The Securities and Exchange Commission (SEC) is expected to finalize a new rule this month to cover required corporate climate disclosures by public-reporting companies. But the bigger news is that California Gov. Gavin Newsom (D) has announced that he will soon sign into law two climate change disclosure bills passed by the state Legislature

Delmas, Magali

Gerrard, Michael B.

Orts, Eric

English

Columbia Law School Scholarship Archive

Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 10-2023 In California and Europe, a New Dawn for Corporate Climate Disclosure Magali Delmas UCLA Institute of the Environment Michael B. Gerrard Columbia Law School, michael.gerrard@law.columbia.edu Eric Orts University of Pennsylvania, The Wharton School Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship  Part of the Environmental Law Commons Recommended Citation Magali Delmas, Michael B. Gerrard & Eric Orts, In California and Europe, a New Dawn for Corporate Climate Disclosure, THE HILL, OCTOBER 5, 2023 (2023). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/4170 This Article is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact scholarshiparchive@law.columbia.edu. OPINION > ENERGY AND ENVIRONMENTTHE VIEWS EXPRESSED BY CONTRIBUTORS ARE THEIR OWN AND NOT THE VIEW OF THE HILLIn California and Europe, a new dawn forcorporate climate disclosureBY MAGALI DELMAS, MICHAEL GERRARD, AND ERIC ORTS, OPINION CONTRIBUTORS - 10/05/238:30 AM ETShare TweetAP Photo/Mark Thiessen, FileFILE – A plume of smoke being emitted into the air from a power plant, Feb. 16, 2022, inFairbanks, Alaska. The Biden administration is proposing new limits on greenhouse gasemissions from coal- and gas-fired power plants, its most ambitious effort yet to reduceplanet-warming pollution from the nation’s second-largest contributor to climatechange.…The Securities and Exchange Commission (SEC) is expected to finalize anew rule this month to cover required corporate climate disclosures by... Morepublic-reporting companies. But the bigger news is that California Gov.Gavin Newsom (D) has announced that he will soon sign into law twoclimate change disclosure bills passed by the state Legislature.These laws will put the U.S. back into a global leadership position on effortsto contain the worsening climate emergency because of the expectedimpact of the “California Effect” in environmental law. This refers to theinfluence that California has had in leading the nation on ground-level airpollution, electric vehicle standards and other issues.California’s climate disclosure laws will also mesh with developmentsunderway in the European Union mandating climate disclosure, which willhave an analogous “Brussels Effect.” The EU has already adopted regulationsmandating nonfinancial disclosure by large companies doing businessthere.Taken together, this means a new day for corporate climate disclosure isdawning that will replace the hodgepodge of voluntary standards collectedunder the increasingly suspect heading of ESG (environmental, social, andgovernance). The new disclosure regime will help reduce rampantgreenwashing by firms that claim, for example, that they are committed toclimate targets — such as “net zero” by 2050 — but then do little to act onthese pledges.One law in California, the Climate-Related Financial Risk Act, will mandatethat firms with more than $500 million in annual revenues disclose everytwo years the climate risks they face and how they are managing those risks.A second law called the Climate Corporate Data Accountability Act willrequire standardized reporting of greenhouse gas emissions (carbon dioxideand methane for the most part) by firms with total global annual revenues ofmore than $1 billion.Both will apply only to firms that do business in California, but most bigcompanies do. The legal effect will be national and indeed global, given thatCalifornia would be the fifth-largest economy in the world if it were acountry. Many big global companies will be subject to parallel disclosurerules in Europe too.The new climate laws mark a sea-change in climate regulation, because theyinclude the disclosure of the greenhouse gas emissions both upstream anddownstream of the company itself — that is, from its suppliers andcustomers. Big companies typically disclose direct emissions, such as fromtheir factories, and sometimes they disclose the pollution produced fromthe electricity they use, but they rarely disclose indirect emissions, eventhough indirect emissions account for about 75 percent of total emissions.For example, an oil and gas company might reduce leakage from its wellsand refineries, and maybe even boast about it, but fail to disclose theemissions when its consumers burn the oil and gas. California’s law willrequire disclosure of a reasonable and good faith estimate of these indirectemissions.Although the SEC is expected to release its climate disclosure rules soon,these are likely to have much narrower scope than the California laws. TheSEC’s rule will apply only to public-traded companies, whereas theCalifornia laws will also apply to privately held firms. It is also rumored thatthe SEC may drop or significantly limit coverage of indirect emissions in itsfinal rule, in part because the rule may be vulnerable to legal challengeunder the “major questions” doctrine as outlined in last year’s West Virginiav. EPA Supreme Court decision.California’s laws stand a much better chance of success if challengedlegally. Just last May, the Supreme Court upheld the constitutionality of aCalifornia statute limiting the sale of pork produced from pigs subjected tocruel treatment, even though most of the pigs are raised outside California.This precedent, which unified conservative and liberal justices, would likelybe followed, and California’s new climate laws upheld too.   Although no panacea for the climate challenge, informational regulation ofthe kind coming online in California and Europe has worked well in otherenvironmental contexts. It has led to reduced toxic releases into the air,water and land. Mandated disclosure in electric utility markets has createdincentives for renewable energy development.Corporate disclosures of greenhouse emissions and climate policies arealso likely to prove effective in reducing some greenhouse emissions, giventhe power of transparency, and they are likely to be efficient too, becauseunlike many forms of government intervention this kind of regulation usesmarkets to influence behavior.Many leading businesses supported passage of the California law, includingApple, Google, IKEA, Microsoft, Patagonia, and Salesforce. More businesses— and individual investors, consumers, and citizens too — should welcomethe replacement of the current confusing choice among at least sevendifferent competing voluntary standards.The new dawn of a corporate climate disclosure regime with legal teethgives reason for hope that business firms will be incentivized to find moreclimate solutions the world needs in time to avoid the worst outcomes. Atthe same time, we might adapt an adage popularized by former PresidentRonald Reagan as a tagline: Hope, but verify.Magali Delmas is a professor at the Anderson School of Management anddirector of the UCLA Center for Corporate Environmental Performance.Michael Gerrard is a professor at Columbia Law School and director of theSabin Center for Climate Change Law. Eric Orts is a professor at the WhartonSchool of the University of Pennsylvania.TAGS CALIFORNIA EPA GAVIN NEWSOM GAVIN NEWSOMCopyright 2023 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast,rewritten, or redistributed.SHARE TWEET ... MORE

In California and Europe, a New Dawn for Corporate Climate Disclosure

https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=5188&context=faculty_scholarship

In California and Europe, a New Dawn for Corporate Climate Disclosure

Abstract

Similar works

Full text

Available Versions

Columbia Law School Scholarship Archive