What Is ESG & Sustainability Reporting?
For many small and midsize carriers, the notion of ESG reporting or sustainability reporting can be overwhelming. The acronym ESG simply refers to the environmental, social, and governance policies and programs of a company on topics such as:
- Fleet management,
- Fuel consumption,
- Water usage,
- Waste management,
- Social policies,
- Occupational Safety and Health Administration (OSHA) statistics, and
- Governing board structure.
Companies usually disclose this information in the form of a publicly available sustainability or ESG report, which can be as simple as a few paragraphs on a company’s website or a standalone detailed report. Companies use the terms ESG report and sustainability report interchangeably based on company preference.
In recent times, there has been a top-down approach to increasing ESG and sustainability disclosures across the supply chain. This has a trickle-down effect into the trucking industry with an increase in awareness and request for disclosures for carriers by investors, customers, and other stakeholders. This disclosure and reporting momentum is not expected to slow down. The proposed SEC guidelines would require companies to disclose:
- Climate-related risks and their potential material impacts on business,
- Information on climate-related targets, goals, and transition plans,
- Scope 1 and Scope 2 greenhouse gas (GHG) emissions data subject to assurance, and
- Scope 3 emissions would have to be disclosed if they are material to a company or if the company has set an emissions target or goal that includes Scope 3 emissions.
How Is Sustainability Incorporated Within the Trucking Industry?
Over the last three years, the trucking industry’s relevance to consumers and investors increased as a result of broken supply chains. This interest has shifted from supply chain efficiency to the adoption of sustainability strategies to meet the various proposed federal and state emissions regulations. For small and midsize carriers, the idea of sustainability disclosures can be daunting. However, carriers often adopt sustainability measures without realizing it, including:
- Fleet management – Fleet upgrades lead to new and improved technologies, which can reduce fuel consumption and GHG emissions. According to the American Trucking Association, original equipment manufacturers (OEMs) have been making progress and over the last three decades, emissions from new trucks have reduced by more than 98%.
While fleet transition to electric vehicles is in the initial stages, as this transition increases in scale, it will contribute to further emissions reductions.
- Route management – More efficient and intentional route plans allow for cost savings, lower fuel consumption, and emissions reductions.
- Fleet fuel consumption – Tracking fuel purchased and consumed, whether through individual truck metering or overall purchasing, is vital for calculating a carrier’s GHG emissions profile. This data gathering is a useful starting point for correlating fleet upgrades and fuel cost savings.
- Education and training – Education and training programs that include identification and mitigation of human trafficking fall under the social purview of human rights.
- Diversity, equity, and inclusion – The trucking industry has an increasing number of women in trucking at all levels—executive, administrative, drivers, and mechanics—which has created a diversified workforce, an important pillar in social equality within the industry.
- Occupational health and safety – Most carriers have OSHA policies and programs and have data to calculate the carrier’s accident and injury rates. This information also forms part of the social aspect of sustainability reporting.
The trucking industry continues to evolve in ways that keep it relevant and viable, and that is what sustainability is about.
What Are the Benefits & Challenges of ESG?
Most companies are aware that the implementation of a sustainability program comes at a cost and has its limitations. Technology has not evolved in the trucking industry as fast as other segments of the transportation industry, so the industry faces challenges to meet some societal and regulatory expectations. Additional costs to recover capital required for fleet upgrades to cleaner technology, which is sometimes referred to as a “green premium,” may not be well received by the customer.
However, the benefits for sustainability efforts can outweigh the challenges. There is an increasing trend of requests for proposals (RFPs), including minimum requirements for ESG data collection and reporting to advance to tender. In addition, customers are increasingly utilizing carriers’ sustainability ratings in procurement evaluations and supplier selection strategies. Establishing or formalizing a carrier’s sustainability program is often advantageous when bidding and tendering as the supply chain requirements continue to expand and evolve.
An effective ESG strategy can improve the financial standing of a company. According to an ESG strategy research publication, “while ESG may feel like a reporting obligation, dozens of data and examples show strong, thoughtful, and strategic ESG performance is a competitive business advantage that delivers positive return on investment (ROI).”
Being proactive about disclosing progress, initiatives, and targets can be beneficial in both the short and long term.
Irrespective of the size of the carrier, ESG data can benefit a carrier in business development and capital financing. An important first step is simply to get started. Common starting points include:
- Inventorying and assessing existing programs, policies, and data collection practices,
- Performing a materiality assessment to engage in structured conversation with important stakeholders around ESG topics,
- Establishing a performance baseline,
- Identifying short-term achievable goals based on existing resources, or
- All the above.
A company also may choose to engage a third-party ESG or sustainability consulting professional to advise them on how to approach ESG within their business.
While industry benchmarking against peers can provide useful information, ESG strategies are unique for each individual company. Sustainability reporting will be an iterative process as reporting standards continue to develop and evolve and overlap with federal and state regulations. ESG strategies need to be flexible enough to shift with changing trends in the trucking industry and the demands of the market.
If you have any questions or need assistance, please reach out to a professional at FORVIS or use the Contact Us form below.