California’s state Senate on Tuesday approved a bill (S.B. 253) requiring large companies to report their carbon footprints, sending the bill to Governor Gavin Newsom, who has until October 14 to decide whether to sign it.

The proposed law would require thousands of public and private businesses that operate in California, and make more than $1 billion annually, to report their direct and indirect emissions. This means corporations from oil and gas companies to retail giants would have to disclose their direct greenhouse gas emissions as well as those that come from activities such as employee business travel. It would be the most sweeping mandate of its kind in the nation.

It was supported by several big companies including Apple, Patagonia, Ikea and Microsoft, but opposed by the Chamber of Commerce business group which labeled it “onerous”.

The Chamber argued many companies don’t have enough resources or expertise to accurately report emissions, and it says the legislation could lead to higher prices for people buying their products.

California sets climate trend

If enacted, the law would further solidify California’s role as a trendsetter on climate policies by transitioning the state away from gas-powered vehicles and expanding wind and solar power. The state has already set a target date of 2030 by when to have lowered its greenhouse gas emissions by 40% below what they were in 1990.

State Senator Scott Wiener, the San Francisco Democrat who introduced the disclosure bill, said it would allow California to “once again lead the nation with this ambitious step to tackle the climate crisis and ensure corporate transparency”.

Many companies in California already have to disclose their direct emissions through the state’s cap and trade program. This program has been around since 2013 and allows large emitters to buy allowances from the state to pollute and trade them with other companies. It is one of the largest in the world. The state has plans to establish itself as a clean Hydrogen Hub.

The new law would mandate that both public and private companies report their direct and indirect emissions, which is new and unlike the other states with emissions disclosure rules.

In the US, 17 states (including Puerto Rico) have inventories requiring large polluters to disclose how much they emit, according to the National Conference of State Legislatures, California among them.

The policy would require more than 5,300 California companies to do so, according to Ceres, a nonprofit policy group supporting the bill.

And the new law would mandate that both public and private companies report their direct and indirect emissions. This is a new measure, and unlike the other states with emissions disclosure rules. Indirect emissions would include those released by transporting products and disposing waste, for example those caused by delivering products from warehouses to stores.

Other ESG mandates

In March 2022, the US SEC proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, plus add climate-related financial statement metrics in their audited financial statements.

The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.

And in November 2022, the Biden administration proposed the Federal Supplier Climate Risks and Resilience Rule, which would require businesses with significant federal contracts to disclose climate-related data and to set targets to reduce greenhouse gas emissions.

In the European Union, private companies with significant business operations there may also be subject to extensive environmental, social and governance (ESG) reporting requirements under the Corporate Sustainability Reporting Directive (CSRD).

The CSRD, which was adopted in November 2022, requires non-EU companies, including private companies, with net revenue generated in the EU exceeding €150m ($161m) for two consecutive financial years and either a large EU or EU-listed subsidiary or a branch generating more than €40m ($43m) in net turnover in the EU to produce an ESG report. This would cover a range of topics such as climate change, biodiversity, worker conditions, and human rights. 

Deadlines for reporting

If Governor Newsom signs the bill into law, the California Air Resources Board would have to approve regulations by 2025 to implement the bill’s requirements.

Companies would have to begin publicly disclosing their direct emissions annually in 2026 and start annually reporting their indirect emissions starting in 2027. Independent auditors would need to be hired to verify reported emissions releases. The state would not penalize companies for unintentional mistakes made in reporting a portion of their indirect emissions.