The move toward greater corporate transparency for greenhouse-gas emissions (GHG) took a leap forward when California enacted a new law, SB 253, the Climate Corporate Data Accountability Act. This emissions disclosure bill, beginning implementation in 2026, will require large public and private companies with yearly revenues of more than $1 billion to declare their emissions. It is estimated that there are 5,400 companies of this size or larger operating in California.
SB 253 establishes the first carbon reporting mandate in the U.S. for large firms operating in a state. Since the law was passed in October 2023, the California Air Resources Board has been creating reporting details to make certain the data will be consistent and standardized. California has the fifth largest economy in the world and is rapidly moving up in the ranks to become the fourth largest, overtaking Germany. Because of California’s outsize influence in the global economy, these GHG reporting requirements promise to shape business practices well beyond the borders of the state and even the boundaries of the U.S.
Reporting will cover emissions across three critical sectors or “scopes.” The first scope includes direct GHG emissions from a company and all its branches anywhere in the world. Scope two covers indirect emissions, mainly from electricity and natural gas used but purchased from utilities. Scope three accounts for emissions across a company’s supply chain, from trash and water usage to business travel and staff commutes. Scope three is the game-changer. These emissions can account for 75 percent or more of some organizations’ climate impact. In part because they are notoriously difficult to measure, including them in the reporting requirements makes this a trailblazing step toward corporate openness. The penalties for non-compliance can be severe, up to half a million dollars a year.
Although California is out in front, it isn’t alone in pushing for greater corporate transparency. The Securities and Exchange Commission created some new reporting rules, but they only cover scope one and two emissions and only apply to publicly traded companies. The European Union has similarly adopted, in 2022, the Corporate Sustainability Reporting Directive that requires reliable, accurate, and transparent carbon data.
All these required reporting measures are designed to prevent corporate greenwashing and create a level playing field. Many big businesses support carbon transparency, realizing that the accuracy and standardization of carbon data create trust with investors and improve access to capital markets. Some of the prominent firms backing California’s initiative include Microsoft, Apple, Adobe, Ikea U.S.A., Patagonia, REI Co-op, and Sierra Nevada Brewing Co. These companies and many others support climate disclosures to enhance transparency and accelerate the fight against climate change. The hope is that these measures will herald a new era of corporate responsibility and a swifter decarbonization of business practices.
