California's Bold Step: Raising the Bar on Corporate Carbon Transparency
In mid-September, California’s legislators passed the Climate Corporate Data Accountability Act, SB 253, and Governor Gavin Newsom plans to sign it into law.
The law will require over 5,000 large companies to disclose their greenhouse gas emissions, including the dreaded category of Scope 3, which are notoriously difficult for companies to measure. SB 253 defines a sequence of events and dates for carbon disclosures:
By 2025: The California Air Resources Board (CARB) will establish reporting rules.
By 2026: Companies will have to report their emissions from operations and electricity use (Scopes 1 and 2).
By 2027: Companies will have to disclose emissions generated by their value chains (Scope 3).
Why are reporting and disclosures critical to market transformation?
Mandatory corporate disclosures level the playing field by making it hard to hide behind well-marketed greenwashing and aspirational commitments. Transparency and accountability can be uncomfortable and costly for companies who have slow-rolled their transition to non-toxic products and low-carbon operations. Here are a few examples to consider, in addition to California’s SB 253:
US SEC’s proposed climate-related disclosures for publicly listed US companies
California’s “Cleaning Products Right to Know Act of 2017” – requiring ingredient disclosure (SB 258)
Oregon’s “Toxic-Free Cosmetics” bill, which passed in June (SB 546)
The countdown to mandatory carbon disclosures should be a sign to executives that it’s time to fund those energy efficiency upgrades and anticipate capital expenditures like owned solar installations and their associated RECs.
Scope 3 – It Takes Time
California’s bill phases in the disclosure requirements, starting with Scope 1 and Scope 2, and provides an additional year before companies will need to disclose their Scope 3 emissions.
This is practical. Depending on the details of the disclosure, California’s SB 253 could end up having sharper regulatory teeth than the SEC’s proposed disclosures, which provides a “safe harbor” provision for Scope 3 disclosures, essentially awarding an A for Effort, when it should be an A for Accuracy.
Scope 3 can be difficult to understand. It requires companies to understand their suppliers, their customers, their employees’ commuting habits, and feels like the bric-a-brac shelf at a thrift store. Let’s break it down to make Scope 3 less confusing.
First, the World Resource Institute’s Scope 3 protocol document is the “Corporate Value Chain (Scope 3) Standard.” Let’s get some clarity on concept of a value chain and other overlapping business frameworks:
1.) Supply Chains
2.) Value Chains
3.) Circular Business Models
1. Supply Chains
Scope 3 requires companies to account for the emissions sources that occur across your supply chain: your network of suppliers that provide physical components, that transport those raw materials to your production site, and the transportation suppliers for your final product, including the warehousing of that final product. Here are examples of supply chain Scope 3 emissions categories:
· Purchased Goods and Services – Scope 3, Category 1
· Upstream Transportation and Distribution - Scope 3, Category 4
2. Value Chains
Scope 3 emissions span your company’s value chain – which is a concept that overlaps with supply chains and adds on activities that create value: marketing, sales, services, and internal and external business relationships. Employee commuting could be categorized as part of the company’s value chain, as companies can usually determine how often employees must be on site and can influence what mode of transportation is most convenient. In the same bucket, companies are responsible for the emissions that occur when their employees travel to meet customers, attend conferences, and all other types of business travel.
· Business Travel – Scope 3, Category 6
· Employee Commuting – Scope 3, Category 7
3. Circular Business Model / Circularity
A circular system is the opposite of our current and traditional form of production: linear, which means we source materials, transform them during production, any production waste goes to landfills; final products are used and disposed of by consumers and sent to landfills.
Circularity is an end-goal where all outputs, whether production waste, packaging, or the used product, is designed to be collected and transformed (recycled) into a different end product that has equal value. Scope 3 categories that reflect circularity principles include:
Use of Sold Products – Scope 3, Category 11
A longer-lasting product has lower emissions for its total use life.
Waste generated in operations – Scope 3, Category 5
A reduced volume of production waste results in fewer emissions from waste processing.
From the above examples, it might be clearer what types of collaborations are critical to measure and reduce your Scope 3 emissions. Specifically, you will be:
Building alliances with suppliers
Innovating with your R&D teams to apply circularity principles
And developing low carbon purchasing policies with your procurement leaders
Do Your Customers Understand Scope 3?
In many cases: yes. In some cases: not yet. But evidence of consumer demand shouldn’t delay your work in this area. In this time of rapid transition, globally and domestically, companies need to start now to understand their supply chain carbon hot spots in order to prepare for supply chain disruptions, emerging regulations, new market realities, evolving customer demand, and the next generation, many of whom identify as “climate voters.”
Scope 3 is Critical – We Can Help
Many companies are just getting started or are starting to take this work to the next level. Measuring and understanding your company’s carbon footprint is not simple or formulaic. Your company will benefit from an external partner with the right expertise to help you prepare for action, avoid greenwashing, and integrate sustainability into your corporate processes and strategy.
Uplift’s team of experts are ready to partner with you and make it happen.
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
