California's climate disclosure law is good for business

Californians understand why our state must lead in combating the climate crisis: We are uniquely vulnerable; we can suffer from drought one day and catastrophic flooding the next; and we can experience mudslides, forest fires and air quality warnings all in the same month.

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If my home state can’t curb its greenhouse gas emissions, no one can. To their great credit, Gov. Gavin Newsom and the California State Legislature have focused on the unglamorous-yet-essential tasks that make a real difference in limiting emissions. Efforts like sustainable policies and market-driven mechanisms (such as the Low Carbon Fuel Standard) are absolutely essential to curbing the climate crisis, given that California is the world’s fifth-largest economy.

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Chief among these policies are Senate Bills 253 and 261, which require large companies to disclose their emissions (in other words, how much of an impact they make on climate change and how much climate-related risk they face). This is information critical to consumers, policymakers and investors who want to do right by the planet and their bottom lines.

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Despite complaints and threats of lawsuits from some of America’s biggest emitters, these new rules are actually great for business, and Californians of all stripes should support them.

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Signed into law last October, SB 253 requires public and private businesses with annual revenues over $1 billion and operations in California to submit emissions calculations to a digital reporting platform. They must also hire independent auditors to verify their reported emissions. SB 261, meanwhile, requires companies operating in the state with over $500 million in annual revenue to prepare biennial reports disclosing climate-related financial risk, and, in turn, the steps they have taken to reduce and adapt to it.

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These rules help the market in how they level the playing field among private and public companies by creating clear guidelines and standards for something many companies are already doing. We are not alone either. The European Union has advanced a Corporate Sustainability Reporting Directive. It has been in effect since January 2023 and requires EU businesses — including qualifying subsidiaries of non-EU companies, many of whom meet the qualifying requirements for SBs 253 and 261 — to report on the environmental impact of their business activities, as well as on the business impact of their environmental efforts.

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Companies that collect emissions data and connect it back to their overall strategy perform better. They are better able to anticipate risks to their supply chains, see where they are wasting energy (and thus money) and make a more compelling case to customers who are increasingly demanding sustainable products. When companies use the data they collect, it can make them operate more efficiently and more profitably.

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This is particularly true for public companies and their owners (i.e., their shareholders). Just as consumers are demanding sustainable products, so, too, are many stockholders demanding sustainable companies. After all, over seven trillion dollars is in sustainability-focused funds, and those funds have difficulty justifying investing in companies that do not report emissions data. Indeed, a meta-analysis by the MIT Sloan School of Management found that higher environmental, social and governance (ESG) scores led to higher stock prices, while ESG downgrades lowered stock prices.

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Finally, reporting requirements will help restrain the symptoms of a changing climate. Unbridled climate change would be devastating to some of California’s biggest industries. Last summer’s wildfires caused over $12 billion in damage, and recent torrential rains caused an estimated $11 billion more. SBs 253 and 261, as part of a larger effort, will help us prevent a time when such catastrophic damage looks quaint by comparison.

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Tom Steyer is co-executive chair of Galvanize Climate Solutions.