When California speaks, corporations listen. Since the late 1960s, the state has used its waiver under the Clean Air Act to set stricter emissions and air pollution standards than the federal government for vehicles sold in the state.
The influence of those rules extends far beyond the 10 percent of U.S. car sales that California accounts for — California’s standards are followed by 14 states and the District of Columbia.
Its influence is undeniable, and right now, California has a lot to say about private-sector climate accountability disclosures. So corporations, tune in.
On Jan. 30, a pair of bills were put forward in the California Senate that would mandate emission disclosure of corporations and climate risk of financial institutions. Together the proposed legislation — the Corporate Climate Data Accountability Act (Wiener) and Climate-Related Risk Disclosure Act (Stern) — would give California more insights and control of its climate change risks. Here’s the shorthand on what each would mandate:
Climate Corporate Data Accountability (SB253)
Require all U.S. businesses with over $1 billion in annual revenue that do business in the state to publicly disclose their Scope 1, 2 and 3 GHG emissions each year. Disclosures must be independently verified by the state’s emission registry or an approved third-party auditor.
Climate-Related Financial Risk Act (SB261)
Require non-insurance U.S. financial entities with revenues in excess of $500 million that do business in the state to prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk. In addition, covered entities would be required to disclose measures adopted to reduce and adapt to climate-related financial risk disclosures.
Why does it matter?
If California were its own country, it would be on track to have the fourth largest economy in the world. Businesses cannot afford not to do business in the state, and California knows it.
The California Climate Corporate Accountability Act would require Scope 1, 2, and 3 emissions disclosures from about 5,400 public and private companies. This builds upon the U.S. Securities and Exchange Commission's proposed climate disclosure rule, which, if enacted, will only apply to public companies (or companies offering securities in SEC-registered transactions) and isn't guaranteed to include all Scope 3 emissions.
Steven Rothstein, managing director for the Ceres Accelerator for Sustainable Capital Markets, summed up the California package's significance, saying: "Both bills focus on public and private companies, and the largest company... And we think that they're both individually and together, key elements, key pieces of the jigsaw puzzle, to ensure that companies, employees, investors, regulators and others have had this information."
How did this happen?
California Sen. Scott Wiener put forward a similar bill last year, which narrowly failed in the assembly.
When asked what has changed in the last year that will allow the bill to pass this time, Rothstein highlighted the increased intensity of climate disasters that have ravaged California, the U.S. and the world. He also pointed to the move of more companies to start voluntary disclosures about their climate initiatives and the increased number of investors setting net-zero commitments.
Wiener cites the bigger and more diverse coalition supporting the bill, explicitly highlighting Ceres coming on as a cosponsor as one reason for his optimism this time around.
The California package not only has the potential to drive greater GHG emissions disclosure from public companies that do business in the state, but it would also — perhaps more important — elevate GHG emissions reporting requirements for private companies doing business in the state.
The move to include private businesses would address two big hurdles in the private sector’s journey to net zero: decarbonizing the private market (where carbon-intensive assets are running to hide) and enabling investors to work towards climate commitments across multi-asset portfolios.
It’s important to note that these bills will have several hearings, starting March 15, before they have a chance of becoming law. If all goes well, the Climate-Related Financial Risk Act and Corporate Climate Data Accountability Act will see disclosure start rolling in in 2024 and 2026 respectively.
To help climate legislation come to fruition, the World Resource Institute’s responsible corporate advocacy initiative calls out companies’ influence as a critical tool for advancing climate legislation and calls on businesses to make climate advocacy a top priority.
Rothstein agrees, kindly stating, "I hope that everyone who reads GreenBiz if they have a connection, a business connection to California, that they go on record and support these bills, and we’re happy to talk to them if they have any questions."