California’s new disclosure rules could give cover to SEC 

October 13th, 2023

California’s governor has passed new legislation requiring corporations to disclose their scope 3 carbon emissions ahead of new disclosure rules from the Securities and Exchange Commission (SEC).

Governor Gavin Newsom signed Senate Bill No. 253 into law, which will require regulators to introduce mandatory disclosure requirements targeting scope 3 emissions, emissions generated by their supply chain and customers.

Under the new rules, public and private companies with annual revenue exceeding $1 billion must begin disclosing their scope 3 emissions by 2027.

Scope 3 emission disclosures have drawn criticism from some sectors, including the fossil fuel industry, who claim they are difficult to track, and that monitoring imposes a financial burden on businesses.

A report by Politico suggested the new Californian law could give the SEC cover to include scope 3 emissions in its disclosure rules, set to be released later this month, despite potential political backlash.

Reuters reported that SEC chair Gary Gensler that the Californian law “may change the baseline” for disclosure reporting in testimony to the House Financial Services Committee.

He said: “If those companies were reporting to California, then it would be in essence less costly because they’d already be producing that information.”

Initial rules proposed by the SEC in 2022 did not include private companies, and only required scope 3 emissions if they were material or if the company had set greenhouse gas emissions targets or goals including scope 3 emissions.

The SEC could struggle to tighten these rules despite the precedent set in California’s law, as anti-ESG sentiment in the US increases.

In July, North Carolina signed an anti-ESG bill into law prohibiting state agencies and state pension plan fiduciaries from considering ESG measures when making investment decisions.