Implications of California’s Climate Disclosure Bill

What’s Going to Change

This September, the California senate passed a pair of climate information bills that will have massive repercussions for national sustainability reporting. The first, titled the “Climate Corporate Data Accountability Act”, mandates disclosure of emissions data for over 5,000 companies and threatens to levy up to $500,000 of fines for noncompliance. The second, titled the “Climate-Related Financial Risk Act”, requires large companies with revenue over $500 million to disclose climate-related financial risk reports.

On September 17, Governor Gavin Newsom said that he plans to sign these bills into law. This extends the track record of California being the frontrunner in American climate policy. The signing of these bills will mark a new frontier of climate disclosure regulation in the United States.

Implications for Companies

While these bills originate from a single state, they will have national consequences. Both bills require the disclosure of emissions produced globally by all company activity, not just activity in California. Given the economic importance of California, many large companies will be included in this legislation.

This represents one of the first real pushes for mandated climate disclosure in the United States. While the SEC has proposed climate disclosure mandates, this proposal has stalled against staunch opposition. While some other states have proposed or passed disclosure requirements, California’s legislation is certainly the broadest and most comprehensive passed yet, showing a significant move in the right direction.

With this legislation set to go into effect in 2025, US companies will be forced to play catch-up with their disclosures. While over 70% of the S&P 500 companies disclose GHG emissions, only 28% of companies in the S&P MidCap 400 do. Binding disclosure legislation will force more mid-sized companies to disclose their emissions. Additionally, California’s legislation will require the disclosure of Scope 3 emissions, explained here, which only 25% of U.S. listed companies disclose. 

Implications for The Market

California’s disclosure legislation has the potential to be a watershed moment for regulatory action around climate information. However, even when taking the bills by themselves, they represent a major change in the climate information landscape. Soon, thousands of companies will be incentivized to provide many more features of their carbon output and climate response.

This new burst of information will help asset managers better classify and understand the sustainability of their investments. However, this data is oftentimes hidden behind complicated and unorganized corporate filing and is stored across countless databases, making it inaccessible. 

Physis Investment can help solve this issue. Physis is a fintech company that compiles global sustainability data and offers tools and analytics to quickly track a portfolio’s sustainability performance, regardless of the unstructured reporting methods. With Physis, detailed sustainability data is already available. Book a meeting to find out how it works.