When California lawmakers return from summer recess, two closely-watched, far-reaching bills targeting businesses’ greenhouse gas emissions will be top of mind for business lobbyists in Sacramento.
SB 253 would require companies with over $1 billion in annual revenues to report emissions data categorized into three scopes, including potentially contentious "Scope 3" emissions. SB 261 focuses on businesses with annual revenues exceeding $500 million, mandating disclosure of climate-related financial risks and mitigation measures.
There are similar regulatory efforts at the federal level by the SEC.
When California lawmakers return from summer recess next week, two closely-watched, far-reaching bills targeting businesses’ greenhouse gas emissions will be top of mind for many stakeholders s in Sacramento. The bills (SB 253 and SB 261) have been moving through both chambers in tandem and are teed up for final hearings before heading for final votes in the second house likely before the end of next month.
Requires Certain Companies to Publicly Report Greenhouse Gas Emissions and Other Environmental Data
California SB 253
Senator Scott Weiner’s (D) SB 253 creates the "Climate Corporate Data Accountability Act." The bill requires public and private companies with over $1 billion annual revenues that do business in California to annually report greenhouse gas (GHG) emissions data to the state Air Resources Board (ARB). The data must be broken down into three categories, or “scopes,” as devised by international organizations such as the World Resources Institute (WRI):
Scope 1: Direct GHG emissions from all sources that a company owns or controls;
Scope 2: Indirect emissions from electricity consumed by the company; and,
Scope 3: Indirect emissions from a business’s supply chain, plus business travel, employee commutes, procurement, waste, and water usage, among other inputs.
As you can probably guess, the “Scope 3” emissions is where things get sticky, as this category is less well defined and could be subject to interpretation, which is a main argument against the bill in its current form. Groups such as WRI and the World Business Council for Sustainable Development are working to further refine the standards, which could then be added later to California’s standards in ARB’s regulatory implementation of the Act should it become law. SB 253 includes a phased-in schedule for each scope’s reporting requirements, and affected entities would not have to begin reporting their scope 3 emissions until 2027.
California SB 261
Meanwhile, SB 261, by Sen. Henry Stern (D), orders businesses, both public and private, with annual revenues over $500 million to annually submit a report to the ARB detailing the company's climate-related financial risks as well as measures taken to reduce climate risk. Affected entities would be required to publicly disclose this information on the company’s website, while ARB would be tasked with preparing reports analyzing all of the reported data and producing economic sectors’ climate-related financial risks in the state.
Critics of SB 261 like to point to a glaring difference between the two bills, which is the bill’s applicability to companies making only $500 million, as opposed to the $1 billion threshold in SB 253. Opponents argue that SB 261 would impose daunting emissions reporting requirements on thousands more companies, many of which would not have familiarity or capability with reporting climate change risk information, and would become overly burdensome.
What Happens Next? Both Bills Will Likely Make it Through Assembly Appropriations
Both bills were passed by the Assembly Natural Resources Committee on July 11, just under the deadline this session for policy committees to finish passing bills, and sent the measures to Assembly Appropriations, where all bills with a financial impact are required to visit. The Appropriations Committees in both chambers have three weeks to act on the hundreds of bills awaiting consideration before the next major legislative deadline, which arrives Sept. 1, the last day for fiscal committees to meet and report bills.
Both bills are likely to make it through Assembly Appropriations, but their likelihood of passage on the Assembly floor is the billion dollar question every corporate business interest in Sacramento and elsewhere would like to know. Sen. Weiner’s Climate Corporate Accountability Act made it to this same point last year (SB 260 in the 2021-22 session), but failed on third reading in the Assembly shortly before session ended. This year could be the year it succeeds.
What About the Federal Government?
Meanwhile in Washington, D.C., a regulatory proposal by the Securities and Exchange Commission (SEC) under President Joe Biden offered in March 2022 seeks to accomplish much of the same goals as the California legislation. The proposed rules were watered down when the controversial “scope 3 emissions” were removed during the rulemaking process. Additionally, federal rules would now only be applicable to publicly traded companies, thereby exempting private companies. The SEC rules are still on track for final adoption, potentially by the end of the year, although further changes to the proposed rules may be in store this fall. Lawsuits are also planned to block the proposal should it be adopted and would likely seek injunctions before the rules ever take effect.
While Republicans in Sacramento are used to getting steamrolled, their counterparts in Congress are in the majority and view the SEC’s proposed rules and this issue as a whole as political red meat. Numerous bills have been introduced in Congress this year to block the SEC’s entry into the climate debate and to “protect consumers from the Biden administration’s environmental overreach.” The GOP’s actions in Washington, however, are likely to make California Democrats fight even harder to pass SB 253 and SB 261 before the end of session in September, so stay tuned.
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