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Landmark Calif. climate disclosure mandates could set off domino effect

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Landmark Calif. climate disclosure mandates could set off domino effect

SNL Image

The administration of California Gov. Gavin Newsom, seen here at an August 2022 event, is overseeing some of the nation's most ambitious climate change policies.
Source: Justin Sullivan/Getty Images News via Getty Images.

California now has the nation's first climate disclosure laws on the books after Gov. Gavin Newsom (D) signed legislation that will affect thousands of companies inside and outside the state.

The broader impact of Senate bills 253 and 261, which California lawmakers passed in late September, could be significant.

The new disclosure requirements could soon serve as a model for other states considering similar measures. In New York, for example, a bill establishing a "climate corporate accountability act" is moving through the legislature. Like the California laws, New York Assembly Bill 4123, introduced in early 2023, would require businesses to disclose all three scopes of emissions categories.

"I think there will be a domino effect now," Mark Stach, chief services officer at the sustainability and risk management services provider Sphera Solutions Inc., said in an interview. "What California has done is to put a stake in the ground and say, 'I'm going to be aggressive and include all three scopes and private companies. Time to get your act in gear.'"

Under S.B. 253, the Climate Corporate Data Accountability Act, companies that do business in California and have at least $1 billion in annual revenue would be required to estimate and report all Scope 1 and 2 emissions starting in 2026 and indirect Scope 3 emissions a year later. The legislation applies to an estimated 5,344 companies.

The climate-risk disclosure bill, S.B. 261, would require companies with annual revenue of $500 million or more to begin disclosing climate-related financial risks by the end of 2024. An estimated 10,000 companies are expected to fall under that rule.

The California laws extend to privately owned companies, going further than similar disclosures that the SEC has proposed. All eyes are now on the federal agency to see if and whether it will tweak the national rule to fit the California mandates.

The SEC may choose to be a little bit more flexible with implementation dates, but it will probably eventually end up in the same place as California, Stach said.

"In our world, we know that all this is going to happen," Stach said. "It's really just a question of when."

The California requirements could be particularly challenging for private, midsize companies that may not have the structures or resources to meet the new reporting mandates within a year or two, Stach said.

Supporters of climate disclosures cheered the new California laws.

"Today marks a historic moment for corporate transparency, risk management, and responsible investing," Mindy Lubber, CEO and president of the investor advocacy group Ceres, said in a statement after the bill signatures were released Oct. 7. "A dangerously warming climate poses immense risks to the economy and the wellbeing of both people and the planet. That's why leading investors have for many years pushed for better information about how companies are working to prepare for and address climate-related financial risks."

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