ESG Professionals Watching, Bracing For Impact Of New State Climate Disclosure Laws

New California climate legislation is set to go into effect soon, and commercial real estate professionals are watching for potential impacts on businesses and what implementation will actually look like. 

California's SB 253, which would require companies with over $1B in revenue to report their greenhouse gas emissions to the state, including far-reaching Scope 3 emissions, is truly bleeding edge for the U.S., EcoAdvisorsRE principal Devin Saylor said at Bisnow’s Los Angeles ESG and Sustainability Commercial Real Estate Conference at the Hilton Los Angeles Culver City.

“This is really the first of its kind outside of Europe,” Saylor said on a panel discussion. “California is really leading the way.” 

However, in the same breath, Saylor acknowledged that SB 253 is “quite controversial” and noted that implementation is still to come. 

Another climate law, SB 261, requires companies with $500M in annual revenues to disclose their climate-related financial risks and mitigation measures. Both bills were signed into law late last year, but the California Air Resources Board needs funding to hire staff and prepare to put SB 253 into action. That funding, and funding for other laws passed in the last legislative session, was not allocated in the preliminary budget put forth by Gov. Gavin Newsom in January. 

Government officials pointed to the state’s anticipated $68B budget shortfall as the reason to put off allocations temporarily and said funding would be assigned by May when the revised state budget comes out. 

With the Securities and Exchange Commission’s finalized rules that require large companies to report some of their carbon emissions — but not Scope 3 emissions, as originally planned — California’s regulations stand to be the nation’s strictest.

“The trickle-down impact will be really substantial,” U.S. Green Building Council - Los Angeles Executive Director Ben Stapleton said, noting that while billion-dollar companies are called on to comply, doing so will mean getting information from their tenants about their respective supply chains. 

“A lot of those companies, especially a lot of the smaller to medium-sized businesses, don't know how to do that reporting,” Stapleton said. “And that's going to be a very big, big challenge.”

“I think there's a lot of fear” about these state disclosure rules going into effect, Saylor said. 

Regardless of the trepidation that CRE may have about the new regulations, Stapleton said it’s critical that the industry stay on top of climate-related rules, not only for the near term but for the long term. 

“In today's real estate market, you really need to be thinking about how you are creating value,” Stapleton said. “How are you future-proofing your assets?”

Large credit tenants are already expecting to get ample data on their buildings, and future buyers of buildings will have similar expectations, Stapleton said. He advocated for getting systems in place now to produce the data that will be needed to answer investor and tenant questions down the road. 

“Otherwise, you’re going to have a big problem down the road,” he said.