If adopted, the Senate bill would require large US companies doing business in California to report Scopes 1, 2, and 3 emissions as of January 2024.

By Jean-Philippe Brisson, Marc T. Campopiano, Jennifer K. Roy, Joshua T. Bledsoe, Julie Miles, and Alicia Robinson

The California Legislature is considering a bill to impose corporate sustainability reporting requirements that would substantially expand corporate greenhouse gas (GHG) emissions reporting obligations and, according to the bill’s co-author, impact “the vast majority of the country’s largest corporations, who almost all conduct business in California.” If adopted, Senate Bill 260 (SB 260) would establish a first-of-its-kind mandatory GHG emissions reporting framework requiring regulated entities to report all emissions “scopes,” including Scope 3 emissions (discussed below). The bill could also have impact well beyond California given the state’s ambitious climate policies and the number of large companies that do business in California.

Proposed SB 260 Passed by California Senate

On January 26, 2022, the California State Senate passed SB 260 by a 23-7 vote and ordered the bill to the Assembly for consideration. SB 260, titled the Climate Corporate Accountability Act, would require companies formed under US law that do business in California and have total annual revenues in excess of $1 billion (Reporting Entities) to annually report their direct and indirect GHG emissions from their operations and supply chain to the California Secretary of State beginning on January 1, 2024.

Specifically, SB 260 would require Reporting Entities to report on their Scope 1, 2, and 3 emissions[1] using the standards and guidance set out under the Greenhouse Gas Protocol (GHG Protocol)[2] developed by the World Resources Institute and the World Business Council for Sustainable Development and obtain third-party auditor verification of their reports. SB 260 would also direct the California Air Resources Board (CARB), California’s air pollution control agency, to (i) develop regulations to guide data submission by Reporting Entities, (ii) prepare a report that estimates emissions reductions from Reporting Entities necessary to maintain global temperatures within 1.5 degrees Celsius of preindustrial levels, and (iii) make recommendations for how Reporting Entities can achieve those reductions in line with the guidance of the Science Based Targets initiative (SBTi) as they pertain to emissions reductions required of businesses.

According to the bill text, the information produced pursuant to these requirements “will inform policymaking, empower the public and activate the private sector to drive corporate GHG emissions reductions, and is a critical next step the state must take to achieve its climate goals and protect the state and its residents.” Beyond the state’s own climate goals, the bill also contains forceful language regarding the rights of consumers to know the “sources of carbon pollution” in order to “make informed decisions about the impact of the consumer’s choices when purchasing from, patronizing, and making investments in these companies.” The bill implies that consumers will act on the data collected to pressure corporations into making — and achieving — more ambitious emissions reductions targets. To facilitate consumer access to the collected data, the bill would direct the Secretary of State to launch a digital platform that discloses the collected data on an individual and aggregated basis and specifies that individual entity reports will be made available within 30 days of submission.

Expansion of GHG Reporting Entities in California

CARB currently collects emissions data from industrial facilities, fuel suppliers, and electricity generators and importers under the Mandatory Reporting of Greenhouse Gas Emissions Regulation (MRR)[3] pursuant to CARB’s mandate under AB 32 (California Global Warming Solutions Act) to ensure that statewide GHG emissions are reduced to at least 40% below 1990 levels by December 31, 2030.[4] In addition to requiring entities to report their direct emissions, the MRR requires fuel suppliers to report indirect (Scope 3) emissions associated with emissions released from the use of sold products (e.g., combustion of gasoline, diesel fuel, or natural gas by the fuel suppliers’ customers). This approach avoids the administrative complexities of obtaining the data from individual consumers. As noted below, SB 260 would significantly expand the scope of mandatory Scope 3 emissions reporting in California beyond the current MRR requirement for fuel suppliers.

Certain MRR reporting entities whose emissions exceed 25,000 metric tons of CO2e annually are regulated under the California cap-and-trade program[5], which sets a declining cap on permissible emissions by covered entities through 2030 and allows participating entities to trade allowances to meet their compliance obligations. Together, these roughly 450 covered entities account for about 80% of the state’s emissions[6]. Proponents of SB 260 frame the bill as filling a reporting “gap” by ensuring that “major corporate entities” that have significant revenue — but are not necessarily covered by the MRR — are also accounted for in the state’s GHG inventory. While the bill does not identify the number of companies that would now be required to report emissions, the bill will, according to Senator Scott Wiener, likely impact “the vast majority of the country’s largest corporations, who almost all conduct business in California.”[7] If the bill is adopted, it will also raise questions about whether MRR reporting entities whose revenues meet the $1 billion threshold under SB 260 will need to align their reporting practices with the new standards set out under SB 260.

First-of-Its-Kind Mandatory Scope 3 Emissions Reporting Requirements

SB 260 would require corporate entities to report their “Scope 3” emissions but provides little direction on how the significant uncertainties that Scope 3 reporting currently present would be resolved. As discussed in greater detail in Latham’s previous blog post, how companies report Scope 3 emissions remains challenging. Aside from the fact that a company in practice may have limited control over its Scope 3 emissions (as the emissions are stemming from the activities of business partners and not the company itself), such Scope 3 emissions are complex to record accurately given the diverse and widespread nature of the emissions sources. As a result, companies that currently report their Scope 3 emissions do so using a variety of methods.

SB 260 would empower CARB to develop and adopt regulations that require Reporting Entities to report all emissions, including Scope 3 emissions, but SB 260 would not mandate how such reporting will occur beyond the use of the GHG Protocol’s standards and guidance. This leaves room for CARB, one of the world’s most influential air regulators, to interpret, clarify, and mandate how some of the US’ largest companies should account for their Scope 3 emissions, which may well influence how non-US-based companies measure such emissions for consistency purposes. In the absence of other mandatory Scope 3 emissions reporting frameworks (with the specific exception under MRR for fuels suppliers), the rules promulgated by CARB could become the de facto standard applicable to a large percentage of the world’s emissions. These rules may also have effects beyond the entities directly regulated under SB 260. For example, while the bill would limit the reporting burden to “massive corporations” with revenues exceeding $1 billion, these corporations may require smaller businesses that act as their third-party providers to align with any new GHG accounting practices to facilitate compliance with SB 260. Commentators have questioned CARB’s authority to impose its rules beyond California companies, but the bill’s co-author has stated that doing so would not constitute jurisdictional overreach with respect to US companies.[8]

Beyond SB 260

The bill’s text reflects the view that accurate measurement is necessary to achieve California’s emissions reduction targets, noting specifically that the current approach to monitoring corporate emissions “relies almost exclusively on voluntary reporting… [which] lacks the full transparency needed for the state to make meaningful, strategic, and rapid carbon reductions.” To address this issue, SB 260 pairs the corporate reporting requirement with a requirement that CARB estimate “aggregated” GHG levels of Reporting Entities required to maintain global temperatures within 1.5 degrees Celsius and issue recommendations for Reporting Entities to achieve the necessary emissions reductions. Such recommendations must be consistent with the SBTi, which defines best practices in corporate emissions reduction strategies in line with the Paris Agreement’s goal to limit global temperature increases to 1.5°C above preindustrial times. For more information about SBTi, please see Latham’s previous blog post. The requirement to report corporate-level emissions may therefore lay the foundation for CARB to incorporate these emissions into existing California climate policies. CARB’s estimates of required emissions reductions from Reporting Entities could also lead to entirely new policies applicable to Reporting Entities, particularly in light of the state’s ambitious climate targets and CARB’s recent mandate from Governor Gavin Newsom to consider pathways for achieving carbon neutrality by 2035, a full decade earlier than the existing target of 2045.[9]

Next Steps for SB 260

After passing the bill on January 26, the California Senate ordered the bill to the Assembly for consideration. If passed by the Assembly, the bill will be submitted to Governor Newsom before it can become law. This process may take anywhere between now and September 30, which is the last day for the Governor to sign or veto bills passed by the Legislature.[10]



[1] “Scope 1 emissions” are defined as “all direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities.”

“Scope 2 emissions” are defined as “indirect greenhouse gas emissions from electricity purchased and used by a reporting entity, regardless of location.”

“Scope 3 emissions” are defined as “indirect greenhouse gas emissions, other than scope 2 emissions, from activities of a reporting entity that stem from sources that the reporting entity does not own or directly control and may include, but are not limited to, emissions associated with the reporting entity’s supply chain, business travel, employee commutes, procurement, waste, and water usage, regardless of location.”

[2] https://ghgprotocol.org/

[3] https://ww2.arb.ca.gov/our-work/programs/mandatory-greenhouse-gas-emissions-reporting/about

[4] https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=200520060AB32

[5] https://ww2.arb.ca.gov/sites/default/files/2021-02/ct_reg_unofficial.pdf

[6] https://ww2.arb.ca.gov/sites/default/files/cap-and-trade/guidance/cap_trade_overview.pdf

[7] https://sd11.senate.ca.gov/news/20220126-senator-wiener%E2%80%99s-climate-corporate-accountability-act-passes-senate

[8] https://sjud.senate.ca.gov/sites/sjud.senate.ca.gov/files/sb_260_wiener_sjud_analysis.pdf

[9] https://www.gov.ca.gov/wp-content/uploads/2021/07/CARB-Letter_07.09.2021.pdf

[10] https://www.senate.ca.gov/sites/senate.ca.gov/files/2022_senate_legislative_deadlines.pdf