California could force big businesses to disclose climate impacts


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Corporations have positioned themselves on climate change for years, sometimes marketing themselves as environmental stewards but failing to fully disclose their emissions.

Now California is considering holding corporations more accountable: If passed by the Legislature and Gavin Newsom, two bills would make California the first state to require large corporations to disclose their greenhouse gas emissions and report on the risks posed by climate change.

A bill – already approved by the Senate – would require nearly 5,300 US corporations with more than $1 billion in revenue and doing business in California to annually report their global emissions of carbon dioxide and other gases that contribute to climate change.

Another Senate-approved bill would require more than 10,000 companies with more than $500 million in revenue to detail how climate change poses financial risks to their operations, not just in California, but around the world.

From Amazon and Bank of America to McDonald’s, Chevron and General Motors, any company that meets the income limits that sells or manufactures goods or services in California must comply with the two broad measures.

The law requires companies to disclose their full carbon footprint, including the emissions from consumers who use their products. The rules will inevitably lead to more public “top polluter” lists, making major corporations more accountable — and uncomfortable — as their full role in driving climate change and the impact on their finances is exposed.

The goal is to provide a more complete picture of the tonnage of global gases that big companies are responsible for and how their companies are affected by climate change, said the lawmakers who introduced the two bills.

“This is basic transparency,” said Sen. Scott Wiener, D-San Francisco, of SB 253. Require emissions reporting for billion dollar companies operating in California. “It’s important to know which corporations are walking the walk, especially when we see corporations marketing themselves as green.”

Leading the opposition were the California Chamber of Commerce and a coalition of two large and powerful industry groups, including the Western States Petroleum Association, which represents oil companies, the Western Growers Association and the Stock Brokers and Investment Bankers Association.

The business groups say the emissions estimates are likely to be inaccurate, leading to misguided public policy, which is a heavy burden on companies. CalChamber lobbyist Brady Van Engelen said the bill creates a lot of misinformation.

Van Engnelen also called another bill, which would require reporting of climate-related financial risks, a “gold-plated exercise in data collection.”

The reports include exposure to shareholder value, consumer demand, supply chain, worker safety, credit and other economic risks that could increase climate change and extreme weather conditions.

“Reporting regimes are kind of the wild west of the climate policy world,” Van Engelen said. “These reports are not free. It’s not just that you press ControlP and report it.

Democrat Calabasas Senator Henry Stern said the climate risk reporting bill, SB 261, would not be a burden on industry because it follows internationally recognized risk reporting standards and levels the playing field for corporations that disclose climate risks to their businesses. Stern said he is working with the chamber to resolve the issues.

After both bills win Senate approval, they will be heard by the Assembly Natural Resources Committee in the coming weeks.

Wiener introduced a similar emissions bill last year that fell four votes short on the last night of the legislative session. He made some concessions to ease the pressure on companies.

California has a law that requires certain companies — power companies, industrial facilities and fuel suppliers — to report greenhouse gas emissions only within the state. But these new legislative efforts expand that significantly.

California is responsible for less than 1% of global greenhouse gases, the largest source being transportation, followed by industrial emissions, power plants and agriculture. Total emissions in the state fell 14 percent between 1990 and 2020 — but have risen since the first pandemic year as more businesses closed and people drove less, the Air Resources Board said.

“Unfortunately, there’s no place more directly affected[by climate change]than California,” said Steven M. “So the bottom line is that if you’re doing business, you want to be well informed about your risks and opportunities.”

Economic activity is a major driver of global climate change, and over the past two decades, organizations have sought consistent standards for reporting on corporate emissions and the risks they face from global warming. The UK already requires companies to report their emissions, and the EU will start forcing companies to track emissions next year and report them by 2025.

The Biden administration has proposed requirements to the U.S. Securities and Exchange Commission that would require publicly traded companies to report verified greenhouse gas emissions and disclose climate-related financial risks. The issue has become political: Florida Gov. Ron DeSantis, a Republican, signed a ban in May on investment practices that take environmental and social considerations into account. President Joe Biden vetoed similar legislation earlier this year.

California’s proposals would have more impact because they would require private companies to comply and have stricter emissions reporting requirements, said Kathryn Atkin, a climate attorney who founded the Carbon Accountability Group to advocate for the bill.

“The SEC is pursuing rulemaking on this, but it was a bit of a shock. It’s unclear exactly where that will land, so it’s important for California to lead,” Wiener said.

The new policies come as large corporations look for ways to position themselves as green and socially responsible. Of the 500 publicly traded U.S. companies, 92% report activities related to environmental and social issues, according to the Institute for Governance and Accountability.

The reality is that when faced with few real obligations, companies can make themselves look good by selectively reporting their emissions, which in some cases leads to greenwashing.

A long chain of corporate releases

Businesses need to reduce global emissions not only from their operations and energy use, but also from direct sources such as supply chain emissions, contractors and their products.

These indirect sources, called “Scope 3,” have raised concerns among trade groups. A 2021 article in the Harvard Business Review noted that such protocols could lead to the same emissions being reported multiple times by different companies, a criticism echoed by CalChamber.

Harvard professor Robert Kaplan, one of the authors of the paper, said California lawmakers should allow companies to remove emissions from using their products..

“Companies have no control over how their customers use their products and services,” he said. But they have a lot of control over the quality of the products and services they buy.

“I completely disagree,” Wiener said, calling the protocol the “gold standard” for reporting greenhouse gases.

“Alternative accounting systems are not entirely appropriate for understanding the carbon emissions of each individual corporation — that’s the whole point of SB 253,” Wiener said. Corporations need to understand their own individual carbon emissions to shape their supply chain, which accounts for more than 90% of their total emissions, he said.

Matthew Fisher, who estimates the release of software company Watershed to businesses, says it’s relatively simple. The company’s clients include delivery app DoorDash and restaurant chain Sweet Green.

“The laws you see around the world … they all say pretty much the same thing, which is, guesswork is good,” Fisher said. The company can “make a high estimate” simply with the company’s data alone, he said, without having to go into your supply chain.

Van Engelen, a lobbyist for the California Chamber of Commerce, said emissions reporting requirements could cause small or medium-sized businesses to lose contracts with large corporations because smaller companies may not have a full account of their own emissions.

What’s more, he said, businesses of all sizes may be willing to expand their operations because emissions can be counted against them.

Under the Wiener bill, emissions statements must be verified by a private outside auditor, and businesses pay an annual fee of up to $1,000 to cover state administration costs.

About 73% of the 5,300 U.S. corporations required to report their emissions are private companies, Ceres said. Many publicly traded companies already report climate risks in their financial disclosures.

Another bill would require the companies to report their financial risks in compliance with rules created by the Financial Stability Board, an international financial regulatory body. About 80% of the 10,400 affected companies will be private, according to sustainability group Ceres.

The debate comes at a time when climate change is leading to extreme heat waves, swings between droughts and floods, wildfires and hurricanes. As of June 8, the National Oceanic and Atmospheric Administration has confirmed nine disasters worth more than $1 billion this year. Between 1980 and 2022, there were 18 compared to just eight each year in the previous five years.

Researchers in a recent study conducted by academic researchers in Spain and California have announced that California’s wildfires are worsening the atmosphere with greenhouse gas emissions.

Stern said the bill aims to make corporations honest about these new realities.

“It’s about making the corporate and financial sector look at things that are very material and very uncomfortable,” Stern said. “None of this can be good news. “Oh, there’s more wildfire than ever, there’s more danger of drought than ever.” These are all uncomfortable truths we struggle with.

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