How to Comply with the SEC’s Scope 3 Reporting Mandate, and Gain an Asset in the Process

Publicly traded companies have a challenging deadline sneaking up on them, and many have no idea how they will meet it. It's a mandate from the Securities and Exchange Commission (SEC) to report what's known as Scope 3 emissions of greenhouse gases, starting in 2025.

Publicly traded companies have a challenging deadline sneaking up on them, and many have no idea how they will meet it. It's a mandate from the Securities and Exchange Commission (SEC) to report what's known as Scope 3 emissions of greenhouse gases, starting in 2025.


But don't be fooled by that date. The mandate requires action right now. And most companies will need serious help to comply successfully.

Compliance could earn companies an unexpected reward in the form of data they can use to improve their own performance.

The SEC is demanding a report on Scope 3 emissions to be submitted in 2025, based on data for the year 2024. That means companies must be ready to start gathering the data in just a few months. That is going to require some difficult questions to be answered, starting with the most basic: What are Scope 3 emissions?

According to the Environmental Protection Agency's website:
Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain. Scope 3 emissions include all sources not within an organization's scope 1 and 2 boundary. The scope 3 emissions for one organization are the scope 1 and 2 emissions of another organization. Scope 3 emissions, also referred to as value chain emissions, often represent the majority of an organization's total greenhouse gas (GHG) emissions.
The GHG Protocol defines 15 categories of scope 3 emissions, though not every category will be relevant to all organizations. Scope 3 emission sources include emissions both upstream and downstream of the organization's activities.

Needless to say, that is much more complicated than reporting Scope 1 emissions, which are those resulting directly from your own operations, or Scope 2, which are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling.

Companies will quickly determine that gathering this data will not be easy as it relates to transportation logistics. This is due to the fact that the vast majority of transportation logistics is managed by third party providers . Most logistics service providers (LSPs) have not invested the time, energy, or money to calculate and report emissions data to their customers. Why would they? Up to now there has been no market demand for that data, so there has been no incentive to gather it or to make it available. Even if they can provide the data, there is no guarantee it is consistent across all providers and will need to somehow be consolidated into a single data repository.

It's almost like a job for a detective or spy agency, which must do the sometimes-tedious work of tracking down all that information. And it's perfect for a third party that is willing and able to do it, especially considering how quickly the mandate is coming and how unrelenting the SEC is going to be in demanding the data.

Make no mistake: In order to be in compliance, publicly traded companies have to be compiling this data starting January 1, 2024. A third party that's prepared to tackle this will have to:
-Build calculation models for the data
-Engage with carriers around the world - all modes, all countries, all regions
-Connect with all LSPs and other relevant parties in order to have them provide the data
-Be able to identify and distinguish different types of vehicle and types of fuel, not to mention their weight and dimensions and the distances traveled - as well as the destinations
-Process and accurately calculate the vast amounts of emissions data from these various sources
-Provide the emissions data back to the shippers in a clear and easy-to-digest manner

That's a lot to ask when you consider it's a task that no one has ever had to do before, and the SEC mandate is now prompting it.

This is a bold declaration, but I think Trax has the transportation side of Scope 3 figured out. We've already built a dashboard that will segment the data by product, by business unit and by LSP. Shippers will see what they need to report to the SEC, but they'll get a lot more than that. They will also be empowered to choose a carrier or another LSP on the basis of its emissions - as well as cost and time.
This is becoming important to a growing number of shippers, many of whom are willing to accept a shipment costing a little more or taking more time if it means reducing emissions.

Let's say a package has to get from Amsterdam to Chicago. The quickest way to send it would be direct via air. But the emissions that shipment produces are significant.

With the data we provide, the shipper might choose an ocean-bound ship that will take an item from Amsterdam to New York, at which point it could be picked up at the port and sent by rail to Chicago.
Will that take longer? Absolutely. Will it emit far fewer greenhouse gases? Without question.

All shippers will choose their own priorities, of course, but with the information they can get on our dashboard, they can make informed decisions to ensure their priorities are addressed. And if they get on board quickly, they will be in an excellent position to comply with the SEC mandate for 2025 - which is really for 2024 in terms of gathering data, which means shippers need to be ramping up the process right now.

The logistics industry can do this. And it has an excellent opportunity to mine valuable data as part of the bargain - all while helping to curb environmental impacts on Mother Earth.

Steve Beda is the Executive Vice President for Customer Success in Global Program Management at Trax Technologies, the global leader in Transportation Spend Management (TSM) solutions. Trax elevates traditional Freight Audit and Payment (FAP) with a combination of industry-leading cloud-based technology solutions and expert services to help enterprises with the world's more complex supply chains better manage and control their global transportation costs and drive enterprise-wide efficiency and value. For more information, visit www.traxtech.com.
Steve can be reached at steve.beda@traxtech.com.

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