California, once again, is leading the way in environmental practices and standards. Signed on October 7, California Governor Gavin Newsom greenlit two groundbreaking corporate climate disclosure bills for large companies doing business in the Golden State. These regulations align with strict regulations already being developed in the EU and U.K., and they will be necessary for companies who wish to participate in the fifth largest economy in the world.
These ambitious measures aim to achieve more transparency and climate accountability from businesses regarding carbon emissions and eliminate greenwashing practices. While many companies were patiently awaiting the Securities and Exchange Commission’s (SEC’s) broader Climate Change Disclosure Rule (which may not include private companies or potentially Scope 3 emissions), California has taken a proactive stance with these bold standards, which are expected to take precedent nationwide and expedite the global energy transition.
Senate Bill 253, known as the Climate Corporate Data Accountability Act, requires businesses with annual revenues surpassing $1 billion to publicly disclose their greenhouse gas (GHG) emissions yearly, affecting an estimated 5,300 companies currently operating in California. The bill emphasizes that the reporting must be easy to understand and accessible to Californian residents. Leading companies such as Apple, Microsoft, Patagonia, IKEA, Adobe, and Salesforce have voiced their support for the green legislation.
The regulation will require these entities to report on their Scope 1 and Scope 2 emissions inline with the Greenhouse Gas Protocol standards and guidance commencing in 2026. Then, beginning in 2027, companies must include Scope 3 emissions (indirect GHG emissions from third parties in the organization’s value chain) in their climate disclosure reporting.
Senate Bill 261, or the Climate-Related Financial Risk Act, mandates that California businesses with annual revenues exceeding $500 million must publicly disclose their climate-related financial risks and risk management strategies every two years, starting January 1, 2026. This measure is anticipated to impact over 10,000 entities in the state, which will be subject to an annual fee to cover administrative and implementation costs.
Necessary transparency for informed decision-making
Introducing these climate-disclosure laws is poised to enhance transparency for investors, thereby significantly reducing business risk and enabling better decision-making. By understanding how companies manage and mitigate climate risks, investors will have the capacity to price climate risks effectively. Additionally, customers will be empowered to make more informed choices about which companies they wish to support and purchase from.
Backlash from corporate America and lawmakers
However, these progressive steps have not been met without criticism. Some corporate lawyers have expressed concern about the potential burdens of compliance efforts and associated expenses, especially regarding the complex and costly reporting of Scope 3 emissions. Despite Governor Newsom’s overwhelming support for these bills, he has also voiced apprehension about their implementation deadline's feasibility and the financial impact they may impose on both publicly traded and private businesses. In anticipation of the implementation challenges, he has instructed the California Air Resource Board to monitor and minimize the implementation cost impact, and directed his administration to work with the bills authors and the legislature to standardize reporting protocols by January 2025 to prevent potential reporting inconsistencies.
Voluntary carbon market disclosures
In addition, California enacted Assembly Bill 1305, the Voluntary Carbon Market Disclosures Business Regulation Act (VCMDA). Effective January 1, 2024, this law enhances transparency and trust in voluntary carbon markets and climate-related claims.
The VCMDA applies to various entities operating in California that market or sell voluntary carbon offsets and make claims about net-zero emissions, carbon neutrality, or significant carbon reductions. The VCMDA mandates that businesses making emissions-related claims disclose detailed information on their websites, including the basis for these claims and whether they've been independently verified. Additionally, those marketing or selling voluntary carbon offsets must provide specific project information, verification details, and annual updates.
California aims to promote transparency and integrity within voluntary carbon markets through the VCMDA.
Accelerating and incentivizing the C&I solar and storage market
As large corporations scramble to meet these first-in-the-nation climate disclosure laws, solar and storage behind-the-meter (BTM) solutions are expected to boom within the commercial and industrial sectors. Solar photovoltaic (PV) has accounted for two-thirds of renewable energy capacity installations this year and is leading the decarbonization movement as the cheapest form of electricity on the planet. Other advantages of solar and storage include their lack of moving parts, reliable backup power for heightened energy security, capacity to maximize clean power generation 24/7, and ability to participate in grid services for stacked revenue models.
GreenStruxure’s On-site Energy-as-a-Service (EaaS) to Comply with CA Climate Laws Now
With GreenStruxure’s innovative Energy-as-a-Service (EaaS) financial model, companies can quickly and easily adhere to California’s latest climate laws and reduce their Scope 2 emissions with on-site solar and storage. EaaS offers the best Levelized Cost of Energy (LCOE) for PV+BESS without requiring upfront costs, resources, or risk. Customers can pay a monthly service fee as the EaaS provider owns, manages, and operates the renewable generation assets. Achieve your sustainability goals and comply with California’s latest climate-disclosure laws by signing up for an on-site EaaS contract today.
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