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Mandatory Carbon Emissions Reporting in California

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Two significant climate disclosure bills recently received approval from California lawmakers, signaling a potential requirement for businesses operating within the state to report their carbon emissions. Despite the need for a few linguistic revisions, Governor Gavin Newsom has stated his intention to sign these bills into law before October 14.

The forthcoming legislation will mandate that both public and private entities, generating annual revenues exceeding $1 billion, disclose the precise amount of greenhouse gas pollution emitted directly through their operations. Additionally, they must reveal the indirect emissions stemming from their supply chains, product utilization, and waste disposal.

While companies with over $500 million in annual revenue will be obligated to report on climate-related financial risks, they are not required to disclose the specific emissions. Numerous global corporations, including oil and gas producers, major financial institutions, and tech giants, will fall under the purview of these regulations.

Although some companies currently opt to report their carbon emissions on a voluntary basis due to pressure from investors, there is currently no legal requirement or standardized framework in place. Thus, if passed, the California laws would represent the nation’s premier legislation of this kind with potential implications extending beyond state boundaries.

California Leading the Way in Climate Disclosure

California has a rich history of spearheading climate policy, often serving as a model for other states and even the federal government. In line with this trend, the Securities and Exchange Commission (SEC) has been diligently developing its own climate disclosure rules since 2022. However, it’s important to note that these regulations would only be applicable to publicly traded companies, and not all of them would be required to report indirect emissions from their supply chains.

Climate disclosure has been a topic of intense debate for quite some time. Advocates for climate policy argue that transparency regarding greenhouse gas emissions is crucial for financial markets to properly assess a company’s contribution to climate change and the associated investment risks that come with apathy towards this issue.

Mindy Lubber, CEO and President of Ceres, a non-profit organization that collaborates with companies and investors on climate matters, believes that these new regulations are exactly what investors have long been seeking. She states, “This policy framework provides valuable insights into how companies are actively managing and mitigating the substantial financial impacts of the climate crisis.”

Opponents, on the other hand, contend that accurately tracking all emissions for businesses is an impractical endeavor, particularly when it comes to emissions generated from activities beyond their direct control. They claim that attempting to do so would be both costly and burdensome. Consequently, the California Chamber of Commerce has staunchly opposed this legislation, labeling it as an expensive mandate that will fail to effectively reduce emissions.

Assuming these bills are signed into law by Governor Newsom, companies will be required to report their direct emissions for the year 2025 starting in 2026, and their indirect emissions for the year 2026 starting in 2027. However, the enforcement of these laws remains uncertain, as obtaining auditable data on emissions poses a significant challenge.

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