Four Sustainability Laws in California You Should Know

California stands at the forefront of climate-related legislation and disclosure requirements in the United States. The state has enacted numerous laws to promote transparency around climate risks and the environmental impact of business operations. This blog post provides an overview of California’s key climate disclosure laws and regulations, highlighting their significance and implications for businesses. It includes the latest legislative developments, key takeaways, and how companies can prepare for current and future legislation.

Key Climate Disclosure Laws and Regulations in California

1. SB-49 California Climate Disclosure Act (2019)

The SB-49 Act extends the responsibilities of California’s Climate-Related Risk Disclosure Advisory Group. This group analyzes the financial risks of climate change affecting companies, particularly those registered with the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). The advisory group provides recommendations on improving climate-related financial risk reporting.

2. Regulation by the California Department of Insurance

The California Department of Insurance has taken significant steps to address climate risks:

Climate Risk Disclosure Survey: Since 2010, insurers with premiums over $100 million must respond annually to a Climate Risk Disclosure Survey available to the public. This survey requires insurers to disclose how they incorporate climate change into their risk models and investment strategies.

Sustainable Insurance Roadmap: A recent initiative encouraging insurance companies to integrate sustainability into their governance frameworks, risk management processes, and business strategies.

3. CalPERS and CalSTRS Climate Risk Reporting

CalPERS and CalSTRS must consider climate change risks in their investment strategies and report their impact on their investment portfolios. This includes:

Annual Financial Climate-Related Risk Reports: Detailing the financial risks posed by climate change relevant to public investment funds.

Engagement: Involvement in shareholder engagement to promote better climate risk disclosure and management among invested companies.

4. California’s Role in TCFD and Other Frameworks

California strongly supports the Task Force on Climate-related Financial Disclosures (TCFD) and other international frameworks encouraging voluntary climate-related financial information disclosure. State regulators often encourage or expect companies to align their disclosures with these standards.

New Legislation Affecting Organizations Doing Business in California

AB-1346 Zero-Emission Small Off-Road Engines (Proposed): This bill aims to phase out the sale of new gas-powered small off-road engines, such as those used in lawn equipment and generators, by 2024. Businesses using such equipment would need to transition to zero-emission alternatives.

SB-596 Net-Zero Emissions in Cement (Proposed): This legislation would require cement manufacturing facilities to achieve net-zero greenhouse gas emissions by 2045. The bill includes interim targets and mandates adopting best practices and technologies to reduce emissions.AB-1500 Greenhouse Gas Reduction Fund: This bill proposes allocating funds from the state’s Greenhouse Gas Reduction Fund to support projects that mitigate climate change impacts, including those focused on carbon sequestration, energy efficiency, and renewable energy. Businesses could benefit from grants and incentives for sustainable projects.

Key Takeaways

Organizations doing business in California can expect the following in regards to sustainability reporting requirements:

1. Comprehensive Disclosure: Businesses must be prepared to disclose both direct and indirect GHG emissions.
2. Financial Risk Reporting: Financial institutions must transparently report their fossil fuel investments and climate risk exposure.
3. Sustainable Practices: Insurance companies and public investment funds are leading the way in integrating climate considerations into their strategies.
4. Alignment with International Standards: California supports global frameworks like TCFD, pushing businesses to align with these standards.
5. Future Legislation: New proposals target emissions reductions and sustainable practices, indicating a trend towards stricter regulations.

How Businesses Can Prepare and Adapt

1. Develop Robust Data Collection Systems: Implement comprehensive systems to track and report GHG emissions and climate-related financial risks accurately.
2. Engage in Stakeholder Communication: Maintain open communication with stakeholders to demonstrate transparency and accountability in managing climate impacts.
3. Invest in Sustainability: Explore opportunities to invest in renewable energy, carbon sequestration, and energy efficiency projects and to benefit from state incentives and grants.
4. Stay Informed: Keep abreast of new and proposed legislation to anticipate and prepare for future regulatory changes.
5. Adopt Best Practices: Integrate sustainability into governance frameworks and risk management processes to build resilience against climate-related risks.

Conclusion

California’s climate disclosure laws are designed to increase transparency and drive better corporate behavior by integrating climate considerations into all business planning and strategy aspects. This regulatory environment pushes companies towards greater resilience against climate-related risks, ultimately contributing to broader climate change mitigation and adaptation goals.