California has a new climate bill targeting corporate greenwashing that imposes disclosure requirements starting on January 1, 2024. The Voluntary Carbon Market Disclosure Act (AB 1305) establishes three different disclosure requirements:

• First, entities that operate in California and make claims that they “[do] not add net carbon dioxide or greenhouse gases . . . to the climate or ha[ve] made significant reductions to [their] carbon dioxide or greenhouse gas emissions,” will have to disclose information on their website as to how the claim was determined to be accurate or accomplished and how interim progress towards the goal is being measured, as well as whether there is independent third-party verification of the company data and claims made.

• Second, entities operating in California that purchase or use carbon offsets and make claims that they do not add GHGs to the climate, or that they have significantly reduced their GHG emissions, will have to provide information on their website regarding the carbon offset program and whether there is third-party verification of the claims.

• Finally, entities that market or sell carbon offsets within California— regardless of whether they operate in the State—will have to make extensive and detailed disclosures on their websites regarding the applicable carbon offset project, accountability measures if a project is not completed or does not meet the projected emissions reductions or removal benefits (including actions the entity shall take if carbon storage projects are reversed or future emissions reductions do not materialize), and pertinent data and calculation methods needed to independently reproduce and verify the emissions reduction or removal credits issued using the protocol.

Key Takeaway: AB 1305’s disclosure requirements become effective on January 1, 2024 and entities that are not in compliance can be fined up to $2,500 a day with a maximum penalty of $500,000. There is no private right to sue to enforce AB1305’s provisions, but the government (e.g., the California Attorney General or a district attorney) can bring a civil action to enforce penalties on violators and private plaintiffs may have a basis to sue for misstatements under other state or federal statutes. Therefore, entities that either market or sell VCOs in the state, or operate in California, even in a limited capacity, and make related claims should immediately assess whether any existing statements in investor materials, marketing, and websites, among other media, may be covered by AB1305’s requirements, and prepare the required disclosures to be in compliance. For additional information, please see our client alert.