(Credit: CA.gov)California’s state senate approved a bill that will require companies in the state with annual revenue of over $1 billion to report their carbon emissions. If approved by Gov. Gavin Newsom, SB 253 will be the first mandate of its kind to be signed into law. The bill has been sent to Newsom, who must decide by Oct. 14 whether to sign it.
SB253, The Climate Corporate Data Accountability Act, requires public and private companies at the given revenue level to report on their Scope 1 and 2 emissions. Starting in 2027, companies would also have to report on Scope 3 emissions, largely due to pressure from regulators and investors. Scope 3 emissions include those outside of a company’s value chain and are known for being more difficult to track than Scope 1 and 2.
Importantly, Scope 3 emissions account for the largest percentage of emissions for most organizations. Sixty-three percent of the largest 500 U.S. public companies already voluntarily report Scope 3 emissions, but the bill would make this a requirement for California businesses.
The bill has received support from major companies, like Apple, Ikea, and Microsoft, but the California Chamber of Commerce reportedly did not support the bill and claimed it would increase costs for California businesses to implement such emissions tracking.
California’s bill reflects ESG reporting trends that may soon be enacted at the federal level. The SEC proposed federal rules requiring companies to provide certain emissions disclosures in 2022 but has not yet finalized these rules. Progress on the ruling has been delayed largely due to companies who do not want to share their Scope 3 emissions with investors and the broader public.
Scope 3 emissions include factors such as transportation involved in company operations, how products are used by consumers, and end-of-life treatment of sold products. Addressing such emissions may require companies to take on additional responsibility in working to create a more sustainable, circular economy. According to Apple, while Scope 3 emissions can be challenging to track, they are essential to understanding the full range of a company’s climate impacts.
The California climate bill will reportedly act as a “test case” for pressures the SEC will expect to face in their own regulation decisions as the ruling is expected to be challenged in court.
