On 7 October 2023, a significant policy initiative unfolded in California. Governor Gavin Newsom handed down a new mandate, enacting transformative legislation designed to combat climate change and financial risks associated with it. This was achieved through legislative mandates SB 253 and SB 261.
These mandates will affect both private and public companies, inserting them under a revealing spotlight of scrutiny and responsibility. However, it’s worth noting that not all businesses will be subject to this legislative prism; only those companies generating an annual revenue above certain thresholds will be considered.
Additionally, for these applicable companies, the new legislative framework imposes upon them the requirement of GHG emissions reporting. This reporting will span across three scopes – Scope 1, Scope 2, and Scope 3 emissions; an initiative designed to provide a comprehensive picture of a company’s climate impact.
Scope 1 emissions encompass direct emissions from operations owned or controlled by the company. Scope 2 accounts for indirect emissions from the generation of purchased electricity consumed by the company. Lastly, Scope 3 designates all other indirect emissions occurring in a company’s value chain.
These initiatives align with the growing global trend of ESG (Environmental, Social and Governance) factors being a focal point of due consideration and monitoring within corporate operations.
ESG, though not a new concept, has garnered increasing attention and emphasis in the recent years. This enhanced focus is largely attributable to the mounting evidence of climate change, and its potential to destabilize the market and weaken the financial resilience of many businesses.
It is evident that California’s new legislation aims to tackle these potential challenges by providing transparency, promoting sustainability, and aspiring to ensure stability in the corporate world.
For a more in-depth overview of these legislative changes, refer to the following article provided by K&L Gates LLP.