A proposed California law that could compel most major U.S. companies to disclose their entire greenhouse gas (GHG) emissions throughout their value chains has passed a significant hurdle. The California Assembly voted 41-20 in favor of the bill, marking a substantial step toward making mandatory emissions reporting a law.
The legislation will now return to the Senate, where it already passed in May, and then proceed to Governor Newsom’s desk for a final decision. This bill is reminiscent of a similar one introduced in California last year, which passed in the state Senate but fell one vote short of passing in the Assembly.
Senator Scott Wiener, who introduced the bill (SB 253), celebrated the approval on social media, calling it a “huge climate win” and stating that it would position California as a global leader in corporate carbon transparency.
Under the proposed law, companies with revenues exceeding $1 billion doing business in California would be required to annually report their emissions from all scopes, including direct emissions (Scope 1), emissions from purchased electricity (Scope 2), and indirect emissions associated with supply chains, business travel, employee commuting, procurement, waste, and water usage (Scope 3).
Disclosure obligations would commence in 2026 for Scope 1 and 2 emissions and in 2027 for Scope 3 emissions. Reporting would follow the Greenhouse Gas Protocol standards, and companies would need third-party assurance for their emissions reporting, starting with limited assurance for Scope 1 and 2 emissions in 2026, and progressing to a higher level of reasonable assurance in 2030. Scope 3 emissions would also require limited assurance in 2030.
This development occurs as the SEC (Securities and Exchange Commission) finalizes its climate-related disclosure rules for U.S. companies, following an initial proposal in March 2022. The California law would go further than the proposed SEC rules in some aspects, applying to all large companies (not just public companies) and including all Scope 3 emissions. The SEC’s initial proposal mandated reporting on Scope 3 emissions if material or if the company had a stated emissions reduction goal involving Scope 3. SEC Chair Gary Gensler had indicated a willingness to make adjustments to the rules in response to concerns about costs and data accuracy.
While opposition from Republican lawmakers could challenge the SEC’s rules, the proposed California law might still lead to widespread emissions disclosure. Senator Wiener had noted that the reporting rules would apply to most large U.S. companies operating in the California market. Additionally, many U.S. companies may have to comply with the EU’s Corporate Sustainability Reporting Directive (CSRD), which includes mandatory reporting obligations for large firms conducting business in Europe.
Another bill, SB 261, is also set for a vote in the Assembly, requiring companies to report on climate-related financial risk and the measures taken to mitigate those risks.
By FCCT Editorial Team
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