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The California Legislature on Tuesday approves rules that will soon require companies in the state making over $1 billion in gross annual revenue to reveal greenhouse-gas emissions from operations and all along their supply chain, meaning emissions linked to their vendors and their customers.
The law, Senate Bill 253, or the Climate Corporate Leadership and Accountability Act, uniquely requires emissions reporting from financial institutions’ portfolios.
All told, the effort is the first in the nation from a state that has led the rest of the U.S. when it comes to environmental issues, including banning natural gas
NG00,
in new construction and requiring steeper pollution rules for vehicles. California is the world’s fifth-largest economy.
Man-made carbon dioxide and other emissions have been scientifically proven to be speeding up climate change, the atmospheric phenomenon contributing to deadly extreme heat, costlier food and acidifying, rising oceans that threaten coastal populations.
The bill now heads to Gov. Gavin Newsom for his signature before becoming law. He has not yet indicated his final decision.
Officially, the bill would require the California Air Resources Board to adopt regulations by 2025 mandating public and private companies that exceed $1 billion in annual revenue to begin publicly disclosing their emissions across three “scopes” by a year after those regulations begin. Scope 1 emissions are those directly put off by a business — its heating system, for instance. Scope 2 emissions are those linked to, for example, the supplier of raw materials for a company or the energy source a business uses, such as whether their electricity is powered by coal, natural gas or solar. Scope 3 emissions reporting, the most challenging because it covers the emissions of customers, would be fully mandated starting in 2027.
Proponents of the bill argue it will offer California’s regulatory agencies, investors and consumers the necessary information to hold polluting corporations accountable.
And SB 253 will enable California communities to make informed decisions about the companies they choose to do business with, and provide the state the data it needs to target and reduce the worst sources of greenhouse gas from these companies, these proponents added.
Critics have long argued that one-size-fits-all emissions rules unfairly lump unrelated industries in the same category and will be expensive to follow, especially if the reach of the rules eventually spreads to smaller or medium-sized businesses.
The California Chamber of Commerce has said in a statement that it worried about the state losing companies if those concerns choose to opt for lighter regulations elsewhere. The group also questioned if the California Air Resources Board has the authority to regulate out-of-state companies bringing goods and services to California.
The requirements would apply to an estimated 5,400 companies, from tech and retail giants, to oil and gas companies, including Walmart
WMT,
Apple
AAPL,
Alphabet’s Google
GOOGL,
Wells Fargo
WFC,
ExxonMobil
XOM,
and Chevron
CVX,
“These disclosures are simple but transformational, which is why companies like Apple are already reporting their emissions and calling them essential to their corporate climate goals,” said the bill’s author, state Sen. Scott Wiener, a Democrat from San Francisco, in a news release. “We need strong transparency to create a level playing field among private and public companies. Once again, California is leading the nation on essential climate action.”
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The measure was backed by more than a dozen major corporations, including Ikea U.S.A., Microsoft
MSFT,
Patagonia, REI Co-op, Dignity Health and Sierra Nevada Brewing Co. “We know that consistent, comparable and reliable emissions data at scale is necessary to fully assess the global economy’s risk exposure and to navigate the path to a net-zero future,” they said in a joint letter to lawmakers. “SB 253 would break new ground on ambitious climate policy and would allow the largest economic actors to fully understand and mitigate their harmful greenhouse gas emissions.”
Other advocates agree that customers and investors increasingly want this information.
“For too long, corporate polluters and financial institutions have tried to downplay the growing risks their climate pollution poses to investors, customers, communities and the economy. California joins a growing list of jurisdictions around the world mandating that corporations accurately disclose all their direct and indirect emissions so that stakeholders can understand and make informed choices about companies’ climate risks and impacts,” said Ben Jealous, executive director of climate-policy advocate Sierra Club, in a statement.
Jealous expressed his group’s hope that California sets the tone for pending federal regulations seeking greater emissions reporting among publicly traded companies from the Securities and Exchange Commission, which is collecting comments on its own proposal.
