Governor Gavin Newsom of California has recently implemented two crucial climate laws, pushing large corporations to closely monitor and report their greenhouse gas emissions. The Climate Corporate Data Accountability Act, endorsed by Newsom on Friday, requires U.S. companies with annual revenues surpassing $1 billion to disclose both direct and indirect emissions from 2026 onwards. The Climate-Related Financial Risk Act, meanwhile, mandates firms earning $500 million or more to reveal financial risks associated with climate change and risk mitigation strategies.
The Climate Corporate Data Accountability Act surpasses the scope of current federal and state reporting requirements. It demands companies operating in California to report even indirect greenhouse gas emissions, including those from supply chains, business travel, employees' commutes, and the use of their products by consumers. For example, Chevron (NYSE:CVX) will need to account for emissions from vehicles using their gasoline, while Apple (NASDAQ:AAPL) will have to consider emissions from materials used in their products like iPhones.
The new laws also cover scope 3 emissions, which are supervised by the California Air Resources Board with a degree of leniency. Many firms listed on the S&P 500 index voluntarily report to the CDP (Carbon Disclosure Project), and some comply with the European Union’s Sustainable Finance Disclosure Regulation.
Research suggests that disclosure mandates similar to the U.K.'s 2013 one can lead to operational emission reductions, thus combatting greenwashing. Despite opposition from the California Chamber of Commerce, major corporations such as Microsoft (NASDAQ:MSFT), Apple, Salesforce (NYSE:CRM), and Patagonia have endorsed these laws. This introduction is expected to have far-reaching global implications.
The newly introduced rules go beyond the U.S. Securities and Exchange Commission’s proposed corporate climate disclosure rules. Companies like Apple have been actively working with suppliers to reduce emissions, indicating a proactive approach towards environmental sustainability within the corporate sector.
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