California passed a first-of-its-kind bill mandating pollution disclosures, including supply chain emissions

On Monday night, California lawmakers approved a bill that would require large companies operating in the state to reveal their carbon dioxide emissions that contribute to global warming. This will become the first such requirement in the United States if the bill is signed into law. It is noteworthy that the SEC has been slow to introduce a comparable federal requirement.

The proposed legislation, known as SB 253, mandates that big corporations earning over $1 billion annually must adhere to regulations set by the California Air Resources Board. Subsequently, by 2026, such corporations must publicly disclose the total greenhouse gas emissions produced from their business operations and electricity consumption. Furthermore, the legislation also demands that these corporations report on the amount of pollution produced by their customers and supply chains by 2027.

In a declaration made on X, previously known as Twitter, Scott Wiener (a California Senator and the individual who proposed the bill) stated that despite a huge campaign to spread misinformation by opponents, SB 253 will enable California to become a leader globally in terms of corporate carbon transparency, thus marking a monumental triumph for the climate.

They must also reveal the amount of pollution caused by their customers and the production processes along their supply chains, which is extremely important.

The rule of disclosing "Scope 3" emissions, which refers to emissions from a company's supply chains and consumer usage, has faced the greatest resistance from those in the industry. This mandate pushes businesses to create products that have less pollution and motivate suppliers to reduce their own emissions. "Scope 3" emissions are usually the largest component of a company's carbon footprint, and therefore environmental supporters have fought to include them in recent regulations.

In 2022, the SEC came up with a proposition to enforce consistent disclosures by publicly traded firms. However, the finalization of these regulations has been postponed due to resistance from companies who are unwilling to share their Scope 3 emissions.

BlackRock stated in a statement released in June 2022 that they do not support the notion of imposing Scope 3 disclosure requirements to obligate publicly traded companies to enforce emission reduction objectives which are beyond their influence.

Last week, California's bill received endorsement from Apple. Michael Foulkes, director for state and local government affairs at Apple, wrote a letter to Wiener stating that measuring emissions is crucial in comprehending the complete scope of a company's climate impacts. Despite the difficulties associated with it, Apple supports the initiative.

The bill has been swiftly approved by both the state Assembly and Senate and is now awaiting Governor Gavin Newsom's signature to officially become a law. At this point, it is uncertain how the state of California will enforce the legislation as that will depend largely on the specific regulations put in place by the Air Resources Board. However, it's worth noting that the state has set an ambitious goal of achieving net-zero emissions across the entire state by 2045.