A secretive and powerful committee in the California State Legislature is set to take key action this week on a duo of Senate bills from the Democrats’ Climate Accountability Package introduced earlier this session.
The package is a combination of three total measures, with one already shelved for the year, intended to improve corporate transparency of disclosures on carbon emissions to eliminate perceived corporate ‘greenwashing’; and align state investment systems with state climate goals to address the climate crisis. The stated intent is to add pressure on corporations regarding climate action and improve transparency and standardization regarding emissions disclosures.
Per Senator Scott Weiner, he hopes to “make sure that the public and investors and everyone else know which corporations are taking climate change seriously, and which aren’t.” According to some analysts, these bills could impact thousands of companies doing business in California.
NOT PROCEEDING: SB 252, THE FOSSIL FUEL DIVESTMENT ACT
The measure not moving forward is Senate Bill 252, the Fossil Fuel Divestment Act, authored by Long Beach Democrat and Senate Majority Whip Lena Gonzalez. It would prohibit the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) from investing in the 200 largest fossil fuel companies as determined by carbon content in the companies’ proven oil, gas and coal reserves effective on Jan. 1, 2024. It would also require the two systems to divest existing investments in the companies on or before July 1, 2031.
The remaining measures awaiting action on Friday, Sept. 1, by the Assembly Appropriations Committee are Senate Bills 253 and 261.
PENDING BILLS
The Senate and Assembly Appropriations committees consider bills referred to them due to costs estimated to impact state coffers. Bills with significant costs are placed on the “suspense file” for a no-testimony hearing on all suspense file measures on Friday, Sept. 1. The lack of a public debate on bills in the appropriation committee suspense file creates a secretive environment empowering the committee chairs and legislative leadership to stop legislation for reasons unrelated to the stated fiscal impacts.
The committees will announce the results of votes on all suspense measures to either pass the bills as they are, pass with amendments intended to reduce costs or hold them in committee
1. Senate Bill 253, the Climate Corporate Data Accountability Act
Senate Bill 253 was authored by San Francisco Democratic Sen. Scott Wiener, also a candidate for Nancy Pelosi’s soon-to-be vacated House seat.
Key takeaways:
- The bill would require any U.S.-based business with annual revenues exceeding $1 billion that does business in the state of California to annually report to the California Air Resources Board (CARB) the full range of greenhouse gas (GHG) emissions attributable to the business.
- Requirements would include annual disclosure of all of the reporting entity’s scope 1, scope 2 and scope 3 emissions (direct, indirect and supply-chain related emissions, respectively) in accordance with specified timelines, procedures, third-party verification and other requirements set forth by the bill. The proposed inclusion of scope three emissions received a lot of attention given that it by definition would require companies to document and track emissions that “are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain.” These emissions often are the majority of a company’s total greenhouse gas emissions and include items such as employee commuting, business travel, purchased goods and services and leased assets, among others.
- A January 2023 analysis by POLITICO found that this bill could apply to about 5,400 companies doing business in California.
2. Senate Bill 261, the Climate-Related Financial Risk Act
Senate Bill 261 was authored by Los Angeles Democratic Sen. Henry Stern, who is chair of the Joint Legislative Committee on Climate Change Policies.
Key takeaway: The bill would require companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk consistent with recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure. The bill would also require the CARB to contract with a qualified climate reporting organization to review and publish an analysis of those reports.
WHAT NEXT?
Opposition remains to both bills from industry stakeholders concerned about the challenges of preparing fairly advanced analyses for risk mitigation reporting of scope three emissions. There is a significant likelihood of passage this session as the authors and sponsors of the legislation have accepted various amendments by interested stakeholders to streamline reporting and compliance and delay reporting of scope three emissions. This negotiable approach differs significantly from previous efforts to pass climate accountability legislation that failed last session with Senate Bill 260 (Wiener) having failed passage on the Assembly Floor and Senate Bill 449 (Stern) being held on the Senate Appropriations Committee’s suspense file.
Regardless of the fate of these specific bills, it is important for companies to not lose sight of the broader landscape. Globally, movement is happening around climate disclosures, including with the Corporate Sustainability Reporting Directive (CSRD) in Europe, which was adopted on July 31, 2023. The CSRD even applies to non-EU companies in certain circumstances. Here in the United States, the SEC is working on its proposed rules that would require SEC-registered companies to provide climate-related information in registration statements and 10-K annual reports.
Brownstein’s Sacramento policy team is working to keep clients apprised of developments with these bills and engaging strategically when it advances their interests.
This document is intended to provide you with general information regarding climate accountability bills in California. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.