California has become a “de facto” nationwide climate accounting regulator a year after landmark legislation passed requiring firms with more than $1 billion in revenue, even privately held ones, to report their greenhouse gas emissions with a meticulousness like what they "apply to their balance sheets," a Wall Street Journal article said.
Despite the legislation's challenges, the report said its supporters remain optimistic.
The legislation faces intense opposition in an unfriendly U.S. political atmosphere. Still, the article said many companies are resigned to eventually having to track their emissions, which is tricky and might be costly.
California state Sen. Scott Wiener, the legislation’s main backer, characterized it as a “first in the nation” carbon disclosure law, which is meant to be a step toward extensive emissions cuts. Wiener’s legislation, which is also known as SB 253, was supported by several big businesses.
The Wall Street Journal explained that, currently, the legislation is “the only game in town.” California's standing alone has made the state regulator, Sacramento-based California Air Resources Board, “a de facto national authority” for climate accounting. No other state has brought any carbon accounting legislation after the Securities and Exchange Commission (SEC) stopped its similar rule due to legal opposition.
The SEC’s pause coincides with the recent waning corporate and investor affinity for ESG programs. Given the divided political environment, some avoid using the word. The SEC also stealthily shut down its ESG task force earlier in September.
According to Wiener, despite all the roadblocks, California is marching onward. The Wall Street Journal reported that even California Governor Gavin Newsom has publicly expressed concerns about the possible business costs and failed to push legislation to slow down the process.
Similar to the SEC rule, California's legislation is being sued. The U.S. Chamber of Commerce and other groups are suing, and the case is set to be argued in a Los Angeles court in October.
According to The Wall Street Journal, the Chamber of Commerce and other groups have filed lawsuits with theories regarding why the law should not be enacted. They argue that California is intruding into federal jurisdiction, among other factors. The Chamber said the law would make it expensive for businesses to comply and that the implementation timeline needs to be practicable.
However, California's winning point is that, unlike the SEC's, the timelines for its disclosure requirements remain in place without a court-imposed stay.
The Wall Street Journal added that U.S. reporting needs to catch up to other countries. Currently, only 29% of U.S.-listed companies report Scope 3 data versus 54% in developed markets outside the country, according to a February report from the MSCI Sustainability Institute, a unit of MSCI, which offers critical decision support tools for the global investment community.
Scope 3 data measures the greenhouse gas emissions a company is indirectly responsible for but does not produce.
Europe has enacted carbon disclosure rules that apply to many U.S. firms with operations located there. European Union rules requiring carbon disclosures, including Scope 3, apply to firms with revenue of at least €150 million ($167 million) in the EU, a relatively low figure considering its economy is close to being as large as the U.S.
In related climate accounting news, the World Bank Group and the IFRS Foundation announced on Sept. 26 their commitment to expanding the coverage of their existing partnership to adopt sustainability standards in emerging markets and developing economies.