In a significant legislative development from California, a new law will now require numerous public and private companies across the nation to disclose their Scope 1, 2, and 3 greenhouse gas emissions, as well as any climate-related financial risks they face. These companies, provided they conduct business in California, will be subject to this new requirement, broadening the mandate beyond the borders of the Golden State.
The legislation is part of a broader trend towards greater scrutiny and transparency of corporate practices when it comes to their environmental and climate impacts. The legislation highlights the deepening understanding and acknowledgment of the interconnectedness between corporate actions, greenhouse gas emissions, and global climate change. Moreover, the legislation also underlines the increasing awareness among lawmakers of the financial risks linked to the warming planet.
Under the new law, companies will have to detail their Scope 1, 2, and 3 emissions. Scope 1 entails direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased energy. Scope 3 includes all other indirect emissions that occur in a company’s value chain.
In addition, the law mandates that companies disclose any significant financial risks they face as a result of climate change. Such risks could include direct impacts from severe weather events on company property, or indirect impacts such as regulatory shifts towards reduced dependence on fossil fuels.
Though the legislation represents an essential shift in corporate accountability toward climate change, it also raises several questions that companies will have to navigate. For example, how will they reliably measure Scope 3 emissions, given these encompass such a broad range of potential sources across a company’s value chain?
Nonetheless, it’s clear that with this legislation, California continues its trailblazing path on climate and environmental legislation within the United States.
Further information on this new Californian law can be found here.