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Global Climate Regulations Indicate Complex Compliance Future for Fleets

May 9, 2024

Source: ACT News

Navigating the burdensome and nuanced compliance of greenhouse gas (GHG) reporting obligations will become an increasingly challenging task for domestic and international fleet operators as they work within complex value chains and labor markets.

As fleets grapple with meeting the requirements of the California Air Resources Board (CARB) Advanced Clean Fleet (ACF) regulation, they are responding with uncertainty and caution about the latest batch of state climate regulations that will impact the transportation industry. As early as 2025, companies must begin preparations to face a series of increasingly complex reporting requirements, including several focused specifically on GHG. While these new regulations are complicated in their own regard, additional challenges confront fleet operators — lack of funding to support compliance, uncertainty around implementation timelines, and poor understanding of how the bills will actually be implemented leave confusion on how and when entities should prepare their compliance plans.

California is not alone — GHG and climate reporting regimes are rolling out at the federal level in the U.S.; binding climate regulations took effect in the European Union (EU) and the United Kingdom (UK); and, most recently, Japan released proposed sustainability reporting standards.

New Climate Regulations Require Extensive Planning, Reporting, and Data Collection

California’s recent slate of climate regulations, Senate Bill (SB) 253SB 261, and Assembly Bill (AB) 1305, are designed to drive corporate accountability and create enhanced transparency around climate disclosures and business practices. Focused on GHG emissions and climate and financial risk, these regulations are underpinned by various reporting frameworks that require extensive planning and data collection, partnerships and reporting procedures, and the establishment of forward-looking strategies and risk mitigation goals.

The carrots are clear — complying organizations can mitigate harmful climate impacts, increase their competitiveness in the sustainability-driven market where investors are requiring enhanced visibility into climate risk, and become better stewards of the planet. However, so too are the sticks — there are financial penalties associated with non-compliance and reporting false data, as well as filing fees, in addition to the added expense of additional human capital required to monitor and report these efforts.

SB 253, relevant to businesses that operate in California and that have annual revenues in excess of one billion dollars, includes reporting requirements on Scope 1, 2, and 3 emissions. While all these emissions contribute climate change, Scope 3 emissions are the most difficult to measure as the sources are outside of a reporting entity’s control. Even still, in conformance with the Greenhouse Gas Protocol Standards and Guidance, reporting entities must measure and report accurate and comprehensive data, subject to a third-party verification audit, to determine a company’s direct and indirect GHG emissions and to effectively identify sources of the emissions in order to develop a means to reduce the same. SB 253 requires annual reporting.

SB 261

SB 261 relates to the disclosure of climate-related financial risk. It impacts a larger market segment than SB 253 because it requires business entities with total annual revenues in excess of $500,000,000 and that do business in California to report. SB 261 relies on the Task Force on Climate-related Financial Disclosures (TCFD) reporting framework, which is meant to assist companies in disclosing both climate-related risk and forward-looking opportunities for reducing such risk. This is especially important as extreme weather conditions brought on by climate change are projected to persist, resulting in financial risk to companies and the global economy. It is critical that organizations report on risks and proactively report on opportunities to reduce them. The near-term reporting requirements may be challenging for organizations. However, in the long run, this reporting mechanism is designed to improve climate reporting and help companies create strategies to sustain sound business operations amidst climate change and thus reduce climate and financial risk. SB 261 reporting is biennial.

AB 1305

AB 1305 requires a business entity that is marketing or selling voluntary carbon offsets, purchasing or using carbon offsets, or making claims regarding achieving “net zero emissions,” “carbon neutral,” or other similar claims within the state of California to disclose certain required information on the business entity’s website and to update the information at least once per year. This requirement is meant to drive accountability and prevent greenwashing in the carbon market. Compliance with AB 1305 is required in 2025.

Read more via ACT News.