California recently introduced SB260 mandating annual disclosure of “greenhouse gas emissions in a manner that is easily understandable and accessible to residents of the state. The bill would require reporting entities to ensure that their public disclosures have been independently verified by a third-party auditor, approved by the state board, with expertise in greenhouse gas emissions accounting,” starting in 2024. Scopes 1, 2 and 3 emissions must be accounted for in the disclosure by reporting entities.
The bill applies to “reporting entities,” defined as:
… a partnership, corporation, limited liability company, or other business entity formed under the laws of this state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of one billion dollars ($1,000,000,000) and that does business in California.
This is similar language to the 2010 California Transparency in Supply Chains Act (TISCA), which caught some companies by surprise. Here’s why – according to TISCA guidance:
A company is “doing business in the state” if it is actively engaging in any transaction for the purpose of financial or pecuniary gain or profit, as further defined in the California Revenue and Taxation Code.
Notice there is no reference to, or requirement for, having a physical location or operation in the state. The California climate disclosure mandate could be considered extra-territorial regulation. Responsible Investor estimated that up to 5,000 companies could be affected by the legislation if finalized.
The language of the bill doesn’t specify details about the type of filing envisioned, although the intent is a standalone filing that is “easily understood” and accessible to the public via a digital platform. Implementing regulations must address imposition of administrative civil penalties for violations.
What You Can Do
For the moment, the bill is still pending. However, it would be prudent to begin assessing potential applicability by determining if your company meets the following criteria:
- Is a business entity formed under the laws of any US state, the District of Columbia or US federal laws. The bill’s language is very broad so this is a low bar, but companies only issuing American Depositary Receipts (ADRs) without also establishing a US business entity would be outside the reach of the legislation.
- Has corporate annual revenues in excess if US$1 billion. Again, this is not limited to revenue generated from sales in California, but globally-derived total revenue.
- Engages in money-making transactions in the state. This is the only California-specific trigger and does not include a minimum threshold.
If your company meets these three criteria, it would be a good idea to track the status of the bill.
