California’s carbon emissions law means more work for big firms

The California carbon emissions law overhauls the state’s corporate reporting requirements.

Written in the name of ESG and sustainability, it puts far more responsibility on big corporates to play an active role in the drive to reduce carbon emissions by forcing them to give more details on their own activity. 

As California is one of the world’s biggest economies, we should pay attention.

Lawmakers in California have voted through landmark legislation that will boost carbon emissions reporting requirements. 

It will require all major companies with a presence in California to disclose their carbon emissions and will apply to all public and private companies whose annual revenues exceed US$1 billion.

• By 2025, the state’s regulators will have rules covering how companies should report those emissions. 
• By 2026, the affected companies will have to start reporting on their own emissions. This will be limited to their own operations and electricity use. 
• By 2027, the affected companies must expand their reporting to include emissions by their supply chains and customers.

The last point covers what is commonly known as “scope 3 emissions” and is the most significant source of controversy and opposition surrounding the new law.  

Look at the jurisdiction passing the law and look at how far the law stretches. Both are on a scale so large to absolutely warrant attention. 

If California were a country, it would have had the fifth-strongest economy in the world in 2022. The new law will, therefore, impact countless corporations and trillions in revenue flowing through its borders. 

The companies that do business here often do business everywhere. Global names like Apple, Google and Salesforce have a presence worldwide.

This sway over global business is more than large enough to ensure that what happens here will have effects everywhere.

By the end of the decade, every corporate giant in California will not only be reporting its own carbon emissions but those of any supply chain partner and consumer as well. This is huge – vastly expanding the pool of required data and potentially game-changing for the to-do lists of governance professionals.

For the US, yes. On the wider scene, the EU has already implemented similar regulations through its Corporate Sustainability Reporting Directive (CSRD). Like California’s new law, CSRD is young and will take a few years to implement fully. 

However, California’s law is unique for the political environment it has landed in. Europe’s political leaders are far more united on climate and ESG issues; in America, the cause has been swept into polarised debate. 

Indeed, many oil companies were (and likely will continue to be) highly vocal in opposing such strict reporting requirements. They claim it will harm businesses and pass more costs to consumers.

This month, we have this new rule from California. Early this year, we had similar news from the EU. From all this, you should remember that if you’re on a company’s board connected to any of these new regulations, now is the time to prepare. 

Such stringent reporting means you need a lot of expertise, ready to handle data, adapt to established frameworks, and ensure regulators don’t come knocking because you’ve done a poor job. 

It also means ensuring your company strategy can adapt as more attention falls on carbon emissions in the future. 

You’ll be much better placed if you have the right directors to handle these responsibilities.  

You can read more on the story here.