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The impact of California’s new climate accountability laws on food and agriculture companies

Two new ground-breaking California laws will require companies doing business in California, including food and agriculture companies, to report their annual greenhouse gas emissions, climate-related financial risk exposures, and climate risk management plans. Notably, the reach of the California laws extends beyond the proposed Securities and Exchange (SEC) climate-related financial risk rule (which also would mandate emissions disclosures and which IATP strongly supported) to include privately held companies, such as Cargill, as well as companies covered by the proposed SEC rule. Corporate climate disclosures, which have been voluntary, inconsistent, and not comparable, will, for the first time, be standardized and comparable.

The laws, to be implemented by California Air Resource Board (CARB) regulations, are additions to California’s “Health and Safety Code.” Emissions levels and progress in reducing emissions are important indicators of the scale of climate-related financial risk that the companies covered by the law must transparently and comprehensively report. The most notorious recent failure to manage corporate climate-related financial risk in California was the 2018 bankruptcy of Pacific Gas and Electric (PG&E) related to wildfires caused in part by PG&E’s failure to invest in infrastructure upgrades to its power stations and energy grid. Among the billions of dollars of wildfire damage from PG&E’s climate risk management failures were nearly 400 buildings plus vineyards in California’s famed wine industry.

On October 7, California Governor Gavin Newsom signed a bill to mandate biennial corporate climate financial risk disclosure reports (SB 261) and a bill to require annual standardized disclosure of greenhouse gas emissions for covered corporations, including their subsidiaries, doing business in California (SB 253). (Insurance companies are exempt but covered by a separate bill.) SB 261 covers businesses with annual revenues of $500 million and that “do business in California.” SB 253 applies to companies, including subsidiaries, with annual revenues of $1 billion and that “do business in California.” “Doing business in California” is defined by three criteria, including the transaction of taxable sales, which in 2022 must-have exceeded $690,144. Opponents, including fossil fuel giants, have willfully mischaracterized SB 253 as a “hidden tax on small business.” However, the “and” ensures that your “small business” must have annual revenues of $1 billion or more to be subject to the law.

SB 253 is expected to impact about 5,300 companies. According to CDP (formerly the Carbon Disclosure Project), about 45% of U.S. and Canadian publicly traded companies with more than $1 billion in revenue already disclose annually and voluntarily their emissions and other climate-related financial risk data through CDP. We discuss SB 253 first and then SB 261 below.

What is in SB 253, California’s GHG emissions disclosure law?
In a signing statement, Governor Newsom said that SB 253 deadlines for emissions disclosure were “likely unfeasible” and that emissions reporting protocols, whose use is mandated in the bill, might result in inconsistent reporting among different types of businesses. He asked the legislature to address those problems. SB 253 proponents anticipate that opponents, including fossil fuel companies and the California Chamber of Commerce (CalChamber), will use the signing statement to try to kill the bill in the legislature and/or in the courts. Chamber President Jennifer Barrera said, “We look forward to working with the Governor’s office on SB 253 clean-up legislation that will address some of the major concerns of our members, particularly the impact on small business.”

Unlike the proposed SEC climate financial risk disclosure rule, which also requires both GHG emissions reporting and climate risk disclosure for SEC-registered companies, the California legislation covers privately held companies in addition to publicly traded companies registered with the SEC. Many food processing, food retail chains, and agribusiness companies are privately held, such as Cargill. Trade associations are repeating some of the same criticisms about the California legislation that agribusiness expressed about the proposed SEC rule, summarized last year by IATP.

An April 17 agribusiness and commodity group letter to the SEC argued, “the Commission has the legal authority to carve the agriculture industry out of Scope 3’s [value chain emissions] obligations and should do so.” (p.5) The letter proposes exemptions for the industry from climate risk reporting, including “any agricultural entity with less than $100 million in annual revenue cannot be compelled to supply information to a public company that is obligated under Scope 3.” (p. 6) Were the SEC to grant the proposed agribusiness carveout and exemptions, other industries would demand equal treatment, and the rule’s efficacy for informing investors about corporate climate financial risks and plans to manage those risks would collapse. A March 15 letter from IATP and 19 other signatories proposed a clarification to the rule and noted, “A recent study of 100 major food companies found that 51 already disclose Scope 3 emissions from suppliers.”

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