Green People: ESG Tech Exec Examines Reality of Regulation
"Using average numbers will not allow them to reduce their emissions," said VesselBot's Constantine Komodromos.
Regulation has been the word on the lips of industry heavyweights in recent years, but the reality of regulation is a longer lead.
Constantine Komodromos, founder and chief executive officer of VesselBot, a technology company providing a market-ready, greenhouse gas emissions monitoring system for suppliers, shares more on the state of policy. With decades in financial reporting and membership with the Association of Chartered Certified Accountants in the U.K., his expertise centers on the transportation sector.
WWD: Can you break down the new California 253 emissions legislation? C.K.: This legislation applies to large U.S. companies “doing business in California” with annual revenues exceeding $1 billion, as calculated on a global basis. The legislation does not clarify what doing business in California means, and further clarifications are expected on this. Based on other existing regulations, we expect that it will take the form of any entity that “engages in any transaction for the purpose of financial gain within California.”
Public and private companies are subject to legislation. The entities that will need to report under this scheme must report Scope 1, 2 and 3 emissions as per the definition of Scope in Greenhouse
Gas Protocol. Companies must start reporting their direct and indirect (Scopes 1 and 2) emissions beginning in 2026 and their emissions reporting for indirect, full value chain (Scope 3) emissions in 2027. Companies under this new bill will be required to be audited and obtain third-party assurance for their emissions reporting beginning in 2026, and for Scope 3, in 2030.
WWD: What makes Scope 3 data worthwhile? Where are companies getting it wrong? C.K.:
Scope 3 represents, in most cases, the largest percentage of a company's total emissions. Additionally, it is the most difficult to track or reduce as companies have almost no control over it. Consequently, companies will be required to measure due to regulations or will need to measure due to increased pressure from market stakeholders (customers, financiers, investors, etc.) as well as reduce their emissions footprint.
Using average numbers will not allow them to reduce their emissions. Therefore, what they need to do from the beginning is to identify which areas of Scope 3 emissions are their most significant and identify the ways they can start collecting data and reducing their emissions. Technology can provide a lot of answers in this direction. This is what our company does by accurately measuring Scope 3 transportation emissions with the use of digital twins, satellite geospatial data, Internet of
Things data, weather data, operation data and many other [tools].
WWD: What's happening with the new Securities and Exchange Commission draft rules and complementary ESG directives? C.K.:
The SEC has not yet released the final version of the climate disclosure rule. It is expected that it will require large filers to report their emissions from Scope 1 and 2 and that Scope 3 will be required when the company has set Scope 3 reduction targets or has determined that its Scope 3 emissions are material.
The International Financial
Reporting Standards Board has already published the International Accounting Sustainability Standards, IFRS S1 and IFRS S2. The International Organization of Securities Commissions (IOSCO), of which SEC is a member, has endorsed the use of IFRS S1 and IFRS S2. This will mean that all members of IOSCO are encouraged to utilize these standards in order to be applied in their local legislations in a way that promotes consistent and comparable climate-related and other sustainabilityrelated disclosures for investors.
The Corporate Sustainability Reporting Directive (CSRD) has already been established and applies to all large companies, whether listed on stock markets or not. Non-E.U. companies with substantial activity in the E.U. — with a turnover of over 150 million euros in the E.U. — will also have to comply with these directives. Companies applying these criteria will be subjected to independent auditing and certification for their fiscalyear 2024.
European Union Emissions Trading System is an EU regulation that requires companies to hold a permit for each tonne of CO2 they emit. Recently, ocean transportation both to the EU and from the EU to any other location around the globe has been added to EU ETS.
As a result, this shall impact the cost of companies globally as the cost of settling the ocean transportation emissions will be shifted to the shipper of goods.
WWD: Is the GHG protocol outdated? Why or why not? C.K.:
If our aim collectively as a society is to reduce emissions and deliver a more sustainable future to our children then what we need to do is to find ways to reduce emissions. Using conversion factors that are not actionable due to the way they were constructed ( broadly average statistical values) does not provide companies with the required data to take action based on accurate data. It only gives a high level depiction of the situation.
What companies need to do is measure accurately, identify their hot spots, identify alternative ways of operation and take action. An example of transportation is to identify emissions per mode. On each mode, how am I performing on each trade lane, and how does my performance compare to the market performance? Are the carriers I am using performing better or worse in regards to emissions intensity compared to others that are operating in the same trade lane I am operating? These are data that an average conversion factor could not provide nor give insights into.
WWD: What makes data actionable? How do you find it? C.K.:
Actionable data are those data that can provide the accuracy, granularity, timeliness and coverage required to enable companies to make actions based on them.
We use proprietary technologies and datasets, like digital twins, and acquire data from various sources, allowing us to monitor all movements of transportation modes and estimate with high accuracy the emissions emitted per mode, carrier, trade lane, etc.
WWD: How should firms be thinking about their competitors and supply chain partners amidst the climate crisis? C.K.:
We believe that all the firms should unite efforts amidst the climate crisis. They must all have a clear sustainability strategy focusing on a common goal: the reduction of emissions in order to create a more sustainable world for all of us and deliver a sustainable planet to our children.
WWD: Lastly, what is VesselBot's call to action for the apparel industry? C.K.:
It is crucial for the apparel industry to maintain sustainable factories and materials; however, they should also focus on the whole supply chain's carbon footprint (transportation, as well). We are already working with large outerwear companies that understand that they can take action today with optimization and reduction initiatives on their transportation emissions footprint, as these are quick wins both for them — as well as the environment.