Navigating the SEC’s proposed climate rule

As the global movement for decarbonization continues to accelerate, customers, investors and stakeholders are increasingly looking to make environmentally conscious purchasing, investing and partnering decisions. This is getting easier, as the advancement of environmental, social and governance (ESG) stewardship in the economy is pushing greater transparency across all areas of business operations, particularly when it comes to impacts on the environment. More than ever, companies of all sizes are taking stock of their sustainability progress and sharing it with investors and the public, hoping to garner goodwill and the increased confidence – and support – of both groups.

While this is all fine and good, what does the market say? Does this approach hold up? Turns out, this strategy is pretty on-base — more and more, investors are choosing to support companies that are focusing on resilience by working to mitigate climate risks and planning for future impact, as these companies tend to generate stronger returns over the long-term. For example, Morningstar reports that over a period of 10 years, 80% of blend equity funds that invested sustainably outperformed traditional funds, and 77% of ESG funds that existed 10 years ago have survived, compared to only 46% of traditional funds.

Because most current reporting is voluntary, and therefore measures and metrics showcased are at the company’s discretion — though subject to a certain level of investor behest — it can be hard to compare metrics across companies. This muddies the investor community’s ability to make confident, ESG-driven investments. Moving forward, standardization in climate reporting by businesses will be crucial to ensuring the economy continues to be a driver of industrial decarbonization and sustainability.

Although scope 1 and 2 emissions tracking is now business-as-usual for many large companies, things get a little tricker when you venture into scope 3 emissions, which cover the supply chain and end-use. Given that the transportation industry contributes 27% of U.S. GHG emissions — largely due to the shipment of goods — scope 3 emissions tracking and mitigation will be a key part of decarbonization moving forward.

But how will small carriers and distribution companies keep up with the complex emissions tracking necessary, especially as their larger partners require detailed reports for their own climate reporting? Data can help, along with a bit of innovation.

The SEC’s Proposed Climate Disclosure Rule

Getting back to the standardization we need: it's on its way. But it’s bound to prove a bit more complicated in practice than in theory.

In March 2022, the U.S. Securities and Exchange Commission (SEC) released a climate disclosure proposal that will require registrants to report climate-related risks. This would include “climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics,” in addition to disclosure of the registrant’s greenhouse gas emissions, according to the SEC.

Many are happy about the proposed rule for the transparency it would bring to ESG and sustainability conversations and commitments, and even its potential to weed out some of the greenwashing that has become prevalent with the rise of environmental sustainability as a market driver. But although many public companies are no stranger to tracking and reporting emissions — 92 percent of the S&P 500 Index published sustainability reports in 2020 — there is significant concern arising around the inclusion of Scope 3 emissions in the reporting requirements.

The rule would specify that companies who have an established scope 3 commitment, or those whose scope 3 emissions are material, will need to include scope 3 emissions reporting in their climate disclosures. Most large companies will fall into one of these categories.

The Transportation Sector’s Burden

Because scope 3 emissions fall outside a company’s own operations and purview, they can be exceedingly difficult to track or even estimate. They encompass both upstream and downstream transportation and distribution of product, so they’re often heavy on fleet-transportation-related emissions. This is where things get sticky for the transportation sector — to track such metrics, companies would require a complex understanding of the intricate network of partners that enable their operations, including the shipping networks of their suppliers and carriers. This means even the companies who aren’t required by the SEC to report scope 1, 2 and 3 emissions will need to have this information readily available for business partners who are.

Many carriers and last-mile distributors will feel pressure from their publicly owned partners to provide data as the larger companies gather the information necessary to evaluate their own scope 3 emissions. But for many of these carriers and distributors, such gathering tracking and analytics can be a struggle. In the U.S., 90 percent of carriers have fleets of 10 trucks or fewer, running small operations that often lack the administrative resources to properly track their emissions. Many might not even know where to begin.

As companies work to gather emissions data from truck drivers, there will be challenges around establishing boundaries between scopes, capturing reliable data in a systematic way and delivering accurate calculations.

Deploying Data Analytics

Though the rule is subject to change before it passes, there is a general consensus among experts that this is not going away. Companies should begin to act now to ensure they can comply with the changing regulations by considering how they will produce GHG emissions data and who will be helping them along the way.

As companies of all sizes work to track and understand their emissions data, user-friendly, interactive dashboards will be crucial to success. Especially for registrants of the SEC, the most effective dashboards will have the ability to be manipulated to share the differing desired measurements and metrics for the various types of climate reporting companies will now be engaged in, including both SEC climate reporting and corporate sustainability reports.

But first, there must be data collected to populate these dashboards. Business leaders should act now to begin collection of emissions data. For fleet owners, telematics — which uses GPS capabilities and on-board diagnostics to track a vehicle’s movements on a digital map — offers the ability to optimize fleets and obtain metrics crucial to emissions tracking, including fuel consumption, trip miles and more. It even offers the potential for predictive fleet analytics, which lets fleet owners analyze telematics to forecast future fleet maintenance, budgets, costs, safety and emissions.

For fleet owners in need of such a platform, Booster can help. In addition to saving fleet owners money and time while lowering overall emissions through mobile fueling services, Booster offers a comprehensive digital platform that can aid in emissions tracking and estimation services, helping to enable sustainable fleets.

Looking Forward

Although the SEC guidelines themselves are not casting judgment on or setting requirements for companies’ current emissions rates, they will drive decarbonization as investors increasingly choose companies with better environmental impact. Such choices will ripple throughout the economy, driving companies across industries and sizes to make more sustainable choices.

As fleet owners begin making such choices, Booster can help. Booster is building out its capabilities to advise fleet owners on optimizing not just their energy mix, but also their fleet mix. Through our mobile fueling services, we offer an easy way for fleets to make the switch to sustainable fuels, which can lower a fleet’s overall carbon-intensity, making it a more attractive option to potential partners looking to keep scope 3 emissions low. As an example, our renewable diesel offering lowers the carbon intensity of traditional diesel by around two-thirds.

Over the long-term, the SEC guidelines will bring a level of standardization to climate-reporting that will align all companies, investors and stakeholders, providing additional rigor as we think about carbon emissions moving forward. Booster aims to be an innovator in the field of sustainable capitalism, creating or enabling the technologies and changes needed to support positive change, robust economic growth and a greener planet overall.

Throughout the longer-term energy transition, and the more imminent transition to more thorough climate and emissions reporting, Booster is committed to providing and enabling the technologies necessary for the transportation industry to find success in decarbonization and sustainability. Though the new climate reporting standards will require an economy-wide shift in the way we track and share emissions data, they are the next step to ensuring we move forward into a more sustainable future.

Bio: Frank Mycroft is the co-founder and CEO of Booster, a tech-driven mobile energy delivery company fueling the energy transition. Headquartered in San Mateo, California, Booster delivers conventional and renewable fuels directly to commercial vehicles nationwide. The result is lower operating costs, smarter energy management, and rapid fleet decarbonization.