ESG Reporting Benefiting from Vehicle Tracking Tech
June 12, 2023
5 minute Read
Tracking technologies for BEV tax credits, battery mineral sourcing, ESG requirements all help Sustainability BalanceSheet template.
By Derek Kaufman, ICA Automotive Consultant
In 2021, President Biden issued Executive Order 14008, which, in part, stated, “The Federal Government must drive assessment, disclosure, and mitigation of climate pollution and climate-related risks in every sector of our economy, marshaling the creativity, courage, and capital necessary to make our Nation resilient in the face of this threat. Together, we must combat the climate crisis with bold, progressive action that combines the full capacity of the Federal Government with efforts from every corner of our Nation, every level of government, and every sector of our economy.”
Two bold, progressive actions that will affect your company going forward are the Inflation Reduction Act (IRA) and the Security and Exchange Commission’s (SEC) implementation of Environmental, Social, Governance (ESG) rules establishing the “consistency, quality and comparability of company-reported climate-related risks.”
Further, requirements in the IRA will result in the creation of vehicle content tracking technology that you may use in your future ESG reporting.
Battery tax credits, tracking technology
From an automotive perspective, the key action of the IRA is to grant tax credits for the purchase of battery electric vehicles (BEVs). A $7,500 credit is available, subject to a rather complicated qualification process, and is split in half based on the manufacturing location of the battery and its sources of mineral content. A credit of $3,750 is available if the battery components are manufactured or assembled in North America. For the other $3,750, a set percentage of the critical battery minerals must be extracted or processed in the U.S. or come from the 20 countries with which the U.S. has a free trade agreement — that excludes China, the largest producer of battery minerals in the world. The mineral percentages required increase in 10% increments starting at 40% in 2023 rising to 80% by 2026. The bill lists 50 critical minerals whose origin must be tracked and verified.
The IRA has created a scramble to build battery plants and assemble BEVs in the U.S. but the even more interesting behind-the-scenes activity is the way content source tracking is quickly advancing. How do you verify the exact makeup of your BEV battery’s 50 critical minerals? Companies like Circulor, SourceMap, and Kobold Metals are applying blockchain technology, artificial intelligence and high-powered computing to change the way battery minerals are found and tracked. There is another option, as well: the Battery Passport by the Global Battery Alliance.
The Global Battery Alliance is a partnership of 120+ businesses, governments, academics, and other organizations dedicated to ensuring that battery production “not only supports green energy, but also safeguards human rights and promotes health and environmental sustainability.” Its Battery Passport creates a digital ID that contains the complete provenance of the battery’s origination as well as the CO2 impact of every resource that went into its manufacturing. Presumably, this passport would track that battery through its end of life and recycling.
Potentially the same technology that enables the Battery Passport to work will ultimately be used to help companies comply with ESG mandates and increase their value to future investors.
Preparing for ESG mandates
On March 21, 2022, the SEC introduced the most comprehensive federally mandated corporate ESG data disclosure requirement U.S. companies have ever seen. The rule is designed to improve the consistency and quality of public companies in their reporting of Environmental (climate-related risks), Social (labor regulations, diversity, equity and inclusion, safety, human rights and community involvement) and Governance (board diversity, business ethics, compensation policies) processes. The key, of course, is that while ESG rules are ostensibly designed to guide investors in public companies, the actions are quickly moving to private companies as well, as banks apply ESG ratings to loan approvals, insurance companies use Climate Risk Disclosure Surveys to set new coverage rates and possibly even your suppliers apply ESG ratings to safeguard their reputations with a wide variety of stakeholders.
So, how does a car wash operator go on offense relative to ESG? The answer might be in establishing a Sustainability Balance Sheet — a reporting system akin to the Battery Passport.
The beauty of capitalism is that governmental interventionism is instantly met with the creation of tools that help companies comply with ever-increasing regulations with efficiency and effectiveness. Look at Diligent ESG. They have created The Climate Leadership Certificate Program that includes nine courses of interactive eLearning including video panel recordings, curated readings and other interactive exercises. Investigate Novisto. They are more environmental sustainability oriented and are working to automate and simplify the implementation of an ESG strategy. Review Novata. This is an ESG platform designed for small companies. It includes a metric library covering 10 ESG categories. Water and wastewater management is one of the metric areas.
Establishing a way to track your company’s total environmental impact might seem daunting, but you have the great advantage of living in 2023. Your understanding of computers and how they apply to your business life has been governed by Moore’s Law – the number of transistors in an integrated circuit (its computing power) doubles about every two years, which is considered exponential growth. But today’s quantum computers are now growing their computing power at double exponential growth. Going forward, our businesses will be governed not by Moore’s Law but by what I call Neven’s Law* which states:
“With double exponential growth … it looks like nothing is happening, nothing is happening, and then whoops, suddenly you’re in a different world.”
Blockchain technology, artificial intelligence, chemical source tracking, stakeholder accountability — maybe somewhat hazy hypotheticals today — but it appears that nothing is happening and nothing is happening, then whoops, a potential buyer of your company is walking through your Sustainability Balance Sheet on their way to a higher valuation.
* Hartmut Neven is the founder of Google’s Quantum Artificial Intelligence lab.