California Governor Gavin Newsom said on Sunday that he will sign legislation requiring large companies to disclose their carbon footprints, putting the state ahead of federal regulators in managing corporate climate risks.
The state Senate approved the “Emissions Disclosure Mandate Bill” last week after a 27-8 vote. In an interview at the start of Climate Week in New York, Newsom said he would sign the bill, but that there was some “clean-up” on the language that needed to be done.
The bill would require companies earning more than $1 billion (£807 million) a year and operating in the state to measure their Scope 1, 2, and 3 emissions. Scope 1 covers direct emissions from burning fuel in a fleet of vehicles, whereas Scope 2 are emissions a company causes indirectly, when the energy it purchases and uses is produced. For example, energy for office blocks or factories.
Scope 3 is a much broader category as it covers almost everything else, from the start of a company value chain, all the way to the end user. For many organisations, Scope 3 comprises over 80% of their emissions. For large multinationals, in particular, supply chains can contain tens of thousands of vendors spread across the globe, many of which might be in developing countries and lack the technology or resources to cut emissions without help.
Lawyers have said the new legislation could still be challenged in court, but multinational companies including Apple, Ikea, and Microsoft have voiced support for the bill. Despite this, Newsom acknowledged that there had been “a lot of opposition” from companies due to the exacting demands it places on organisations to track their supply chains.
Mounting pressure from venture capitalists, investors, and a heightened public discourse on environmental responsibilities has driven a change to require companies to report in more detail on these emissions.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) takes this one step further, requiring EU-based companies, including those headquartered outside of Europe but with a large presence there, to report more broadly on their sustainability practices.
Legislation like the US-based Emissions Disclosure Mandate Bill and EU’s CSRD are expected to have a significant knock-on effect, as whilst larger companies are the ones required to track and disclose on their emissions, smaller suppliers will be pressured to do the same in order to remain competitive as corporates look for suppliers acting on their emissions.
The Securities and Exchange Commission has not yet issued guidance on whether this will become federal legislation.
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