California lawmakers have passed the nation's first legislation requiring companies to report greenhouse gas emissions across their value chains. If signed into law by the governor, the new mandates would surpass proposed federal regulations and reflect European standards.
The bill, which passed the state General Assembly 48-20 on Sept. 11, applies to public as well as privately held companies with operations in the state and at least $1 billion in annual revenue. Under S.B. 253, such businesses would be required to estimate and report all Scope 1 and 2 emissions starting in 2026 and indirect Scope 3 emissions a year later.
As the world's fifth-largest economy, California has long been spearheading climate policies that other states or the federal government later adopt. The state's decision to demand corporate transparency with emissions, and possibly also climate-related financial risks under a separate bill, will be closely watched by regulators and experts nationwide.
The SEC is working on similar and hotly debated mandates expected to be finalized this fall, but the federal rule would apply only to publicly traded companies.
An analysis of California's S.B. 253 estimated that 5,344 companies would be covered by the legislation sponsored by Sen. Scott Wiener, a Democrat representing the San Francisco area.
"California will once again lead the nation with this ambitious step to tackle the climate crisis and ensure corporate transparency," Wiener said in a press release. "With wildfires, floods and droughts ravaging our state, we can't afford to slow our progress in the transition to a clean energy economy."
A broad coalition of businesses, investors and environmental organizations overcame opposition from industry groups that sought to sway moderate lawmakers, Wiener said. Critics that lobbied against the bill included the powerful California Chamber of Commerce, San Diego Gas & Electric Co., Southern California Gas Co. and the Western States Petroleum Association.
"S.B. 253 would impose a new, and potentially insurmountable, cost on the hundreds of diverse business enterprises SDG&E and SoCalGas work with by requiring them to report Scope 3 emissions data to support [our] compliance," the utilities said in a Sept. 5 "floor alert" registering their concerns.
Coming up: Climate risk disclosure mandate
Lawmakers are expected to also vote on a second bill, S.B. 261, before the state's legislative session ends at midnight on Sept. 14. The bill would require businesses in California to publicly disclose any climate-related financial risks to their operations.
S.B. 261 would require companies with annual revenue of $500 million or above to begin disclosing by the end of 2024 climate-related financial risks in reports published on their corporate websites. Some 10,000 companies are expected to fall under that rule, according to an analysis by the bill's sponsor, Sen. Henry Stern, a Democrat representing a district northwest of Los Angeles.
The office of Gov. Gavin Newsom (D) would not immediately confirm whether the bills will be signed into law once they reach his desk.
The investor advocacy group Ceres, which co-sponsored the two California bills, said the legislation will help the US keep pace with other nations that are implementing similar policies.
"Investors, consumers, and other stakeholders have always deserved transparency about how companies are managing the greatest risks facing their businesses and the economy, and climate change should be no different," Steven Rothstein, managing director of Ceres' Accelerator for Sustainable Capital Markets, said in a statement. Rothstein urged Newsom to sign the bills "as soon as possible."
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