California’s New CRE Climate Bill: How will it impact Investors & Developers

California recently passed a series of new climate bills, with one in particular, SB 253, gaining significant attention due to its potential impact on large companies operating within the state. 

What the bill entails: Sponsored by Senator Scott Weiner, SB 253 aims to compel companies to thoroughly assess their greenhouse gas emissions as well as those of the businesses they collaborate with. The ultimate goal is to create a comprehensive understanding of these major companies' environmental impacts and promote decarbonization efforts.

SB 253 instructs the California Air Resources Board to establish regulations requiring businesses with annual revenues of $1 billion or more, operating in California, to publicly disclose greenhouse gas emission data for both themselves and their entire supply chain. 

Companies will need to monitor and disclose three types of emissions:

• Scope 1 Emissions: These are emissions generated directly by a company's operations, including emissions from their buildings and vehicles.

• Scope 2 Emissions: These encompass indirect emissions associated with a business's purchase of utilities.

• Scope 3 Emissions: This category includes all other indirect emissions, constituting a comprehensive carbon footprint assessment that encompasses emissions generated by the entire supply chain of a business.

Scope 3 emissions are particularly significant, as they are estimated to account for approximately 75% of emissions produced by most businesses across all sectors. For the real estate industry, Scope 3 emissions make up roughly 90% of the average firm's greenhouse gas output.

The implications of these reports: However, complying with emissions reporting can be complex, requiring businesses to collect data from their clients, customers, and suppliers. For instance, a developer may need to gather data on the emissions generated during the production of materials used for constructing buildings. 

How smaller companies will be affected: Even businesses with revenues below $1 billion may be impacted. For instance, small or medium-sized businesses leasing space from larger, revenue-exceeding companies may be required to provide emissions data to their landlords.

In summary, the full extent of SB 253's impact remains uncertain until the regulations are finalized, debated, and approved. It's worth noting that similar regulations are being considered in the European Union, potentially creating overlaps for companies operating in both California and the EU.