California Climate Bills Requiring Broad Disclosures Have National Implications

February 2, 2023 by

A pair of California bills requiring large companies to report emissions from across their supply chains and creating more stringent reporting of climate-related impacts could have implications nationwide.

Two Legislators from the Golden State this week introduced Senate Bill 253 (the Corporate Climate Data Accountability Act) and Senate Bill 261 (the Climate-Related Risk Disclosure Act).

State Sen. Scott Wiener, D-San Francisco, introduced SB 253, a rehash of a narrowly failed piece of legislation last year. Among the changes to state law called for in the bill is a requirement for the State Air Resources Board to adopt regulations requiring companies with more than $1 billion in annual revenues doing business in California to publicly disclose greenhouse gas emissions – to be categorized as Scope 1, 2, and 3 emissions – by 2025.

Scope 1 includes direct emissions from a company and its subsidiaries. Scope 2 includes indirect emissions from electricity purchased by the company. Scope 3 includes emissions from the company’s supply chain.

The bill would also authorize the state’s attorney general to bring a civil action against a reporting entity in the name of the people of the state and to seek civil penalties for violations of the provisions.

The bill’s impact extends beyond companies headquartered in California, applying to any company doing business in the state that meets the criteria laid out in the bill.

“So, it’ll affect companies across the country,” said Steven Rothstein, managing director at Ceres, a nonprofit focused on the economic and financial risks around climate and sustainability. The group is one of the biggest backers of the bill.

SB 261, a companion bill introduced by state Sen. Henry Stern, D-Calabasas, would require companies to prepare a climate-related financial risk report starting next year for the public disclosing the risks and measures taken to reduce that risk. The bill also calls for the Climate-Related Risk Disclosure Advisory Group to collect and review climate-related financial risk reports.

Advocates of the bills say they are designed to complement the U.S. Securities and Exchange Commission’s proposed rule requiring climate disclosure for public companies, as well as proposed global standards from the International Financial Reporting Standards’ International Sustainability Standards Board.

Rothstein with Ceres, which has long pushed for climate disclosure, believes there’s another reason that SB 253 will have a national impact in addition to including any company doing business in California.

“If California passes this legislation, it will be very important,” he said. “California is a leader, and this bill can be another example. It will send a clear message that people want this.”

Most Americans favor the federal government requiring companies to disclose their impact on the climate, a recent poll by an advocacy group shows. A poll by Just Capital, a nonprofit group focused on causes such as bringing more social equity to the workplace, showed 87% of those polled support mandatory climate disclosure.

Despite the apparent support and the growing number of climate disclosure movements across the globe, it’s likely Wiener’s bill will have some detractors.

SB 253 is a revival of Wiener’s Senate Bill 260, which cleared the Senate only to get killed in the Assembly last year.

That bill was opposed by a coalition led by the California Chamber of Commerce, which included insurer groups. Those opposed considered the bill too stringent and overly broad, making the bill harmful to businesses, particularly because it included emissions from a company’s supply chain – a broad reach that could include countless companies. The chamber is expected to lead coalition in opposing to the current bill.

Stern’s SB 261 follows suit with myriad climate reporting guidelines, which have proliferated both nationally and internationally.

These rules have gotten mixed reception. For example, some experts argue that new rules proposed by the U.S. Securities and Exchange Commission on climate impact disclosures may generate more lawsuits and claims against directors and officers policies.

International climate disclosure rules have continued to evolve to include more industries and have raised the bar for what must be disclosed for companies and government entities. The Glasgow Financial Alliance for Net Zero, a coalition of financial firms led by former Bank of England Governor Mark Carney, late last year called on G20 governments to raise their climate ambitions and set out more detailed plans to decarbonize their economies.

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