Mandatory Climate Disclosure: California Bill Sets Ambitious Tone
California has been a bellwether for board diversity & consumer privacy movements. Now, it could be setting the tone for mandatory climate disclosures. California Senate Bill 260 – which was introduced in late January and will be taken up by committees this month – would apply to publicly traded domestic and foreign corporations with annual revenues in excess of $1 billion that do business in California, and would require:
– Public disclosure of their greenhouse gas emissions, categorized as scope 1, 2, and 3 emissions, from the prior calendar year – beginning in January 2024
– Setting & disclosing “science-based emissions targets” based on the covered entity’s emissions that have been reported to the state board, which would be consistent with the Paris Agreement goal of limiting global warming to no more than 1.5 degrees Celsius – beginning in 2025
– Public disclosures to be independently verified by a third-party auditor, approved by the state board, with expertise in greenhouse gas emissions accounting
An Akin Gump blog explains why this bill would be a big deal if it passes:
While many large companies already issue climate disclosures on a voluntary basis, SB 260 would no longer give them—or their more reluctant peers—a choice. Importantly, the bill’s required scope 2 and 3 emissions reporting would force companies to disclose, for the first time, the indirect emissions that result from their purchase and use of electricity as well as their supply chains, business travel, procurement efforts, water use and wastes.
Covered entities also would have to engage certified third-party auditors to verify their disclosures and emissions targets, another noteworthy first that should lead to a greater degree of standardization over time in climate reporting. Given the bill’s capacious reach and the minimum contacts with California required to trigger its applicability, most large companies in virtually every sector would soon face climate disclosure requirements.
As the blog explains, the bill faces a long road before it could become law. But even if it doesn’t end up passing, the dialogue that comes out of this process could influence company practices and investor preferences – and maybe even other disclosure regimes.
-Liz Dunshee, TheCorporateCounsel.net March 10, 2021
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