38537.
(a) For purposes of this section, the following terms have the following meanings:(1) “Baseline scenario” means a widely recognized analysis scenario in which levels of greenhouse gas emissions, as of the date on which the analysis is performed, continue to grow, resulting in both of the following:
(A) An increase in the global average temperature of 1.5 degrees Celsius or more above pre-industrial levels.
(B) The realization of physical risks relating to global climate change.
(2) “Carbon dioxide equivalent” has the same meaning as set forth in
subdivision (c) of Section 38505.
(3) “Climate change” means a change in climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and is in addition to natural climate variability observed over comparable time periods.
(4) “Commercial development of fossil fuels” includes both of the following:
(A) Exploration, extraction, processing, exporting, transporting, and any other significant action with respect to oil, natural gas, coal, or any byproduct of oil, natural gas, or coal.
(B) Acquiring a license for any activity described in subparagraph (A).
(5) “Covered corporation” means a publicly traded domestic or foreign
corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in the state and whose annual revenues exceed one hundred million dollars ($100,000,000).
(6) “Direct greenhouse gas emissions” means greenhouse gas emissions that stem from sources that a covered entity owns or directly controls.
(7) “Direct and indirect greenhouse gas emissions” means all of the following:
(A) All direct greenhouse gas emissions released by a covered corporation.
(B) All indirect greenhouse gas emissions with respect to electricity, heat, or steam purchased by a covered corporation.
(C) Significant indirect greenhouse gas emissions, other than the greenhouse gas
emissions described in subparagraph (B), that occur in the value chain of a covered corporation.
(D) All indirect greenhouse gas emissions that are attributable to assets owned or managed, or partially owned or managed, by a covered corporation.
(8) “Domestic corporation” means a corporation formed under the laws of this state.
(9) “Foreign corporation” means a corporation formed under the laws of a jurisdiction other than this state.
(10) “Fossil fuel reserves” means all producing assets, proved reserves, unproved resources, and any other ownership stake in sources of fossil fuels.
(11) (A) “Greenhouse gas” has the same meaning as set forth in subdivision (g) of
Section 38505, and also includes chlorofluorocarbons.
(B) “Greenhouse gas” also includes any other anthropogenically emitted gas or particulate that the United States Environmental Protection Agency or the state board determines contributes to climate change.
(12) “Greenhouse gas emissions” means the emissions of greenhouse gas, expressed in terms of metric tons of carbon dioxide equivalent.
(13) “Indirect greenhouse gas emissions” means greenhouse gas emissions that stem from sources that a covered corporation does not own or directly control.
(14) (A) “Physical risks” means financial risks to long-lived fixed assets, locations, operations, or value chains that result from exposure to physical climate-related effects, such as all
of the following:
(i) Increased average global temperatures and increased frequency of temperature extremes.
(ii) Increased severity and frequency of extreme weather events.
(iii) Increased flooding.
(iv) Sea level rise.
(v) Ocean acidification.
(vi) Increased frequency of wildfires.
(vii) Decreased arability of farmland.
(viii) Decreased availability of freshwater.
(B) “Physical risks” includes any other financial risks to long-lived
fixed assets, locations, operations, or value chains identified as appropriate by the state board.
(15) “Social cost of carbon” means the monetized present value, discounted at a 3 percent or lower discount rate, in dollars, per metric ton of carbon dioxide or carbon dioxide equivalent of the net global costs over 300 years caused by the emission of carbon dioxide or carbon dioxide equivalent that result from any of the following:
(A) Changes in net agricultural productivity.
(B) Decreases in capital and labor productivity.
(C) Effects on human health.
(D) Property damage from increased sea level rise, flooding, wildfires, and frequency and severity of extreme weather events.
(E) The value of ecosystem services.
(F) Any other type of economic, social, political, or natural disruption.
(16) “Transition risks” means financial risks that are attributable to climate change mitigation and adaptation, including efforts to reduce greenhouse gas emissions and strengthen resilience to the impacts of climate change, including both of the following:
(A) Costs relating to any of the following:
(i) International treaties and agreements.
(ii) Federal, state, and local policy.
(iii) New technologies.
(iv) Changing markets.
(v) Reputational impacts relevant to changing consumer behavior.
(vi) Litigation.
(B) Assets that may lose value or become stranded due to any of the costs described in subparagraph (A).
(17) “Value chain” means the total life cycle of a product or service, both before and after production of the product or service, as applicable, and may include the sourcing of materials, production, and disposal with respect to the product or service.
(18) “Well below 1.5 degrees scenario” means a widely recognized, publicly available analysis scenario in which human interventions to combat global climate change are likely
to prevent the global average temperature from reaching 1.5 degrees Celsius above pre-industrial levels.
(b) On or before January 1, 2024, the state board, in consultation with the Secretary of State and the Treasurer, shall develop and adopt regulations that do all of the following:
(1) (A) Beginning January 1, 2025, and annually thereafter, require a covered corporation to disclose to the state board and the Secretary of State all of the following information for the prior calendar year:
(i) The potential financial impacts of, and any risk management strategies relating to, both of the following:
(I) The physical risks posed to the covered corporation by climate change.
(II) The transition risks posed to the covered corporation by climate change.
(ii) A description of any corporate governance processes and structures established by the covered corporation to identify, assess, and manage climate-related risks.
(iii) A description of specific actions that the covered corporation is taking to mitigate identified climate-related risks.
(iv) A description of the resilience of the covered corporation’s strategy to address climate risks, taking into account different climate scenarios.
(v) A description of how climate risk is incorporated into the covered corporation’s overall risk management strategy.
(B) The disclosure required pursuant to
subparagraph (A) shall include any other information required to be disclosed by a covered corporation pursuant to the regulations adopted by the state board to implement this section.
(2) Establish climate change-related risk disclosure guidance that shall do all of the following:
(A) To the extent practicable, is specialized for industries within specific sectors of the economy as follows:
(i) The finance, insurance, transportation, electric power, mining, and nonrenewable sectors.
(ii) Any other sector determined to be appropriate by the state board.
(B) Establish reporting standards for estimating and disclosing direct and indirect greenhouse gas emissions by a covered corporation
that shall do both of the following:
(i) Separate, to the extent practicable, the total emissions of each specified greenhouse gas by the covered corporation.
(ii) Include greenhouse gas emissions by the covered corporation during the period covered by the disclosure.
(C) Include reporting standards for disclosure of both of the following:
(i) The total amount of fossil fuel-related assets owned or managed by the covered corporation.
(ii) The percentage of fossil fuel-related assets as a percentage of total assets owned or managed by the covered corporation.
(D) Establish a minimum social cost of carbon, which shall be
considered a minimum price with respect to costs associated with carbon emissions and shall be used by a covered corporation in preparing climate-related disclosure statements. A covered corporation, however, shall not be precluded from using and disclosing a higher price of greenhouse gas emissions.
(E) Specify requirements for, and the disclosure of, input parameters, assumptions, and analytical choices to be used in climate scenario analyses required pursuant to paragraph (4), including all of the following:
(i) Present value discount rates.
(ii) Timeframes to consider, including 5-, 10-, and 20-year timeframes.
(iii) The minimum pricing of greenhouse gas emissions, as established under subparagraph (D).
(F) Include documentation standards and guidance with respect to information required pursuant to paragraph (5).
(3) Require a covered corporation to incorporate into the covered corporation’s disclosure pursuant to paragraph (1) all of the following:
(i) A quantitative analysis to support any qualitative statement made by the covered corporation in its disclosure.
(ii) Industry-specific metrics that correspond to the sectors identified pursuant to subparagraph (A) of paragraph (2).
(iii) Specific risk management actions that the covered corporation is taking to address identified risks.
(iv) A discussion of the short-, medium-,
and long-term resilience of any risk management strategy, and the evaluation of applicable risk metrics, of the covered corporation under each scenario described in paragraph (4).
(v) The total cost of carbon attributable to the direct and indirect greenhouse gas emissions of the covered corporation, using, at a minimum, the social cost of carbon.
(vi) Any other information or climate change-related metric that the state board determines is necessary and appropriate to safeguard the public interest or directed at ensuring that investors are fully informed regarding the covered corporation’s climate-related risks.
(4) Require a covered corporation, when preparing any qualitative or quantitative risk analysis statement contained in the covered corporation’s disclosure pursuant to paragraph (1), to consider all of the
following:
(A) A baseline scenario that includes the physical impacts of climate change.
(B) A well below 1.5 degrees scenario.
(C) Any additional climate analysis scenario considered appropriate by the state board.
(5) If the covered corporation engages in the commercial development of fossil fuels, require the covered corporation to include in the covered corporation’s disclosure pursuant to paragraph (1) all of the following:
(A) An estimate of the total and disaggregated amount of direct and indirect greenhouse gas emissions of the covered corporation that are attributable to any of the following:
(i) Combustion.
(ii) Flared hydrocarbons.
(iii) Process emissions.
(iv) Fugitive emissions or leaks.
(v) Land use changes.
(B) A description of all of the following:
(i) The sensitivity of fossil fuel reserves levels to future price projection scenarios that incorporate the social cost of carbon into hydrocarbon pricing.
(ii) The percentage of the reserves of the covered corporation that will be developed under the scenarios identified in paragraph (4), as well as a forecast for the development prospects of each reserve under the scenarios described in paragraph (4).
(iii) The potential amount of direct and indirect greenhouse gas emissions that are embedded in proved and probable hydrocarbon reserves, with each such calculation presented as a total and in subdivided categories by the type of reserve.
(iv) The methodology of the covered corporation for detecting and mitigating fugitive methane emissions, which shall include all of the following:
(I) The frequency with which applicable assets of the covered corporation are observed for methane leaks.
(II) The processes and technology that the covered corporation uses to detect methane leaks.
(III) The percentage of assets of the covered corporation that the covered corporation inspects under the
methodology described pursuant to subclause (II).
(IV) The quantitative and timebound reduction goals of the covered corporation with respect to methane leaks.
(v) The amount of water that the covered corporation withdraws from freshwater sources for use and consumption in operations of the covered corporation.
(vi) The percentage of the water described in clause (v) that comes from regions of water stress or that face wastewater management challenges.
(C) Any other information that the state board determines is necessary and appropriate to safeguard the public interest or directed at ensuring that investors are fully informed regarding a covered corporation’s climate-related risks.
(c) (1) The state board shall adopt any other regulations it deems necessary to implement this section.
(2) The state board shall comply with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) in adopting regulations pursuant to this section.
(d) On or before January 1, 2024, the Department of Finance, with guidance from the Treasurer and the California Debt and Investment Advisory Commission, shall develop climate change disclosure guidance, comparable to the regulations required to be adopted by the state board pursuant to subdivision (b), for issuers of state and local debt.
(e) (1) The provisions of this section are severable. If any provision
of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
(2) To the extent that any provision of this section is preempted by federal law, that provision, and any corresponding provision of the regulations adopted by the state board and the guidance developed by the Department of Finance pursuant to this section, do not apply and shall not be enforced.