In October 2023, the Voluntary Carbon Market Disclosures Act (VCMDA), better known as AB 1305, was legislated in California and since then has been eclipsed by more conspicuous climate disclosure regulations. It’s now time for corporations to evaluate their compliance requirements under this Act.
The Act imposes fresh duties on companies that transact offsets within California and incorporates significant disclosure obligations for those who voice claims about their climate performance, including targets such as “carbon neutral” and “net zero”, as well as green claims related to products. This law applies to all businesses, regardless of their size, that operate within California and make climate assertions.
AB 1305 requires companies making climate claims to disclose on their website “all information documenting how such a claim was deemed accurate or actually carried out, how interim progress is measured, and which third-party verifications have validated emissions, science-based targets, sector methodology, and emissions.”
Despite the brevity of AB 1305, at this stage, there’s no guidance or interpretation from either courts or regulators, which presents a challenge for legal practitioners. However, familiar practices within the carbon accounting arena could be beneficial while building an AB-1305 notice.
To understand these concepts, one can glance at the carbon accounting definitions of ‘net zero’ and ‘carbon neutral’. ‘Net zero’, as defined by the Science Based Targets initiative (SBTi), involves substantially reducing carbon emissions by 50% by 2030 and 90% by 2050, calculated based on a company’s footprint. It’s important to note that the net-zero certification procedure usually takes approximately two years for approval by SBTi.
On the other hand, ‘carbon neutral’ benchmarks merely require entities to counterbalance the amount of carbon they release into the environment, without any mandatory emission reductions. However, there have been instances of greenwashing lawsuits questioning the authenticity of carbon offsets propelling carbon-neutral claims. This concept laid the foundation for AB 1305, which also stipulates criteria for businesses that peddle carbon offsets.
For legal teams embarking on AB 1305 compliance, their first steps include reviewing external communications for any climate claims, auditing these claims to ensure they are backed by evidence, addressing any unsupported claims tactfully, and preparing the obligatory AB 1305 disclosures, set to be due by January 1, 2025.
By championing transparency, accountability, and responsible practices, AB 1305 has set a benchmark for corporate climate claims. As legal professionals, our duty is not confined to understanding the legal framework; we must also provide strategic advice on navigating through these climates terminologies and standards.
The article was originally published on Above the Law.