In the ongoing push for environmental accountability and transparency, state-level legislative efforts for climate disclosure are gaining traction across the United States. California, known for its leadership in environmental legislation, stands at the forefront with recent comprehensive corporate climate disclosure laws signed into effect by Governor Gavin Newsom.
These laws primarily target large corporations operating in California and those making net-zero and carbon-neutral claims. One of the key laws, SB 253, the Climate Corporate Data Accountability Act, mandates emissions disclosure, including greenhouse gases across Scopes 1, 2, and 3. Companies doing business in California with annual revenues exceeding one billion dollars fall under its purview. The phased timeline for reporting begins in 2026, with third-party assurance requirements starting in 2030. Notably, penalties for Scope 3 misstatements are deferred until 2030 due to the inherent challenges in measuring these emissions accurately.
Another significant law, SB 261, the Climate-Related Financial Risk Act, requires companies with annual revenues exceeding 500 million to prepare annual climate-related financial risk disclosures aligned with the Task Force on Climate-Related Financial Disclosure (TCFD). Penalties for violations under this law can reach up to $50,000.
AB 1305, the Voluntary Carbon Market Disclosures Act, focuses on companies making net zero or carbon neutrality claims and those involved in voluntary carbon markets. It mandates public disclosure of carbon offset projects, including verification measures and calculation methods, to bring accountability and transparency to these markets. Non-compliance with this law can result in civil penalties of up to $500,000.
While California leads the way, similar legislative efforts are emerging in other states like Washington and New York, with proposed corporate climate accountability acts mirroring California's laws. These laws often prescribe compliance with the Greenhouse Gas Protocols Corporate Accounting and Reporting Standard and the Scope 3 Corporate Value Chain Standard. As these standards undergo review and modernization, selecting a carbon management partner aligned with these standards becomes essential for mandated disclosure compliance.
Despite the importance of these laws in driving decarbonization and enhancing accountability, they are not without challenges. Legal opposition, such as lawsuits filed by business groups, may impede their implementation. However, many corporate actors recognize the inevitability of disclosure mandates and are proactively preparing for compliance, evidenced by the surge of corporate inventories and readiness checks for third-party assurance requirements.
While challenges and legal battles may arise, the momentum toward climate disclosure mandates remains strong. These laws represent a critical step towards fostering environmental responsibility, providing financial and capital markets valuable information, and ultimately advancing global sustainability efforts.
1.Orrik, " New California Climate Disclosure Rules: Practical Takeaways and Next Steps." https://www.orrick.com/en/Insights/2023/10/New-California-Climate-Disclosure-Rules-Practical-Takeaways-and-Next-Steps Accessed October 17, 2023
2.Compliance Week, "Business groups sue to halt California climate disclosure laws." https://www.complianceweek.com/esg/social-responsibility/business-groups-sue-to-halt-california-climate-disclosure-laws/34244.article Accessed January 30, 2024
3. ClimateWire, " California climate disclosure laws face possible delay." https://www.eenews.net/articles/california-climate-disclosure-laws-face-possible-delay/ Accessed January 31, 2024