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California's New Emissions Disclosure Bill: What It Is And What It Means For CRE

California passed a slew of new climate bills this month, but one in particular is being closely watched for its potentially wide-ranging impacts on big companies that do business in the state.

Called SB 253, it would require companies to look closely at their greenhouse gas emissions and those of the companies they work with. The hope, the bill's sponsor, Sen. Scott Weiner, has said, is to create a full picture of the environmental impacts of these major companies and encourage decarbonization.

But what is SB 253 and what does it mean for commercial real estate?

The bill could require businesses with over $1B in revenue operating in California to report the emissions generated by their customers, tenants and suppliers.

What is SB 253?

SB 253 directs the California Air Resources Board to adopt regulations mandating businesses with annual revenue of $1B or more that do business in California to publicly report greenhouse gas emission data for themselves and their entire supply chain. It’s estimated that more than 5,000 companies would fall under the criteria that would trigger the reporting.

This would mean businesses, both public and private, will have to track and report three types of emissions. That includes direct emissions — those created by their buildings and their vehicles, also called Scope 1; indirect emissions, like those associated with the business’s purchase of utilities, also known as Scope 2; and Scope 3, including all other indirect emissions — a full carbon footprint accounting that includes those generated by the supply chain of a business.

That last one, Scope 3, is a big deal. Scope 3 emissions are estimated to account for about 75% of all emissions generated by most businesses across all sectors, according to CDP, a nonprofit formerly called the Carbon Disclosure Project that runs a global disclosure system for companies, investors and governments. Scope 3 emissions make up about 90% of the average real estate firm’s greenhouse gas output, a Bisnow investigation found earlier this year.

Scope 3 emissions are also the most complicated. To be in compliance at this level would likely require businesses to collect information from their clients or customers and suppliers. A developer would need to get data on the emissions generated by the materials purchased to build structures. The internationally recognized guidelines that define the scopes also include upstream and downstream emissions from leased assets, meaning that building owners might have to get data on how much energy is being used by all their tenants.

Who supports it? Who opposes it?

Some household names submitted or signed onto letters in support of the bill, including Apple, Microsoft, Salesforce and Ikea USA. 

A coalition of business groups, including the California Business Properties Association and NAIOP, submitted a letter in opposition to the bill when it was working its way through the legislature.  

Is it going to be signed into law?

Yes, Gov. Gavin Newsom said earlier this month that he would sign the bill, but that his office would "clean up" some of the language, according to CNBC.

Then what?

The California Air Resources Board has to come up with the actual regulations and adopt them before Jan. 1, 2025. 

While there is the text of the bill to go on, experts who spoke to Bisnow emphasized that until those regulations are hammered out, it’s still not exactly clear what all the impacts of this new bill will be.

Isn’t this just like the Security and Exchange Commission’s pending regulations?

Yes and no. The SEC’s rules would require only publicly traded companies to report their emissions. Those would theoretically include Scopes 1 through 3, but it remains unclear whether or to what extent the SEC will require the supply chain emissions reporting. So it is possible there could be duplication, but it is also possible for SB 253 to go beyond what the SEC is proposing. 

The former scenario is something that business groups and CRE industry groups have expressed concern about in their opposition to this bill. There are also European Union regulations around emissions under review now that could potentially cover some of the same ground as SB 253 and potentially overlap for companies that do business there and in California.

I'm not a company with $1B in revenue. I’m in the clear, right? 

Not necessarily. For instance, some CRE industry experts said it seems possible that if you are a small or midsized business that is a tenant in a building owned by a $1B-plus company, you could be called on to provide information to your landlord so it can be included in your landlord’s report to the state. Conversely, if you don't meet that $1B threshold but you are a building owner and your tenant does, you might have to give them some information on your emissions. 

But again, until the regulations have been created, debated and voted on, it’s not clear exactly who will have to report what.