California Passes Landmark Corporate Climate Transparency Bills
SB 253 and SB 261 can be first-in-the-nation laws meant to tug back the curtain on emissions and climate risks.
After a hard-fought battle, the California Legislature passed the second of two nation-leading corporate climate accountability bills yesterday afternoon. The bills, SB 253 and SB 261, are necessary transparency measures that might, for the primary time, allow Californians to meaningfully assess the carbon footprint of hundreds of firms—and what those firms plan to do concerning the climate-related risks they face.
What do the bills do?
SB 253, authored by State Senator Scott Wiener, would require any company with over $1 billion in total annual revenue that does business in California to reveal three categories of greenhouse gas emissions:
- Scope 1 emissions, that are direct emissions from sources an organization owns or controls, like on-site fuel combustion;
- Scope 2 emissions, that are indirect emissions from heating, cooling, steam, and consumed electricity that an organization purchases; and
- Scope 3 emissions, that are indirect upstream and downstream emissions from sources the corporate doesn’t directly control but which might be related to an organization’s operations, like goods and services the corporate buys, worker commutes or travel, and emissions related to a product’s use after it’s sold.
The required disclosure of Scope 3 emissions is the piece that has prompted probably the most opposition amongst business interests, with groups just like the California Chamber of Commerce complaining that there isn’t any approach to accurately track such emissions. The Chamber and others also knocked the bill for imposing serious cost burdens on businesses without actually reducing emissions.
Do these claims hold water? It’s true that the bill won’t, itself, reduce corporate emissions. But it would shine a brilliant light on the actual fact of those emissions, allowing consumers to take firms to task for failure to follow through on climate pledges like “net zero” claims. Making this information available to consumers will create a stronger incentive for firms to match their deeds to their words on the subject of climate and can give consumers the ability to higher align their purchases with their climate values.
As for the argument that reporting these emissions is just too difficult and dear for businesses, the existence of comparable disclosure standards within the EU and UK belies that position. A lot of these firms are already undertaking some type of Scope 3 emissions accounting, and what’s more, SB 253 wouldn’t impose penalties on regulated businesses until 2030, giving the business world loads of time to determine tips on how to more accurately measure and report this data. Indeed, numerous large firms got here out in support of the bill this week—including Apple, IKEA, and Microsoft—indicating that not less than some large businesses think they’re as much as the duty of emissions reporting.
State Senator Henry Stern’s SB 261, relatedly, would require any company with greater than $500 million in total annual revenue that does business in California to report its climate-related financial risk in addition to measures it would take to cut back or adapt to that risk. Reporting would begin in 2026 and would proceed every two years thereafter, with the knowledge to be made publicly available online.
Each bills would complement a federal rulemaking process on the U.S. Securities and Exchange Commission, which has been ongoing since March 2022. That rule would require publicly traded firms to reveal climate-related financial risk, in addition to details about Scope 1 and a couple of emissions, and, in some cases, Scope 3 emissions as well. However the California bills go farther than the SEC rule, each in requiring disclosure of Scope 3 emissions across the board and of their application to all, moderately than simply publicly traded, firms above the revenue threshold.
What’s next?
Now that the bills have passed, they move to Governor Newsom’s desk, and he has a couple of month to sign or veto them—or take no motion, by which case they’d change into law. Up to now, the Governor’s office hasn’t commented on whether he’ll sign the bills. But he should.
The bills are rightly being celebrated as nation-leading efforts to supply consumers and investors with much-needed transparency. The marketplace abounds with businesses claiming to be climate-friendly; their customers need to give you the option to ascertain under the hood. Similarly, the general public must have the tools to simply understand the climate-related risks businesses face, and what’s being done about them. And businesses themselves will profit from having to meaningfully engage with mitigating or adapting to climate-related risk.
State regulators, too, will profit from this information. Collecting and understanding this data will help the state higher chart its path toward its ambitious climate goals, align the state’s purchasing power with its climate objectives, and make sure that firms doing business in California are grappling with their climate impacts and climate risks to their businesses.
California has the chance to uphold its fame as a world leader on climate by making SB 253 and SB 261 law—let’s hope it does.
