It’s not surprising that energy is paramount to the transportation sector. But social and governance issues — including safety and competitive behavior — also rise as sustainability concerns for industries including automobiles, airlines, marine transportation, and rail.
In November the Sustainability Accounting Standards Board (SASB) brought together a range of business, investment and accounting stakeholders to offer advice on sustainability accounting standards for the transportation sector. Some 230 participants — investors representing $4 trillion assets under management and companies representing $600 billion in market capital — weighed in on material environmental social and governance (ESG) issues and accounting metrics for eight transportation industries.
Here’s a quick look at sustainability drivers in transportation.
1. Large energy consumption, rising fuel prices and emissions regulation are necessitating energy efficiency and the management of greenhouse gas emissions
Transportation activities are a significant source of greenhouse gases, accounting for 28 percent of U.S. emissions in 2011. This high level of emissions is driving a focus on efficiency and electric vehicles. Airlines spend 25-35 percent of their annual operating costs on fuel. The prevalence of hedging as a management tool masks the real issue at hand, the volatile price of fuel and the volume consumed.
2. Safety is an issue from various angles — including passenger safety for industries involved in transporting people, and worker safety involved in manufacture and operation
On the passenger safety side, the Center for Disease Control and Prevention cites motor vehicle crashes as one of the leading causes of death in the U.S. On the worker safety side, the 2012 injury rate in marine transportation (5.8 non-fatal occupational injuries per 100 full-time employees) was the highest among major transportation industries due to dangerous cargo loading operations.
3. Unstable fuel prices, large fixed assets and fixed labor costs lead to unique competitive industry structures with corresponding governance issues
As an example, given the dominance of the U.S. rail industry by a few large companies, price collusion is a higher-risk sustainability issue. A major anti-trust case brought against four of the seven Class I rail companies alleges collusion to charge artificially high fuel surcharges. The suit carries potential damages of over $10 billion.
4. Changing energy regulation is creating opportunities for innovation
In the auto industry, California has a target to have 1.5 million zero-emission vehicles on the road by 2025. As California is such a large market, vehicle manufacturers will innovate to bring zero-emission vehicles to California, but then likely also bring these vehicles to other markets across the US.
Transportation is the fifth sector we’ve addressed out of 10, marking the halfway point of our standards development process. At this point I’d like to step back and revisit the connection between transparency and performance. Why do metrics matter?
Modern securities regulation is rooted in the notion that transparency is the antidote for an ailing market. As noted by Louis D. Brandeis in 1914, “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
Congress empowered the Securities and Exchange Commission (SEC), at its formation, to require and oversee corporate disclosure as a means of maintaining robust, fair and honest markets.
SASB’s standards for Transportation industries — and for the more than 80 sets of industry standards that will be issued by 2016 — surface the information that investors need to understand which companies are best-prepared to adapt to today’s world and respond to society’s needs. With transparency on material sustainability issues, investors can take action on the principles of sustainable investing and companies can compete on the sustainability issues that matter most for long-term value creation. In summary, that's transparency to performance.
Our researchers are refining the standards under development for transportation industries based industry working group feedback. SASB standards for these industries will be exposed for a 90-day public comment period beginning April 17.
In the meantime, we’re forging ahead on standards for other sectors. Our standards for industries in financials were issued Feb. 25 and those for technology & communications will be issued March 18. Working groups for services industries began Feb.18. And our standards for the industries in the non-renewable resources sector are open for public comment through April 14.