Issue link: https://resources.tangoanalytics.com/i/1522479
RELEVANCE, SIGNIFICANCE, & IMPACT 01 Many large public companies in the U.S. now issue some form of sustainability report, adhering to voluntary standards and frameworks such as SASB, GRI, CDP, TCFD, UN SDGs, etc. It is likely that even without the threat of regulation, voluntary disclosure would continue scaling in its usage by companies due to quasi-mandated investor pressure. However, regulation is intended to serve as a standardization mechanism of information already being seen as financially relevant by market forces. Reflecting Voluntary Disclosure Trends 03 In 2023, we observed the scaling frequency and impacts of climate change-related disaster events, from deadly wildfires, severe hurricanes, and flooding events, to extreme heat waves. Increasing billion-dollar disaster events and rising insurance premiums to match are the catalysts for rule SB 261 and the increasing recognition of the importance of understanding climate-related risk and accelerating effective mitigation. This bill is the first mandatory climate-related risk disclosure law to go into effect in the United States. It aims to safeguard consumers and investors from losses resulting from climate-related disruptions to supply chains, workforces, and infrastructure, which are increasing due to the effects of climate change. Protection from Risk 02 The inclusion of scope 3 reporting for SB 253 subject companies will lead to increased pressure throughout value chains for scope 1 and 2 emissions disclosures, as these help larger companies create more accurate scope 3 emission footprints. This could result in an outsized impact on smaller companies that otherwise would not be required to report on their emissions. Value Chain Impact 04 Because of California's outsized influence on the global economy as they are poised to be "the fourth largest economy" in the world, they promise to shape business practices well beyond the borders of the state. California has long been at the forefront of environmental initiatives. From pioneering fuel efficiency standards for cars to passing these laws, the state sets the bar high for corporate and environmental responsibility. Every corporation must comply, whether headquartered in California or simply operating there, and now with the ruling extending requirements to private companies, the range of disclosure impacts will scale tremendously. In the U.S. Companies as varied as Apple and United Grocers, obviously have to comply. So do the Netherlands-based Ikea and New York-based Eileen Fisher, which sells products as varied as furniture and clothing to California companies and consumers. The California Effect 05 Supporters of the package contend that enhanced accountability will contribute to reducing the carbon footprint of large corporations, which are the major emitters of greenhouse gasses as consumers and regulators will be able to readily identify companies that are falling behind and encourage them to take climate action. If a business is already measuring and disclosing its GHG emissions, the proposed reporting framework will highlight those initiatives. Encouraging Emissions Reductions Sustainability & Energy Management Simplified