In October 2023, California enacted the Voluntary Carbon Market Disclosures Act (VCMDA) — AB 1305. AB 1305 has lurked in the background of flashier climate disclosure regulations. It’s time for legal professionals to take it off the shelf and look at what their companies need to do to comply.
In addition to new obligations for companies that purchase and sell offsets within California, AB 1305 includes significant disclosure obligations for companies that make claims regarding their climate performance. These claims include targets like “carbon neutral” and “net zero” as well as green claims related to products (climate claims). There is no financial threshold. If you are doing business in California and you make a climate claim — AB 1305 applies.
Under this statute, companies that make climate claims must state on their website “all information documenting how such a claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured.” This information may include third-party verification of emissions, science-based targets, sector methodology, and third-party verification of emissions.
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AB 1305 is short. There currently is no guidance on how it will be interpreted and applied by courts or regulators. However, legal counsel should consider established practices within the carbon accounting world in determining how to craft an AB-1305 notice.
A great place to start is looking at how net zero and carbon neutral are defined in carbon accounting.
Net Zero
The commonly accepted standard for setting a net-zero target is defined in the “Corporate Net-Zero Standard” created by the Science Based Targets initiative (“SBTi”). To qualify for SBTi certification, a corporation must have a credible pathway to reducing its carbon emissions 50% by 2030 and 90% by 2050. The 50% and 90% thresholds are hard reductions that cannot be covered by offsets. For purposes of a net-zero target, offsets can only be applied to the last 10% of a company’s footprint.
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Companies start the net-zero certification process by submitting an application to SBTi. It commonly takes companies two years to be approved. A company setting a net-zero target must provide substantial amounts of information including answers to the following questions:
- What is the organizational boundary of the target?
- What is the base year that will be used as the measuring point for the target?
- What scopes are included in the target (i.e. Scope 1, Scope 2, and Scope 3)?
- What method is used to measure the reduction (absolute or sector-specific)?
- What is the target year for achieving the reductions?
All of this relies on having solid emissions data for the organizational boundary — ideally, at least for three years. Growth expectations must be factored into plans for how to achieve absolute reductions. The process of setting a net-zero target under SBTi requires expertise and leadership commitment.
Carbon Neutral
Carbon neutral is different than net zero. A carbon neutral target is achieved when an entity removes as much carbon from the atmosphere as it produces. Unlike a net-zero target, carbon neutral does not require an organization to reduce its emissions. Corporations can rely completely on offsets to achieve this standard. To qualify, a corporation must be able to answer these questions:
- What is the organizational boundary of the target?
- What is the year for which carbon neutrality is claimed?
- What scopes are included in the target (i.e. Scope 1, Scope 2, and Scope 3)?
- What were the total emissions for the applicable year?
- What offsets were used to balance the organization’s carbon footprint?
The carbon neutral standard is a much lower bar than net zero. However, carbon-neutral claims have come under fire recently in greenwashing litigation. Plaintiffs question the validity of the carbon offsets that corporations use to support carbon-neutral claims. If the offsets are not effective, then the claims are not what they seem. This concern is the origin of AB 1305 which also sets standards for companies selling carbon offsets.
These definitions sound very technical to anyone outside of the carbon accounting world. So how can legal teams get started with AB 1305 compliance?
- Review communications. Conduct an audit of external communications to identify any climate claims. This is an evolving area. It’s possible that a climate claim appeared in a sustainability report or a press statement without legal review. Discover what’s out there.
- Audit claims. If you identify any climate claims, ask questions to determine whether they are supported by evidence. For net-zero and carbon-neutral claims, you can get a good sense by asking the questions above. Remember to also consider any claims that a product is green or somehow low carbon. Look for whether a recognized standard has been followed.
- Triage. If a climate claim has been made without proper verification, you will need to carefully weigh how to proceed. Some organizations may simply take down unverified climate claims. Others may need to publish a statement addressing or retracting the claim.
- Prepare to disclose. Finally start preparing any required AB 1305 disclosures. AB 1305 notices are due on company websites by January 1, 2025. Some companies, like Kaiser Permanante, are already publishing these notices.
AB 1305 sets a standard for corporate climate claims that emphasizes transparency, accountability, and responsible practices. It will require companies to ensure that their climate claims are more than aspirational. As legal professionals, guiding clients through this process involves not only understanding the legal framework but also providing strategic advice on navigating the climate terminology and standards.
Christine Uri is a Top 100 Voice in Sustainability. She advises general counsel on the development and implementation of environmental, social, and governance (ESG) programs. As a former Chief Legal Officer and Chief Sustainability Officer for a global sustainability company, Christine knows what it takes to move ESG to the top of the corporate agenda. Christine believes that improving corporate performance on ESG measures is critical to building a more sustainable world. She is passionate about inspiring and empowering in-house legal teams to provide ESG leadership. You can follow Christine on LinkedIn.