The Third Leg of the Stool – Time to Revisit That Other California Corporate Climate Disclosure Requirement

Many companies have been diligently preparing for compliance with California’s climate risk and greenhouse gas emissions disclosure mandates. For companies that have not already done so, it also is time to revisit California Voluntary Carbon Market Disclosures Act (VCMDA) compliance. 

The VCMDA, also referred to as AB (Assembly Bill) 1305, is an anti-greenwashing law that requires disclosures to be updated at least annually. Many companies posted their first AB 1305 disclosures around this time last year. In this post, we further discuss the requirements of the VCMDA and suggested compliance action items.

Claims Supported by Voluntary Carbon Offsets

The VCMDA requires an entity that purchases or uses voluntary carbon offsets that makes claims (1) regarding the achievement of net zero emissions, (2) that the entity, a related entity or a product is “carbon neutral” or (3) implying the entity, a related entity or a product 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, to disclose the following on its website for each applicable project or program:

• The name of the entity selling the offset and the offset registry or program.

• The project identification number, if applicable.

• The project name as listed in the registry or program, if applicable.

• The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission or a combination of both, and the site location.

• The specific protocol used to estimate emissions reductions or removal benefits.

• Whether there is independent third-party verification of company data and claims listed.

Other Claims

In addition, an entity that makes claims (1) regarding the achievement of net zero emissions, (2) that the entity, a related or affiliated entity or a product is “carbon neutral” or (3) implying the entity, a related or affiliated entity or a product 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 is required to disclose on its website the following information pertaining to the greenhouse gas emissions associated with the claims:

• All information documenting how, if at all, a “carbon neutral,” “net zero emission” or other similar claim was determined to be accurate or actually accomplished and how interim progress toward that goal is being measured. This information may include, but is not limited to:

  • Disclosure of independent third-party verification of the entity’s greenhouse gas emissions

  • Identification of its science-based targets for its emissions reduction pathway and

  • Disclosure of the relevant sector methodology and third-party verification used for the science-based targets and emissions reduction pathway.

• Whether there is independent third-party verification of the company data and claims listed.

Excluded Entities

The requirements of the VCMDA do not apply to an entity that does not operate within California, that does not purchase or use VCOs sold within the state and/or that does not make claims within the state.

Updating Disclosures

As earlier noted, VCMDA disclosures are required to be updated no less than annually.

Penalties for Noncompliance

An entity that does not comply with the foregoing disclosure requirements can be subject to a civil penalty of not more than $2,500 per day, for each day that information is not available or is inaccurate on its website, for each violation. The maximum penalty is capped at $500,000.

Civil actions can be brought by the California Attorney General or by a California district attorney, county counsel or city attorney.

Marketers and Sellers of Carbon Offsets

The VCMDA also requires businesses that market or sell voluntary carbon offsets within California to make specified disclosures on their website regarding (1) the applicable carbon offset project, (2) accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits and (3) the data and calculation methods needed to independently reproduce and verify the number of emissions reduction or removal credits issued. The more granular requirements of this prong of the VCMDA are not discussed in this post.

Compliance Action Items

Near term, companies should assess their disclosure obligations under the VCMDA. This includes both updates to existing disclosures and first-time disclosures.

Unlike the SB 253 (GHG emissions) and SB 261(climate risk) disclosure mandates, VCMDA compliance is not subject to a revenue threshold and is not limited to US-organized entities. The VCMDA therefore applies to many companies that are not picked up by SB 253 and/or SB 261.

For the longer term, companies that have not already done so also should put in place adequate controls to ensure that relevant claims are identified and that VCMDA disclosures are timely made. Unlike SB 253 and SB 261, the VCMDA is not subject to an ongoing court challenge or a preliminary injunction.

Finally, be mindful of other anti-greenwashing requirements and guidance that may apply to particular claims, such as Canada C-59 and the US Federal Trade Commission’s Green Guides.  

About our Practice 

Ropes & Gray has a leading ESG, CSR and business and human rights compliance practice. We offer clients a comprehensive approach in these subject areas through a global team with members in the United States, Europe and Asia. Senior members of the practice have advised on these matters for more than 30 years, enabling us to provide a long-term perspective and depth and breadth of experience that few firms can match. 

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