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California’s Climate Accountability Package & Regulatory Drip


In mid-September, California legislators passed a suite of bills, two waiting to be signed into law, and one sitting in state assembly, coined the Climate Accountability Package and aimed at enhancing greenhouse gas (GHG) data disclosures, climate-related financial risk disclosures and state fossil fuel divestment. A quick summary of the bills in question:

SB 252
  • Will mandate state pensions funds CalPERS (state government employees) and CalSTRS (public school employees) divest from the 200 hundred largest publicly traded fossil fuel companies (petroleum oil, natural gas and thermal coal) by 2031
  • Annual pension reporting to the state of specific fossil fuel companies from which the funds have divested beginning in 2025
  • In state assembly, voting on the bill to begin in 2024
SB 253
  • Will mandate the disclosure of all greenhouse gas emissions (Scope 1, 2 and 3)
  • Applies to any private or public company that does business in California with total annual revenues >$1B
  • Bill provisions to begin in 2026
  • Passed by state legislature
SB 261
  • Will require the disclosure of biennial climate-related financial risk report and public disclosure of these risks and their risk mitigation plan
  • Applicable to any private or public corporation or business entity established under California law, or the laws of any other state in the U.S. doing business in California, with total annual revenues >$500MM
  • Bill provisions to begin in 2024
  • Passed by state legislature

Combined, these bills represent an escalatory precedent for future GHG and sustainability data reporting. Pickering Energy Partners believes that instead of a push toward the pragmatic middle in sustainability reporting, California policy has instead been circumvented by idealistic evangelists abandoning economic realities and relying on biased and unfounded data to craft frameworks that will ultimately hurt enterprise, people and the state.

The inclusion of mandatory Scope 3 jumps the regulatory gun ahead of what most feared even the SEC would include in their Climate Disclosure proposal anticipated to pass later this year. The merits and lack of consensus surrounding Scope 3 calculation are dubious at best and damaging at worst. The inclusion of climate-related financial disclosure reporting for micro and small cap companies is an incredibly large reporting burden that hinders small business. Additionally, state pension divestment representing assets totaling ~$778B (CalPERS & CalSTRS combined) is fundamentally misaligned with their stated goals of

  1. “create greater employment, support the economy, and improve public health”
  2. Require the pensions to divest their holdings of fossil fuel company investments “consistent with, and not in violation of, their fiduciary responsibilities”

Divestment from fossil fuels is an inherently inflationary exercise at odds with supporting the economy, lowers employment in the state which is the seventh largest producer of crude in the U.S. as of 2022, and damages public health by limiting access to affordable energy by inducing an arbitrarily abrupt transition. Further, mandating divestment is blatantly in conflict with fiduciary duty to act prudently in seeking a reasonable return on investment as these policies are driven by idealism rather than seeking a more efficient return. Additionally, as of March 2023, “over the last two years, energy has outperformed any other sector in the S&P 500 by 130 percentage points and the index by 150 percentage points.”

Importantly, for energy companies operating outside of California, PEP believes this unfortunately represents a challenge to the current status quo of sustainability reporting with the potential for regulatory drip to affect institutions and frameworks that will eventually impact fossil fuel companies in the U.S. writ large.

While PEP remains steadfastly opposed to California’s Climate Accountability package and other regulatory oversteps like it, this trend will not wane until the energy space retakes the investment narrative from the divestment crowd. The only way to do so is to organize your material data points to support the fact that Western economies are leading the decarbonization charge.

Energy Workforce partner Pickering Energy Partners provides insights on ESG due diligence, disclosures and reporting. Garrett Delk is an Associate, specializing in ESG Advisory.


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