California Tells Big Corporations: Tell Us How Much You Pollute
As California goes, so goes the nation?4 min read
Two landmark climate bills are heading to the governor’s desk in California. If Governor Gavin Newsom makes good on his pledge to sign them, it could transform how companies do business not just in the state (aka the world’s fifth-largest economy), but in the United States and world at large.
Companies will have to come clean on dirty emissions – all of them.
Senate Bill 253 (SB 253), the Climate Corporate Data Accountability Act, requires California’s State Air Resources Board (CARB) to adopt regulations requiring around 5,000 companies conducting business in California to publicly disclose their direct and indirect emissions starting in 2027. Disclosures will include Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions. That’s huge.
To understand why, it’s worth separating out these different sources of GHG emissions. Scope 1 covers the emissions a company generates directly, say by heating an office or driving a vehicle. Scope 2 covers the indirect emissions that come from generating the electricity a company uses to run its factories, offices, or other operations. Both are relatively straightforward.
Scope 3 emissions cover everything else. These include the indirect GHG emissions associated up and down a company’s value chain. In plain terms, these are the emissions that come from a company’s supply chain or when its products or services are used by customers.
Often, Scope 3 makes up the majority of a company’s emissions. Without an accurate assessment, companies can’t adequately evaluate where and how they should prioritize emission reduction strategies.
What these strategies should be will vary by industry. Exxon and ConocoPhilips, for example, have set goals for reducing the Scope 1 and 2 emissions associated with their operations. What they have not talked about are reducing are the much, much larger emissions that come with using their core products. (Likely because there’s an obvious emissions reduction strategy here.)
No more loopholes.
Historically, these emissions have been notoriously difficult to track and regulate, as evidenced by the significant pushback the US Securities and Exchange Commission’s (SEC) has faced as a result of its own newly proposed rule[MSK1] on climate disclosure regulations for public companies. Many companies have used the inherent difficulty to, well, not track and report them and all. According to data from Reuters Insight, only 21% of US companies reported on Scope 3 emissions between August and October 2022.
But California’s new law, which goes beyond the SEC’s rule by including both private and public companies, would change that. The bill has already passed the state legislature. And Governor Newsom indicated that he would sign SB 253, contingent on “cleanup on some little language,” in September during Climate Week in New York.
Some companies have objected to the measure claiming compliance would be “expensive and onerous.” Luckily, other companies have publicly backed that bill, recognizing the cost of compliance pales in comparison to the cost of inaction.
Know the risks of doing business.
The other recent important climate legislation from California is Senate Bill 261, Greenhouse Gases: Climate-Related Financial Risk. The bill requires companies with over $500 million in annual revenues doing business in the state to publicly disclose their climate-related financial risks in a biennial report, starting in 2026.
The report must also outline mitigation and adaptation measures companies adopt to address these climate-related financial risks. Greater transparency will allow companies to better plan for short, medium, and long-term climate concerns and allow investors to make informed decisions on how and where they allocate their funds. That’s a benefit for companies, the public, and the environment.
If signed into law (which, again, the governor has stated his intention to do), this bill could become the first mandatory climate-related risk disclosure law in the country.
These laws are kind of a big deal.
The size of California’s economy has given the state something of a climate superpower. Companies of all sizes naturally want access to a potential customer base of over 39 million residents (as of 2022). Which means over 10,000 companies – including many global names and most of the world’s largest businesses – are expected to fall under the scope of these laws and have to report both their total emissions and climate risk. Critically, this includes oil and gas companies, as well as major financial institutions who have fueled and financed climate pollution for decades.
Once companies report this data to California, the information is out there. Customers and regulators alike will be able to see who’s polluting and who’s doing things the right way – and make decisions where their dollars go. Equally important, at a time when greenwashing is everywhere in advertising and every company wants you to believe they’re the real sustainability champion, these disclosures will separate walk from talk and show who’s really keeping their promises. Not just in California. Worldwide.
The requirements for risk disclosure could become quietly powerful too, keeping awareness of the real threats climate change poses – acutely visible in the wildfires, droughts, and more hitting California year after year – alive in the public imagination and shaping investment decisions in ways Big Oil probably wishes they wouldn’t.
After all, if a company you’ve got your 401k invested in tells you that it faces significant risk of losing everything from climate-fueled fires, you’re probably going to a.) think about both the crisis and the oil companies responsible differently and b.) move your money.
The bottom line here is that what we don’t know can hurt us. A lot. California’s new laws are a huge step forward and one the rest of the country and nations everywhere should follow.
Colleen Shea is a policy analyst at The Climate Reality Project.