2024 alone. And it is the first LTL carrier to sign up with carbon-capture tech firm Remora, which is developing a truck-mounted carbon-capture system that takes carbon dioxide (CO**subscript{2}) from the tailpipe and stores it in a device on board the vehicle.
Overall, Graf says the sustainability journey “has been a double win for us, becoming more efficient and lowering cost while achieving results that reduce our carbon footprint.”
Another early success story has been truckload operator Schneider National. With 92 battery-electric Freightliner eCascadias and two electric yard spotters (or hosteling tractors), it’s deploying the largest heavy e-truck fleet in the industry. The charging depot alone is half the size of a football field.
The Schneider e-fleet, based in Southern California, late last year reached a significant milestone when it became the first major carrier to surpass 1 million zero-emission miles with the Freightliner eCascadia. That performance translated to avoiding about 3.3 million pounds of CO**subscript{2} emissions, equivalent to removing about 330 gas-powered passenger cars from the road for a year.
“We believe in a future where clean technology helps transform the way we move goods and reduces our environmental footprint [while still delivering reliability and efficiency for customers],” said Schneider President and CEO Mark Rourke in a statement. “This milestone is just the first of many.” The first shipper to contract with Schneider to use its eCascadia fleet: FritoLay. The engagement is helping the company reduce its Scope 3 emissions.
FROM COST TO VALUE
The impetus for a business to change—especially when that change may initially be driven by social or other issues and does not immediately present a clear opportunity for a defined business value or benefit—often can be difficult for it to embrace. Sometimes those businesses need a nudge—often from a regulatory mandate.
“Without the incentive of regulation, some people still see [emissions reporting] as a cost,” observes industry analyst Bart DeMuynck. Yet from an investment perspective, an aggressive sustainability program can have benefits to the balance sheet and income statement as well.
One example he cites is financial institutions paying more attention to emissions scores and reduction programs. “If you have a low emissions score and are making progress reducing your carbon footprint, you could conceivably get more favorable loan terms” than a business with a higher score.
“Some investors are very focused on sustainability and will set part of the investment value they see in you based on your overall ESG [environmental, social, and corporate governance] score,” DeMuynck says. “And that’s only going to continue to become more prevalent.”
New tech incubated in academia may offer
solution to carbon-reporting challenge
Accurately reporting carbon emissions from the nation’s trucking operations presents a daunting, and seemingly overwhelming, challenge.
Shippers and brokers engage with thousands of motor carriers to move freight. There are literally hundreds of thousands of trucks—of all classes, sizes, powertrain configurations, and use cases—operating today, all generating different levels of emissions. Data is available from the Environmental Protection Agency’s (EPA) SmartWay program as well as the Department of Transportation and other government sources, but there is no one central repository or “source of truth” that captures it all.
Collecting, validating, consolidating, and then assembling data from a widely diverse set of sources, securing and maintaining it in one place, keeping it timely and accurate, then developing the software to effectively utilize the data to create something of value is an incredibly complex challenge—made even more pressing by today’s new regulatory reporting mandates.
Alex Scott believes he has the answer.
An associate professor of supply chain management at the University of Tennessee–Knoxville Haslam College of Business, he’s the inspiration and the driving force behind the University of Tennessee’s Fleet Sustainability Index.
The index collects, crunches, organizes, and stores data from sources that include the Department of Transportation, the EPA’s SmartWay program, the National Highway Traffic Safety Administration, OEMs (original equipment manufacturers), and others. It then applies proprietary software algorithms to do a deep dive into the data and generate a unique “emissions factor” that can be as granular as that for a specific truck/engine configuration or a fleet.
Not unlike many ideas that are incubated in academia and then commercialized, the index has become the basis for a business. Scott has since founded a company called Sustainable Logistics, which was set up to sell the index’s services to the market. Customers include carriers, brokers, and 3PLs.
“Carriers all have different emissions profiles,” which the index helps identify and define, he notes. “[The index] provides data and insight into about 400,000 carriers, into all the equipment they use, and the emissions those trucks generate. The database holds over 4 million observations on truck emissions performance,” he explains. “And it’s constantly being updated and refreshed.”
Once its emissions factor—typically a measurement of grams of CO2 per mile—has been set, a fleet can then be assigned an emissions measurement, or score.
“As a shipper (or broker or 3PL), you need to know all the miles your freight runs with each carrier. Then once you know your historical shipments by carrier and the miles they run, you apply that to the emissions factor and you come up with an emissions rate, or score, per mile for that carrier,” Scott notes. “That gives you an accurate measure of the total CO2 output for that carrier for a period of time.” And it provides the basis for a carrier to report Scope 1 emissions and for a shipper to report Scope 3 emissions related to their supply chain operations.
It also provides a baseline emissions report from which carriers and shippers can then begin to better understand their emissions profile, set targets, and then design and implement initiatives to achieve those reduction targets. Scott compares the index to the EPA’s mpg (miles per gallon) ratings for passenger vehicles. “It’s similar to that,” he says. The index’s software also recognizes and accounts for different truck classes and types of fuel used.
One surprising outcome from initial user feedback is how shippers want to use the index to find and employ carriers with the lowest emissions scores. Shippers recognize and want the benefits of using cleaner carriers, Scott has found. “Comparing one carrier to another with similar service and price, if one has a significantly lower emissions score, that can help your overall carbon footprint profile—in some cases by millions of pounds of CO2 annually,” he notes. “That’s contributing to reduction goals and helping save money in other areas of the business.”
Scott says that Sustainable Logistics is working with 20 clients at the “proof of concept” stage and has about a half-dozen who have launched with the platform. Typical customers are larger freight brokerages (who deal with hundreds, if not thousands, of different carriers) as well as high-volume shippers and 3PLs who source and manage transportation on a client’s behalf—and now have to provide reporting to their client to meet SEC mandates.
