New California bills will require large personal care companies to disclose carbon emissions and climate risk

11 Oct 2023 --- All public and private companies with a greater annual revenue than US$1 billion in California, US, will be required to disclose their Scope 1, 2 and 3 emissions publicly. Senate Bill 253, “the nation’s first comprehensive GHG disclosure requirement,” has been signed by Governor Gavin Newsom, alongside Senate Bill 261, which requires companies to disclose climate-related financial risks.

The bills will apply to industry players in the cosmetics, personal care and beauty sector that are based in California. 

“These carbon disclosures are a simple but intensely powerful driver of decarbonization. When business leaders, investors, consumers and analysts have full visibility into large corporations’ carbon emissions, they have the tools and incentives to turbocharge their decarbonization efforts,” comments Wiener.

“This legislation will support those companies doing their part to tackle the climate crisis and create accountability for those that aren’t. These disclosures are a powerful decarbonization accelerator, providing unprecedented clarity that will unlock new approaches and drive action to reduce emissions. I applaud the Governor’s bold climate leadership.”

The bills, part of the “Climate Accountability Package,” were approved and filed with the Secretary of State on October 7.

“It’s time for the corporate community to come clean about their progress toward meeting our climate goals,” says California Senator Scott Wiener. “To tackle the climate crisis, we need new standards to improve transparency and raise the bar for the business community across the nation — and that’s what the Climate Accountability Package does.”

Looming deadlines and fees
Climate Corporate Data Accountability Act (Bill 253) requires the state board to develop and adopt regulations by January 2025. 

In 2026, corporations with a greater annual revenue of US$1 billion will have to share their prior fiscal year’s direct (Scope 1) and indirect (Scope 2) emissions caused by operations and energy use.Bill 253 requires the state board to develop and adopt regulations by January 2025. 

From 2027, the corporations must disclose Scope 3 GHG emissions from upstream and downstream supply chains of its prior fiscal year.

“The bill would authorize the state board, starting in 2033 and every five years thereafter, to assess the global GHG accounting and reporting standards and to adopt an alternative standard if it determines that using the alternative standard would more effectively further the goals of the bill,” reads the Climate Corporate Data Accountability Act.

The reports have to align with the GHG Protocol standards by the World Resources Institute and the World Business Council for Sustainable Development.

Furthermore, the state board will create regulations “to seek administrative penalties for non-filing, late filing, or other failure to meet the requirements of this section. The administrative penalties imposed on a reporting entity shall not exceed US$500,000 in a reporting year,” outlines Bill 253.

“A reporting entity shall not be subject to an administrative penalty for any misstatements regarding Scope 3 emissions disclosures made with a reasonable basis and disclosed in good faith. Penalties assessed on scope 3 reporting between 2027 and 2030 shall only occur for non-filing.”

Research and funding initiatives
The Bill 253 will also lead to academic institutions in California, such as the University of California, the California State University or a national laboratory, to create a report on the submitted public disclosures in July 2027. 

Moreover, reporting entities will have to pay a fee to the state board once they file disclosure to fund the board for purposes related to the bill.Bill 261 aims to protect consumers who may lose billions of dollars collectively if financial institutions fail to account for new risks associated with climate change.

“By creating a continuously appropriated fund, the bill would create an appropriation. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties for violating these provisions, as specified,” justifies the bill.

Wiener comments that a recent study in Science found mandatory disclosures can cut total corporate emissions by 70%, mainly affecting those behind their targets.

“No serious conversation about climate action can leave out corporations’ responsibility to be part of the solution,” adds Mary Creasman, CEO at EnviroVoters. 

“If we are truly committed to leading on climate action, California needs to use our global market power as the 4th largest economy in the world to catalyze corporate leadership and responsibility in the climate crisis.”

Financial protection from climate disasters
Furthermore, the Climate-Related Financial Risk Act (Bill 261) aims to protect consumers who may lose billions of dollars collectively if financial institutions fail to account for new risks associated with climate change. 

Risks include climate impacts, such as “wildfires, sea level rise, extreme weather events, extreme droughts and associated impacts to the global economy.”

“Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and the economy will result in significant harm to California, residents and investors, in particular, to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions,” outlines the bill. 

By January 2026, and biennially after that, businesses with annual revenues of over US$500 million will have to prepare a climate-related financial risk report outlining their climate-related financial risk according to the “Task Force on Climate-Related Financial Disclosures.”

They will also have to reveal the measures adopted to reduce and adapt to climate-related financial risk disclosed in the report.Newsom is concerned about the overall financial impact of this bill on businesses (Image credits: Government of California).

Additionally, the reports will have to be made available on their websites. “The bill would require covered entities to pay an annual fee for the state board’s actual and reasonable costs to administer and implement the bill,” reads the bill.

Newsom outlines challenges
In response to Bill 253, Newsom wrote a letter to the Members of the California State Senate expressing the importance of the policy.

“[However,] the implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure. I am directing my Administration to work with the bill’s author and the legislature next year to address these issues,” he writes.

“Additionally, I am concerned about the overall financial impact of this bill on businesses, so I am instructing the California Air Resources Board to closely monitor the cost impact as it implements this new bill and to make recommendations to streamline the program. I look forward to working with the legislature on these modifications to achieve this bill’s goals of ‘full transparency and consistency.’” 

Alli Gold Roberts, senior director of state policy at Ceres, previously stated that information about corporate climate emissions in California is “fragmented, inconsistent and incomplete, with a major disconnect between leading companies and those in the mid-market and their supply chains.”

However, she expects Bill 253 will ensure stakeholders get a whole picture of the corporate emissions data.

By Venya Patel