Despite initial concerns over the lack of funding in the Governor’s January budget proposal, California has made a significant move by revising the 2024-2025 state budget in May to allocate $22 million to implement new corporate climate disclosure laws, SB 253 and SB 261, among other climate initiatives. Over the next five years, the state plans to redirect a total of $3.6 billion from the General Fund to the Greenhouse Gas Reduction Fund (GGRF) to support these laws along with other climate-related programs such as transit, clean energy, zero-emission vehicle projects, and nature-based solutions.
California Assembly Advances Climate Disclosure Mandates
With potentially significant impacts on emissions and net zero claims transparency, the California Assembly greenlighted two pivotal climate disclosure bills in September: SB 253, the “Climate Corporate Data Accountability Act,” and SB 261, “Greenhouse gases: climate-related financial risk.”
What Do These Bills Require?
- SB 253 mandates that companies with revenues over $1 billion and operating in California must annually disclose their emissions from all scopes. This includes:
- Direct emissions (Scope 1)
- Emissions from electricity purchase and use (Scope 2)
- Indirect emissions related to supply chains, business travel, employee commuting, procurement, waste, and water usage (Scope 3).
A noteworthy change in SB 253 moved the first disclosure date from 2024 to 2026 and shifted the reporting frequency from yearly to biennially.
- SB 261 requires certain entities to prepare and submit reports on climate-related financial risks, aligning with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework.
Are There Other Relevant Bills?
While SB 253 and SB 261 have been the focus of many, California Assembly Bill 1305 concerning the voluntary carbon offset market has received less attention. Companies claiming net zero emissions with voluntary carbon offsets must annually disclose detailed information about the offsets they’ve used from January 2024. Failure to comply could result in a daily civil penalty of up to $500,000.
Who Is Impacted?
Capital owners, asset managers, and companies operating in California need to be in the know. Enhanced transparency regarding environmental impacts can alter investment decisions, molding risk evaluations and potential returns. Clear insights into a company’s environmental footprint and related risks could steer capital toward businesses with fewer regulatory and environmental risks.
Supporting SEC’s Regulatory Efforts
During a house oversight hearing, SEC Chair Gary Gensler highlighted the potential for the California law to support the agency’s efforts to regulate corporate climate disclosures, which face stiff opposition from industrial lobbies. He noted, “That may change the baseline. If those companies were reporting to California, then it would be in essence less costly because they’d already be producing that information.”
Harmony Analytics and Your Business
Harmony Analytics and Your Business: Harmony ensures a standardized reporting process by consistently evaluating over 11,000 companies, quantifying emissions, and tracking progress towards net zero targets. More importantly, the platform enables users to benchmark a company’s profile against its peers, allowing them to identify risks and opportunities for development. If you’re navigating the complexities of the new disclosure requirements or interested in understanding these insights further, connect with the Harmony team.
