Full disclosure

Photo by Maxim Tolchinskiy on Unsplash

Many companies publish emissions data on a voluntary basis, but with no consistent methodology it can be difficult to know whether an individual firm is performing well or not. Mandatory disclosure requirements increase the degree of transparency, cutting the considerable search costs involved with analysing one company’s emissions against its competitors. Policymakers reason that forcing businesses to publish detailed emissions data will motivate them to push for ever greater cuts to their emissions.

Being able to compare one firms emissions with another helps management, investors and the wider public understand who is responsible, provide clues as to best-in-class emission cutting behaviour, and importantly, help direct capital to the best carbon mitigation opportunities. In the absence of a carbon price, mandatory reporting is the next best thing. Indeed, acceptance of the latter could at some point become a prelude for the introduction of the former. Get the basics right and its likely to mean that carbon pricing will be much more effective.

California already has a carbon price covering some 80% of the states emissions. Nevertheless, there’s always room for improvement. In the past week a landmark climate bill passed the state’s legislature. The new law (the Climate Corporate Data Accountability Act) will require all companies with more than $1 billion in revenue to disclose their Scope 1, 2 and 3 emissions. The law would be the first of it’s kind in the United States and cover over 5,000 companies. California’s governor has until 14th October to sign-off the legislation. If passed, the law would require those firms that meet the revenue threshold to report their Scope 1 and 2 emissions from 2026, and Scope 3 emissions from 2027 (see Owning up to Scope 3).