California Faces Pivotal Decision on Scope 3 Emissions Reporting Approach

California's Air Resources Board is weighing three distinct approaches to implementing Scope 3 emissions reporting under SB 253, with the decision expected to shape the credibility and comparability of climate disclosures for thousands of companies. The choice between broad applicability and phased approaches will have significant implications for investors, supply chain stakeholders, and global sustainability reporting alignment.

CARB is considering three Scope 3 implementation options: broad applicability requiring all companies to report all relevant categories from 2027; a sectoral phase-in starting with transportation and industrial companies; and a category phase-in beginning with five commonly reported categories such as business travel and purchased goods. SB 253 was passed in 2023, giving companies over four years of lead time before Scope 3 reporting begins. Scope 3 emissions typically represent around 90% of a company's climate footprint, covering upstream and downstream value chain activities.

Proponents of the broad applicability approach argue that phased alternatives would reduce comparability across companies and sectors, limiting the value of disclosures for investors. CARB has indicated it expects good-faith efforts rather than perfection in the first year, allowing methodologies to evolve and supplier-based data to improve over time. Many large companies subject to SB 253 will also be required to report value chain emissions under the EU's Corporate Sustainability Reporting Directive, reducing the incremental burden of California compliance.

The Greenhouse Gas Protocol is already a well-established framework for value chain emissions measurement, and ISSB standards aim to create a global baseline for consistency. A fragmented California approach risks diverging from these international norms, increasing complexity for multinational firms, including those with Indian operations that export to the U.S. market. CARB's decision is expected to set a precedent for how U.S. sub-national climate disclosure rules interact with emerging global standards.

Key figure — 90% of a typical company's climate footprint attributable to Scope 3 emissions