A new proposed California law that could require most large U.S. companies to disclose their full value chain greenhouse gas (GHG) emissions passed the state’s Assembly, with lawmakers on Monday passing the bill in a 41-20 vote, marking a major step towards the establishment of the mandatory emissions reporting bill into law.
The bill will now return to the Senate, where it already passed in May, and from there to the desk of Governor Newsom for a final decision on its passage into law. The bill is similar to one introduced in California last year that passed in the state Senate, but was one vote short of passing on the Assembly.
In a social media post following the vote Senator Scott Wiener, who introduced the bill, SB 253, earlier this year, called the approval a “huge climate win,” adding that the proposed law “will make California a global leader in corporate carbon transparency.”
The legislation would require companies with revenues greater than $1 billion that do business in California to report annually on their emissions from all scopes, including direct emissions (Scope 1), emissions from purchase and use of electricity (Scope 2), and indirect emissions, including those associated with supply chains, business travel, employee commuting, procurement, waste, and water usage (Scope 3).
Disclosure obligations would begin in 2026 for Scope 1 and 2 emissions, and in 2027 for Scope 3 emissions, with measurement and reporting to be performed according to the Greenhouse Gas Protocol standards. The law would also require companies to obtain third party assurance for their emissions reporting, starting with a limited assurance level beginning in 2026 for Scope 1 and 2 emissions, and at a more stringent reasonable assurance level in 2030, and at a limited assurance level for Scope 3 in 2030.
The announcement comes as the SEC is preparing the final version of its own climate-related disclosure rules for U.S. companies, following the release of an initial proposal in March 2022. The California law would go farther in some ways than the proposed SEC rules, applying to all large companies, as opposed to only public companies, and including all Scope 3 emissions. The SEC’s initial proposal required reporting on Scope 3 emissions if they are material, or if the company has a stated emissions reduction goal that includes Scope 3, and earlier this year SEC Chair Gary Gensler said that the commission was considering some adjustments to its rules, including on the Scope 3 requirement, following feedback raising concerns about the high cost of providing these disclosures and concerns about the ability to provide accurate information.
The SEC’s rules will also likely face opposition from Republican lawmakers, who have argued against a climate disclosure requirement “in any form.”
Even if the SEC was unsuccessful in establishing mandatory climate-related reporting, however, the proposed California law could result in widespread emissions disclosure anyway. When introducing the bill in February, Wiener noted that the new reporting rules would apply to most large U.S. companies, as long as they operate in the California market. Additionally, many U.S. companies will have to comply with the EU’s Corporate Sustainability Reporting Directive (CSRD), for example which includes mandatory reporting obligations for large companies doing business in Europe.
Another bill, SB 261, is also slated for a vote in the Assembly this week, which would require companies to report on climate-related financial risk and the measures they have adopted to reduce and adapt to those risks.