Schneider Electric backs proposed SEC climate rules

Rules would require publicly traded companies to track supply chain emissions

This story first appeared in Freight Waves

The Securities and Exchange Commission proposed a set of climate disclosure rules in May. In turn, the?trucking industry responded with concern?about the potential impacts of the regulations.

To gain other perspectives on how the climate rules could affect trucking companies and their relationships with retailers, FreightWaves interviewed Amy Haddon, vice president of global marketing and communications at Schneider Electric, and Jim Wetekamp, CEO of risk management software provider?Riskonnect.

In a public?comment to the SEC, Schneider Electric said, “While the disclosure of scope 1 and scope 2 emissions is vital for investors’ understanding of climate-related risks on business operations and revenue, disclosure of scope 3 emissions is also essential, as most emissions lie in this area for nearly all companies.”

This question-and-answer interview was edited for clarity and length.

FREIGHTWAVES: How do you think the proposed climate disclosure rules could impact the supply chain industry??

WETEKAMP:?“The SEC climate rules would require publicly traded organizations to report their climate risks and greenhouse gas emissions to investors and the public. The emissions disclosure requirements would include scope 1, scope 2 and scope 3 emissions, if the?scope 3 emissions?are ‘material’ or the company has a target to reduce emissions across its supply chain.”

HADDON:?“Publicly traded owner-operators of freight, shipping and logistics companies will be expected to disclose their own climate risks and emissions. As these businesses are part of other companies’ supply chains, they will likely need to be prepared to disclose the same information to their customers, as their operational scope 1 and scope 2 emissions form part of their customers’ scope 3 emissions.

“The recent global supply chain disruptions experienced because of COVID-19 are also likely to drive additional scrutiny on the supply chain industry and its ability to weather climate-related impacts, making risk disclosures and resilience in this sector increasingly important.”

The recent global supply chain disruptions experienced because of COVID-19 are also likely to drive additional scrutiny on the supply chain industry and its ability to weather climate-related impacts, making risk disclosures and resilience in this sector increasingly important.

FREIGHTWAVES: Why does Schneider Electric believe including scope 3 emissions disclosures is important in the proposed climate rules?

HADDON:?“Scope 3 emissions make up the bulk of most companies’ GHG emissions. [The Carbon Disclosure Project] has found that, on average, scope 3 emissions are more than 11 times higher than a company’s direct operational emissions. Scope 3 has also historically been the hardest emissions category to measure and manage. We believe it’s essential to encourage action on scope 3 if we are to make meaningful progress on emissions reduction and climate change.”

[The Carbon Disclosure Project] has found that, on average, scope 3 emissions are more than 11 times higher than a company’s direct operational emissions.

FREIGHTWAVES: What challenges do you think will arise between shippers and retailers related to scope 3 emissions?

WETEKAMP:?“Companies typically work with a very large number of partners across the value chain — often in the thousands or tens of thousands. Complicating matters, the data that companies need to calculate scope 3 emissions usually lives outside of the reporting organization with its many suppliers, vendors, distributors and other trading partners.?

“Measuring emissions is new and not yet standard practice, which adds to the challenge, especially for small businesses. It’s a big job to collect and analyze value-chain partners’ energy-use data.?

“Complying with the SEC’s requirements will be costly. That added pressure could strain relationships between shippers and retailers.

“To successfully report on scope 3 emissions, the reporting organization must collect energy and fleet data and miles traveled to calculate emissions. On top of this, reporting organizations would be responsible for determining what proportion of emissions belongs to them, based on their share of the supplier’s total output.?

“This work is manual, repetitive and time consuming, and shipper and retail teams are already stretched thin. The amount of data and work needed to meet the proposed disclosure requirements are well beyond what a team of people can reasonably manage without the help of software.”

FREIGHTWAVES: How can trucking and logistics companies adapt to those challenges?

WETEKAMP:?“The biggest thing companies can do to adapt is to implement technology that can ease the time and resource burdens that come with the reporting process. The right software will automate data collection and metrics tracking throughout the organization and its entire supply chain. Also, consider finding a partner with a track record in carbon accounting, financial reporting and supply chain management.?

“Logistics and trucking companies can also overcome many reporting challenges by starting to get their house in order now. Preparing today and getting the right processes and technology in place will help avoid a scramble down the road.”

FREIGHTWAVES: According to Schneider Electric’s most recent?climate report, supply chain emissions (scope 3) make up more than 99% of the company’s carbon footprint. What is the company doing to engage with suppliers and end users to reduce those emissions?

HADDON:?“Just like many of our industrial customers, most of our emissions rest within our value chain. We developed the Zero Carbon Project, an initiative to engage our top 1,000 suppliers to reduce their own scope 1 and scope 2 emissions 50% by 2025.?

“Since we launched the program in 2021, we’ve had nearly 100% participation and are actively and directly working with our suppliers to assess their maturity, measure their baseline, set goals and begin to implement decarbonization strategies.

“But we don’t stop with our upstream suppliers. We also employ circular business practices that address our downstream scope 3 emissions. These include field services that extend the life of our products and take-back and refurbishment programs, alongside the introduction of a growing portfolio of digital and professional services.”

FREIGHTWAVES: What advice do you have for smaller companies that haven’t started measuring GHG emissions?

HADDON:?“That old saying that you can’t manage what you don’t measure really applies here. Until a company understands its baseline emissions, and where they come from, it can’t take meaningful action. One easy way to get started is with the Environmental Protection Agency’s simplified GHG emissions calculator and GHG inventory development guidance.

“We are strong proponents that getting on the path toward decarbonization is better than not starting the journey at all. The proposed SEC rule has the power to reinforce what leaders in the freight industry are already doing while encouraging others in the freight ecosystem to advance their own programs — not only to drive climate-change mitigation but to improve air quality and drive economic development.”