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Calif. Senate passes bill requiring large companies to report Scope 3 emissions

Corporations with more than $1 billion in annual revenue would be required to disclose all scopes of their greenhouse gas emissions to the California Secretary of State's office under a first-of-its-kind bill the state Senate passed Jan. 26.

The Climate Corporate Accountability Act now goes to the lower legislative chamber, known in California as the Assembly, for committee work before a final version is produced and forwarded to Democratic Gov. Gavin Newsom for a signature. Corporations with more than $1 billion in annual revenue would be required to disclose all scopes of their greenhouse gas emissions to the California Secretary of State's office under a first-of-a-kind bill the state Senate passed Jan. 26.

An earlier iteration of the bill failed to make it through the Senate in 2020, but advocacy groups like California Environmental Voters campaigned to get an amended version of the bill to a vote. The bill, S.B. 260, passed 23-7.

"Many of the largest corporations doing business in California are not subject to [greenhouse gas] reporting laws, and those who do report their emissions usually do not report their full emissions footprint," said a press release issued by state Sen. Scott Wiener, who coauthored the bill. "The lack of transparency from corporate polluters makes it more difficult to regulate emissions and set appropriate reduction targets."

The corporate accountability bill will affect "the vast majority" of the country's largest companies, nearly all of which do business in California. Companies today can disclose such emissions by choice, but few do, Wiener's office said.

S.B. 260 requires large corporations to track and report all Scope 1 and 2 emission categories associated with their business operations as well as the elusive Scope 3 emissions stemming from consumer use of their products and other indirect sources.

The bill requires the California Air Resources Board to adopt regulations by Jan. 1, 2024, requiring large corporations to begin reporting their emissions to the state sometime in 2025. Their emissions must first be independently verified by a third-party auditor approved by the state.

SEC preparing rule

Critics of the proposed legislation have warned that such expansive disclosure mandates could hurt entire supply chains, should large corporations be forced to cancel relationships with smaller companies that cannot account for their emissions in the indirect Scope 3 category. It would also add more inconsistency for companies that operate in different states, opponents have claimed.

"The problem with state laws like this is that when you're a big company you're going to operate in multiple jurisdictions dealing with multiple requirements," Keith Bishop, a partner and corporate attorney with Allen Matkins, said in an interview. "I think that will impose regulatory challenges and inconsistent disclosures. It could also impede interstate commerce."

Carbon emission disclosures would be better handled at the federal level, added Bishop, who also served as a California corporate governance commissioner.

The U.S. Securities and Exchange Commission is preparing a federal rulemaking for climate-related disclosures for public companies expected to be rolled out by late March. Some climate advocates weighing in on the proposal are pushing to have Scope 3 emissions reporting requirements included in the rule.

Under California law, the state must reduce carbon emissions by 40% by 2030 from 1990 levels, but continued high emissions from the transportation sector are threatening that goal, according to groups tracking the state's progress.

Officials with Newsom's administration have also said that citizen backlash against large-scale renewable energy projects has slowed the state's progress toward its 2030 climate goal. On Jan. 10, the governor proposed more than $8 billion in new investments in clean energy and transportation for the state's 2022-2023 budget to speed up the adoption of electric vehicles and the decarbonization of California, the world's fifth-largest economy.