California’s Landmark Climate Law Sets Strict Reporting Rules for Large Manufacturers

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California’s New Climate Law Puts Pressure on Big Manufacturers

California has introduced a tough new climate law that will make large companies share detailed information about the greenhouse gases they produce. This law, called the Climate Corporate Data Accountability Act (SB 253), was signed by Governor Gavin Newsom in October 2023. It is one of the strictest rules of its kind in the United States. Companies with over $1 billion in yearly revenue and that do business in California must now get ready to follow these rules.

What the Law Requires

The law affects major manufacturers and other large companies. It requires them to report three types of greenhouse gas emissions:

• Scope 1: Direct emissions from things like company-owned factories and vehicles.
• Scope 2: Indirect emissions from the energy the company buys, such as electricity.
• Scope 3: Value chain emissions, which include all other indirect emissions—like those from suppliers, how customers use their products, and even how products are disposed of.

Scope 3 emissions are the most challenging to measure because they involve many parts of a company’s supply chain, sometimes across the globe.

When Companies Must Start Reporting

The law doesn’t require companies to start reporting everything right away. Here’s the timeline:

• 2026: Companies must report Scope 1 and 2 emissions, using data from 2025.
• 2027: Companies must begin reporting Scope 3 emissions.

The California Air Resources Board (CARB) will create the detailed rules and instructions for how companies should measure and report their emissions. CARB will also set the standards for verifying the data and decide how the reports should look.

Why This Law Matters

Supporters of the law believe it will make a big difference in how companies handle their climate impact. Mary Creasman, CEO of California Environmental Voters, called the law “a game-changer for corporate climate accountability.” She said, “It will force companies to be transparent about their climate impact and take meaningful steps to reduce emissions.”

California has set a goal to become carbon neutral by 2045, meaning the amount of greenhouse gases it adds to the atmosphere will be balanced by the amount it removes. The new law is meant to help the state reach this goal and set an example for other states and countries.

Industry Concerns and Challenges

Not everyone is happy about the new requirements. Many business groups say that following the rules will be complicated and expensive, especially when it comes to Scope 3 emissions. Jay Timmons, President of the National Association of Manufacturers (NAM), warned, “Manufacturers are committed to sustainability, but we need clear, consistent rules that recognize the realities of global supply chains.”

Some of the main concerns from industry leaders include:

• The difficulty of collecting accurate data from all parts of their business, especially suppliers in other countries.
• The cost of hiring experts or new technology to track and verify emissions.
• The risk of having to follow different rules in different states, which could make things even more confusing.

Possible Legal Battles

There is a chance that some companies or business groups will challenge the law in court. They question whether California can force companies based in other states or countries to follow these rules just because they do business in California. However, legal experts point out that California’s huge market gives it a lot of power. Most large companies will not want to miss out on doing business in California.

Preparing for the New Rules

Even before the detailed rules are finished, many manufacturers are already getting started. They are:

• Reviewing their emissions data collection systems
• Working with suppliers to figure out how to track emissions across the supply chain
• Looking into new technologies to help with tracking and reporting
• Seeking third-party companies to help verify their emissions data

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, said, “This is a wake-up call for companies to get serious about climate risk management. Transparency is the first step toward accountability and action.”

A Model for the Rest of the Country—and the World

Many experts believe that California’s climate risk law could become a model for other states and even other countries. Because many big companies operate in several places, these rules might push them to change their behavior everywhere, not just in California.

As California pushes forward with its ambitious climate goals, the new law is expected to speed up the use of emissions tracking technologies and will likely increase the demand for experts who can help companies verify their data. All eyes are on California to see how these rules will work and what impact they will have on the fight against climate change.