The U.S. Impact Investing Alliance (the Alliance) applauds the California Senate and General Assembly passage of a historic set of bills that would have far-reaching implications for the disclosure of material climate-related information to investors and other stakeholders. The bills now head to Governor Newsom’s desk for signature.
As the fourth largest economy in the world, the state of California is a critical player in global efforts to bring more transparency and accountability to climate-related risks and impacts.
“Investors are demanding transparency and accountability around climate impacts, and companies are increasingly aware of the material risks to their businesses posed by climate change,” said Fran Seegull, President of the U.S. Impact Investing Alliance. “This action by California will help lead the way towards the kind of clear, comprehensive and comparable data on climate risks and impacts that investors, policymakers and communities need.”
This legislation aligns with and builds on the proposed climate disclosure regulations set forth by the Securities and Exchange Commission. Major companies doing business in California would be required to reveal their total carbon footprint, increasing the transparency for investors and consumers. This would ensure that major companies are held accountable for how they impact their workers, communities and environment. Private and public companies would be held to the same standards.
The first bill would require 5,300 corporations with revenues exceeding $1 billion to report their global emissions of carbon dioxide and other greenhouse gasses that contribute to climate change. Specifically, this would require companies to disclose Scopes 1, 2 and 3 emissions beginning.
The second bill would require more than 10,000 companies with revenues exceeding $500 million to report on how climate change poses financial risks to their global operations.
These bills are designed to be interoperable with the SEC’s proposed climate reporting framework. The California legislation would have national and global implications in setting an important baseline for climate disclosure moving forward. Including Scope 3 emissions of the largest companies is particularly impactful, as it will capture information about company supply chains and consumer use of products.
Companies would be required to annually disclose their direct emissions publicly (Scope 1 and 2) starting in 2026 and their indirect emissions (Scope 3) starting in 2027. Companies would also need to have independent auditors verify their climate reporting.
The California state regulations would advance American competitiveness. The Alliance applauds the leadership of California policymakers for seizing the opportunity to address the financial risks of climate change, build a stronger and more resilient economy, and set an example for other forward-thinking states.
California has seen the direct impacts of climate risks and how they negatively impact businesses and investors. This response by California state legislators is an important step in the global and national response to climate change, enabling greater corporate transparency and accountability and, in effect, advancing American competitiveness.
The Alliance urges California policymakers to maintain their momentum on important climate legislation. California Governor Gavin Newsom now has until October 14 to sign the bills into law. The Alliance and its peers across the industry urge the Governor to sign this historic piece of legislation as soon as possible.
The Alliance also encourages regulators and policymakers to go further by ensuring transparency and accountability on corporate workforce practices; diversity, equity and inclusion (DEI); and governance.