California’s climate disclosure bill could have a huge impact across the U.S.
Posted on 27 September 2023 by Guest Author
This re-post from Yale Climate Connections by Andy Furillo was originally published by Capital & Main and is part of Covering Climate Now, a global journalism collaboration strengthening coverage of the climate story.
The California Legislature took a step last week that has the potential to accelerate the fight against climate change within the state and have a transformative effect across the nation. It also marked the rise of a more forceful climate caucus in the legislature, led by new Assembly Speaker Robert Rivas, bucking an intense industry lobbying push that killed a similar bill last year.
Senate Bill 253, which would force companies that generate revenues of more than $1 billion a year to fully disclose their total greenhouse gas impact, cleared the Capitol’s lower house on a 49-20 vote. The state Senate, which had already approved the measure, concurred on a few minor amendments, and the bill now goes to Gov. Gavin Newsom, who has until Oct. 14 to sign it. (Editor’s note: Newsom announced Sept. 17 that he plans to sign the bill.)
‘This is really a national bill’
If he does, and Newsom’s past record suggests that he will, California will essentially establish a national policy that compels big business to be transparent about its emissions, according to at least one analyst.
“I think this is a really big deal,” said Lynn M. LoPucki, a professor at the University of Florida law school, noting that the Securities and Exchange Commission has been working on its own corporate disclosure rule for years to no avail.
LoPucki, who recently had a paper published in the UC Davis Law Review on the shortcomings of voluntary reporting of greenhouse gas emissions, said that once the California law takes effect, it won’t matter what the SEC or other states might do, because nearly every large company in the United States that does business in California will be forced to report its emissions.
“So this is really a national bill,” LoPucki said.
By requiring businesses to provide the complete picture on their greenhouse gas profile, California is betting that market forces will put pressure on companies to cut down on their emissions.
As a result, investors may be less likely to put money into companies that are warming the globe and customers may be less inclined to buy products that they know contribute to climate change.
“The idea is that companies will make a greater effort to reduce their GHG emissions once they’re reporting them. They know investors care, and they also, I think, know that consumers and the public care,” LoPucki said. “Virtually every company is doing corporate social responsibility reporting, or webpages in which they profess concern about corporate social responsibility. And today, that means reducing GHG.”
LoPucki said that about half of reporting companies obtain “third-party assurances” — essentially outside audits — of the emissions they report. Such assurances, he said, “provide additional reason to believe that the data the companies supply to investors and the consuming public are accurate.”
Authored by state Sen. Scott Wiener of San Francisco, SB 253 requires businesses to report not only their own direct and indirect emissions, but also those of their upstream suppliers and downstream customers. Companies would have to begin publicly disclosing their direct emissions annually in 2026 and their indirect emissions starting in 2027.
Opponents of the bill said these scope 3 reporting requirements would place an undue burden on the suppliers and customers of the scope 1 company. Wiener, however, said in a letter to an Assembly committee that the scope 3 emissions “can be calculated with secondary data.” The scope 1 companies won’t need to collect data from the supplier or customer companies and can rely on “well-established formulas to appropriately estimate emissions,” the letter said.
In another climate disclosure action, the Legislature also approved Senate Bill 261, which would require companies with more than $500 million in annual revenues to report their climate-related financial risk.
“By shedding light on the potential financial impacts of climate change, SB 261 encourages businesses to adopt sustainable practices, invest in renewable energy, and transition away from a pollution-based economy,” said California Environmental Voters in a statement. “This will set the precedent for nationwide climate risk reporting standards, amplifying the impact of climate resilience efforts on a national scale.”
A recent peer-reviewed study in the journal Science found that mandatory reporting such as that required by SB 253 “could pressure firms to reduce their GHG emissions,” especially the bad actors whose discharges range wildly beyond their industry medians.
“We believe that Supreme Court Justice Louis Brandeis’s famous 1913 prescription that ‘sunlight is the best disinfectant’ for ‘social and industrial diseases’ still has merit more than a century later in confronting the climate challenge,” concluded the authors.
Down to the wire
Despite an intense lobbying campaign against SB 253 by some business associations, the bill made it out of the California Assembly fairly easily Sept. 11. No Republicans stood up on the floor to argue against it. With no debate, it took only 18 minutes to complete the vote.
A similar measure last year fell four votes short of approval. Most of this year’s difference was made up by 16 new Democrats in the Assembly, 12 of whom voted for SB 253. The final yes tally included eight more Democrats who last year did not vote on the measure. Another Democrat, Sharon Quirk-Silva, switched her vote from a no to a yes.
This year’s Assembly vote also proved to be a big leadership test on climate policy for new Speaker Rivas, according to some Sacramento insiders.
“It didn’t look like a heavy lift at the end of the day, because of his leadership,” said Steve Maviglio, a political consultant who advises Rivas. “He got people together to bring it through in overwhelming fashion.”
As for Newsom, “Being a climate hero is essential to his ambitions,” Maviglio said. “So it would seem to be a natural that he would sign it. That said, he’s always been business-friendly.”
The California Chamber of Commerce led the business lobby’s opposition to the bill, in spite of major support for the legislation from big corporations such as Salesforce, IKEA, Apple, Patagonia, Sierra Nevada Brewing Co. CalChamber spokeswoman Denise Davis declined to say what the group’s next move may be “other than we remain opposed to the bill.”