A California state legislator has introduced a bill that would require large corporations doing business in the state to publicly disclose their greenhouse gas emissions (GHGs). The bill, titled the Climate Corporate Responsibility Act, covers publicly traded domestic and foreign corporations with annual revenues in excess of $1 billion. According to state Senator Scott Weiner, who introduced the bill, it could affect up to 5,000 companies. The bill is not limited to any industry sector and would thus impact not only companies typically associated with GHG emissions, like oil and gas producers or power plants, but also would extend to other sectors, including the tech industry, for example.
The proposal would impose a far-reaching, three-tiered approach to GHG reporting that would require annual disclosure of practically any emissions of GHGs that could be connected to a given company, including: (1) direct emissions from sources that the corporation owns or directly controls; (2) indirect emissions from electricity purchased and used by the corporation; and (3) indirect emissions from activities that the corporation does not own or directly control, including “emissions associated with the company’s supply chain, business travel, employee commutes, procurement, waste, and water usage.” Those disclosures would have to be independently verified by a third-party auditor with expertise in GHG emissions accounting and would be made available to the public online. While some companies, including electricity generators, fuel suppliers, and other industrial sources, are already subject to California environmental regulations mandating reporting of GHGs from their processes, the reporting requirements under the new bill would vastly expand the scope of emission reporting and will presumably require development of innovative, but standardized, ways of accounting for the indirect emissions targeted by the bill. In addition to the disclosure requirement, the bill would mandate that each covered corporation set a “science-based” emissions reduction target “in line with the scale of reductions required to keep global warming at or below 1.5 º C above preindustrial levels.”
The bill requires the California Air Resources Board (CARB) to adopt regulations by January 1, 2023, mandating public disclosure of prior year emissions by January 1, 2024. CARB regulations requiring covered companies to set emissions targets based on their previously reported emissions would have to be adopted by January 1, 2024, with a compliance deadline of January 1, 2025. While the bill does not specify how enforcement of emission targets would be accomplished, the bill indicates that one of its purposes is to ensure that GHG disclosures and emission targets are “actionable by the people of California,” suggesting the possibility of future citizen enforcement.
The proposed bill is likely a harbinger of what is expected to be a parallel push for additional environmental, social, and governance (ESG) disclosure requirements for public companies at the federal level under the Biden administration, particularly with regard to climate risk. In fact, one element of President Biden’s pre-election platform was a requirement for public companies “to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.” If passed, the California law could potentially inform the development of climate-focused, ESG-reporting requirements by the Securities and Exchange Commission, which is expected to adopt new disclosure rules focused on public companies’ climate change-related risks and initiatives under the new administration. Regardless, the law would have significant impacts for large public companies doing business in California, forcing them to expend significant resources to identify and quantify GHG emissions from every aspect of their business and to publicly adopt GHG emission targets that could potentially be subject to both agency and citizen enforcement.