New California Laws May Set the Stage for Broader Climate Disclosure

California has long been on the leading edge of environmental regulation in the United States, and the Golden State recently passed new climate disclosure laws that are poised to push the rest of the country forward.

Last week, Democratic Governor Gavin Newsom signed into law two new pieces of climate change legislation aimed at large corporations operating in California. One will affect private and public companies with revenues of more than $1 billion per year – a universe of roughly 5,000 companies. It requires them to paint a comprehensive picture of the carbon emissions resulting from their businesses. In addition to disclosing the greenhouse gas emissions produced directly by their operations, these companies must also report emissions from things such as employee travel and supply chains.

The other law applies to companies with annual revenues of more than $500 million. It calls for them to disclose the risks to their businesses posed by climate change.

Next, the California Air Resources Board must figure out how to implement the new disclosure laws before they take effect in 2026. Given the size of the California economy, which dwarfs most countries around the world, the final products should have massive ripple effects on global business.

The new California laws may seem redundant, seeing as the Securities and Exchange Commission is already pushing for companies to report their carbon emissions. The state’s laws go even farther than what is being proposed at the federal level, however. Unlike the SEC proposal, the California laws apply to publicly traded companies and private enterprises that meet the revenue thresholds. Moreover, the proposed federal rules don’t cover all the so-called Scope 3 emissions generated by companies’ supply chains.

The California laws have been lauded and opposed by the usual suspects. Organizations such as the California Chamber of Commerce charge that complying with the new disclosure regulations will prove to be expensive and overly burdensome for companies. The new rules could apply to major companies that do minimal business in California, for instance.

Those objections didn’t necessarily fall on deaf ears, as Newsom’s office remained cagey about signing the bills into law in the immediate aftermath of their passage. Ultimately, though, California’s governor put his signature on the legislation, laying the foundation for what climate-change activists hope will become more robust disclosure rules in general.

Keep in mind that at the federal level in the U.S., the proposed climate disclosure rules would be less stringent than what California will have in place. Similar to the co-existence between California greenhouse gas emissions standards and the US EPA’s, complying with the SEC’s rules wouldn’t pose much of a problem for companies already subject to California’s climate disclosure laws – a group that includes most major corporations around the world. And it’s a fact not lost on SEC chair, Gary Gensler, that the new California laws may smooth the path to approval of his commission’s desired disclosure rules.

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