California's new climate laws are set to have a global impact; the state is the fifth-largest world economy

Lily Hsueh, Associate Professor of Economics
and Public Policy, Arizona State University

Under California's new climate laws, corporate behemoths like Apple and Exxon that do business in the state will have to track and report "almost all their greenhouse gas emissions -- including emissions from their supply chains, business travel, employees' commutes and the way customers use their products," reports Lily Hsueh for The Conversation, a platform for journalism for academics. "That means oil and gas companies like Chevron will likely have to account for emissions from vehicles that use their gasoline, and Apple will have to account for materials that go into iPhones."

The mandatory disclosure laws are "a huge leap from current federal and state reporting requirements, which require reporting only certain emissions from companies' direct operations. And it will have global ramifications," Hsueh explains. While other places have similar laws, "California is the fifth-largest economy in the world. So, the state's new laws are poised to have substantial influence worldwide."

Despite the change in rules, many corporations knew mandatory reporting was coming and prepared, and some were already doing a portion of it. "Close to two-thirds of the companies listed in the S&P 500 index voluntarily report to CDP, formerly called the Carbon Disclosure Project. CDP is a nonprofit that surveys companies on behalf of institutional investors about their carbon management and plans to reduce carbon emissions," Hsueh reports. "Many also face reporting requirements elsewhere, including in the European Union, the United Kingdom, New Zealand, Singapore and cities like Hong Kong."

Research is unclear if mandatory disclosures work.
(Photo by Robin Sommer, Unsplash)

What changes do mandatory disclosures make in terms of lowering greenhouse gas output? Hseuh writes, "My research shows that voluntary carbon disclosure systems like CDPs that focus on reporting corporate sustainability outputs, such as having science-based emissions targets, tend not to be as effective as those that focus on outcomes, such as a company's actual carbon emissions. . . . For example, a company could earn an A or B grade from CDP and still increase its entity-wide carbon emissions, notably when it does not face regulatory pressure.

"In contrast, a recent study of the U.K.'s 2013 disclosure mandate for U.K.-incorporated listed firms found that companies reduced their operational emissions by about 8% relative to a control group, with no significant changes to their profitability. When companies report their emissions, they can gain important knowledge about inefficiencies in their operations and supply chains that weren't evident before. . . . Ultimately, a well-designed disclosure program, whether voluntary or mandatory, needs to focus on consistency, comparability and accountability. Those traits allow companies to demonstrate that their climate pledges and actions are real, not just a front for greenwashing."