Two new California laws on climate disclosure have attracted considerable attention because of their potentially far-reaching impact on U.S. public company disclosures and because they seem to put California ahead of the SEC in formulating climate disclosure policy. See California Outflanks the SEC on Climate Disclosure, October 2023 Update. A third, less publicized, new California climate disclosure law also has the potential to affect many U.S. public companies.
AB 1305, Voluntary Carbon Market Disclosures, applies to any entity operating in California that (1) makes claims regarding the achievement of net zero emissions, (2) makes claims that the entity, a related or affiliated entity, or a product is “carbon neutral,” or (3) makes other claims implying the entity, related or affiliated entity, or a product does not add net carbon dioxide or greenhouse gases * * * to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions” A company that makes any of these claims must disclose on its website:
“All information documenting how, if at all, a ‘carbon neutral,’ ‘net zero emission,’ or other similar claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured.” This information may include, “disclosure of independent third-party verification of all of the entity’s greenhouse gas emissions, identification of the entity’s science-based targets for its emissions reduction pathway, and disclosure of the relevant sector methodology and third-party verification used for the entity’s science-based targets and emissions reduction pathway.”
Whether there is independent third-party verification of the company data and claims.
AB 1305 also contains detailed disclosure requirements applicable to entities that market or sell voluntary carbon offsets in California and to companies operating in California or that purchase voluntary carbon offsets in California.
AB 1305 is effective on January 1, 2024. Companies must update their disclosures annually. The penalty for violations is $2,500 for each day that required information is not available on the entity’s website or is inaccurate, with a maximum of $500,000 per violation. AB 1305 applies to all entities that operate in California, make carbon-neutral claims in California, or purchase or sell carbon offsets in California, regardless of where the entity is organized or headquartered. The law does not define the meaning of “in California” for these purposes, and its scope is therefore potentially quite broad.
Companies should not make public statements regarding a commitment to carbon neutrality lightly and without a tangible plan to achieve the promised goal.
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