California Enacts Law Requiring Disclosures About Carbon Offsets and Net Zero Claims | Practical Law

California Enacts Law Requiring Disclosures About Carbon Offsets and Net Zero Claims | Practical Law

California Governor Gavin Newsom signed AB 1305 (Voluntary carbon market disclosures) into law. AB 1305 will require companies operating in California that purchase carbon offsets or make claims about achieving net zero emissions or being carbon neutral to provide certain website disclosures and update them annually. AB 1305 will take effect January 1, 2024.

California Enacts Law Requiring Disclosures About Carbon Offsets and Net Zero Claims

Practical Law Legal Update w-040-9508 (Approx. 4 pages)

California Enacts Law Requiring Disclosures About Carbon Offsets and Net Zero Claims

by Practical Law Corporate & Securities
Published on 09 Oct 2023USA (National/Federal)
California Governor Gavin Newsom signed AB 1305 (Voluntary carbon market disclosures) into law. AB 1305 will require companies operating in California that purchase carbon offsets or make claims about achieving net zero emissions or being carbon neutral to provide certain website disclosures and update them annually. AB 1305 will take effect January 1, 2024.
Update: On November 30, 2023, the author of AB 1305, Assemblymember Jesse Gabriel, clarified in a letter the intention for the first disclosures under AB 1305 to be required beginning January 1, 2025. Assemblymember Gabriel intends to send a formal letter to the Assembly Daily Journal on January 3, 2024, when the Assembly reconvenes. Such letters have been used to clarify legislative intent.
On October 7, 2023, California Governor Gavin Newsom signed AB 1305 (Voluntary carbon market disclosures) into law. In addition to imposing new obligations on companies that purchase or sell carbon offsets, it will require companies operating in California that make claims about achieving net zero emissions or being carbon neutral to make certain disclosures on their corporate websites and update the disclosures annually.
The bill was signed into law on the same day as two additional climate disclosure bills, SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (Greenhouse gases; climate-related financial risk), that will require large business entities in California to report their Scopes 1, 2, and 3 GHG emissions, obtain independent third-party assurance, and make TCFD-aligned disclosures. For more information on SB 252 and SB 261, see Legal Update, California Legislature Passes Climate Disclosure Bills.
Under AB 1305, entities that operate in and/or make certain claims in California will be required to provide additional disclosure on their websites. This provision will apply to those entities that make claims:
  • Regarding the achievement of net zero emissions.
  • That the entity, a related or affiliated entity, or any of its products, is "carbon neutral."
  • Implying the entity, a related or affiliated entity, or any of its products, does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions.
Any entity making one or more of these claims within California must post the following additional disclosure on its website:
  • Information documenting how, if at all, each claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured. This may include any of the following:
    • disclosure of independent third-party verification of all of the entity's greenhouse gas emissions;
    • identification of the entity's science-based targets for its emissions reduction pathway; and
    • disclosure of the relevant sector methodology and third-party verification used for the entity's science-based targets and emissions reduction pathway.
  • Whether it obtained independent third-party verification of the company data and claims listed.
Entities that fail to provide this disclosure could be fined $2,500 per day the information is not disclosed or is not accurate, up to $500,000.
AB 1305 will take effect January 1, 2024.
Notably, the statutory text does not define what it means to operate in or make claims within California, and the scope of the statute could be the subject of future guidance. Practical Law will continue to monitor the implementation and enforcement of AB 1305.
For up-to-date information on key developments regarding ESG and climate-related disclosure, see Practice Note, Key Developments in ESG and Climate Disclosure Tracker. For summaries of significant legal developments in US state law relating to ESG matters, see Practice Note, Key Developments in State ESG Law: 2023 Tracker.