The California legislature on Tuesday approved rules that will soon require companies operating in the state that have over $1 billion in gross annual revenue to reveal greenhouse-gas emissions from their own operations as well as from all along their supply chains — meaning they’ll have to report emissions linked to their vendors and their customers, as well.
Senate Bill 253, called the Climate Corporate Leadership and Accountability Act, is unique in also requiring reporting on emissions from companies in financial institutions’ portfolios.
The law is the first of its kind in the nation. California, which has the world’s fifth-largest economy, has led the U.S. when it comes to environmental issues, including banning natural gas
NG00,
in new construction and requiring stringent pollution rules for vehicles.
Carbon-dioxide and other greenhouse-gas emissions created by human activity have been scientifically proven to be speeding up climate change, the atmospheric phenomenon contributing to things like deadly extreme heat, more expensive food and acidifying, rising oceans that threaten coastal communities.
The bill now heads to Gov. Gavin Newsom for his signature before becoming law. He has not yet said whether he will sign.
Officially, the bill would require the California Air Resources Board to adopt regulations by 2025 mandating that public and private companies that exceed $1 billion in annual revenue begin publicly disclosing their emissions across three “scopes” within one year after those regulations take effect. Scope 1 emissions are those directly created by a business — for instance, by its heating system. 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 its electricity is powered by coal, natural gas or solar. Reporting of Scope 3 emissions, the most challenging because those cover a business’s 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 companies accountable.
SB 253 will enable California communities to make informed decisions about the companies they choose to do business with and will provide the state with the data it needs to target and reduce the worst sources of greenhouse gases 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 for them to follow, especially if the rules eventually affect smaller or medium-sized businesses.
The California Chamber of Commerce has said in a statement that it worried companies would leave the state and opt for states with lighter regulations. The group also questioned whether the California Air Resources Board has the authority to regulate out-of-state companies that bring goods and services into California.
The requirements would apply to an estimated 5,400 companies, including tech and retail giants and oil and gas companies. They include 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,” the bill’s author, state Sen. Scott Wiener, a Democrat from San Francisco, said 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 USA, Microsoft
MSFT,
Patagonia, REI, 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,” Ben Jealous, executive director of climate-policy advocate Sierra Club, said in a statement.
Jealous expressed his group’s hope that California sets the tone for pending federal regulations from the Securities and Exchange Commission seeking greater emissions reporting among publicly traded companies. The SEC is collecting comments on its own proposal.
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