Many of the world’s largest public and private companies will soon be required to track and report almost all of their greenhouse gas emissions if they do business in California – including emissions from their supply chains, business travel, employees’ commutes and the way customers use their products.

That means oil and gas companies like Chevron will likely have to account for emissions from vehicles that use their gasoline, and Apple will have to account for materials that go into iPhones.

It’s a huge leap from current federal and state reporting requirements, which require reporting of only certain emissions from companies’ direct operations. And it will have global ramifications.

California Gov. Gavin Newsom signed two new rules into law on Oct. 7, 2023. Under the new Climate Corporate Data Accountability Act, U.S.- companies with annual revenues of US$1 billion or more will have to report both their direct and indirect greenhouse gas emissions starting in 2026 and 2027. The California Chamber of Commerce opposed the regulation, arguing it would increase companies’ costs. But more than a dozen major corporations endorsed the rule, including Microsoft, Apple, Salesforce and Patagonia.

The second law, the Climate-Related Financial Risk Act, requires companies generating $500 million or more to report their financial risks related to climate change and their plans for risk mitigation.

As a professor of economics and public policy, I study corporate environmental behavior and public policy, including whether disclosure laws like these work to reduce emissions. I believe California’s new rules represent a significant step toward mainstreaming corporate climate disclosures and potentially meaningful corporate climate actions.

Many big corporations are already reporting

Most of the companies covered by California’s climate disclosure rules are multinational corporations. They include technology companies such as Apple, Google and Microsoft; giant retailers like Walmart and Costco; and oil and gas companies such as ExxonMobil and Chevron.

Many of these large corporations have been preparing for mandatory disclosure rules for several years.

Close to two-thirds of the companies listed in the S&P 500 index voluntarily report to CDP, formerly called the Carbon Disclosure Project. CDP is a nonprofit that surveys companies on behalf of institutional investors about their carbon management and plans to reduce carbon emissions.

Many of them also face reporting requirements elsewhere, including in the European Union, the United Kingdom, New Zealand, Singapore and cities like Hong Kong.

Moreover, some of the same U.S. companies, notably banks and asset managers that operate or sell products in Europe, have already started to comply with the EU’s Sustainable Finance Disclosure Regulation. Those regulations require companies to report how sustainability risks are integrated into investment decision-making.

While California isn’t the first place to mandate climate disclosures, it is the fifth-largest economy in the world. So, the state’s new laws are poised to have substantial influence worldwide. Subsidiaries of companies that didn’t have to report their emissions before will now be subject to disclosure requirements. California is in effect exercising its immense market leverage to establish climate disclosures as standard practice in the U.S. and beyond.

California also has a history of being a test bed for future federal U.S. policies. The U.S. government is considering broader emissions reporting requirements. But California’s new rules go further than either the U.S. Securities and Exchange Commission’s proposed corporate climate disclosure rules or President Joe Biden’s proposed disclosure rules for federal contractors.

The most controversial part of the new disclosure rules involves scope 3 emissions. These are emissions from a company’s suppliers and its consumers’ use of its products, and they are notoriously difficult to track accurately.

California’s new emissions reporting law directs the California Air Resources Board, which will develop the regulations and administer them, to allow some leeway in scope 3 reporting as long as the reports are made with a reasonable basis and disclosed in good faith. It’s also important to note that at this point the disclosure laws don’t require companies to cut these emissions, only to report them. But tracking scope 3 emissions does highlight where companies could pressure suppliers to make changes.

What can disclosures achieve?

The plethora of climate disclosure mandates globally suggest that policymakers and investors around the world perceive climate disclosures as driving actions that protect the environment. The big question is: Do disclosure rules actually work to reduce emissions?

My research shows that voluntary carbon disclosure systems like CDP’s that focus on reporting corporate sustainability outputs, such as having science-based emissions targets, tend not to be as effective as those that focus on outcomes, such as a company’s actual carbon emissions.

For example, a company could earn an A or B grade from CDP and still increase its entitywide carbon emissions, notably when it does not face regulatory pressure.

In contrast, a recent study of the U.K.’s 2013 disclosure mandate for U.K.-incorporated listed firms found that companies reduced their operational emissions by about 8% relative to a control group, with no significant changes to their profitability. When companies report their emissions, they can gain important knowledge about inefficiencies in their operations and supply chains that weren’t evident before.

Ultimately, a well-designed disclosure program, whether voluntary or mandatory, needs to focus on consistency, comparability and accountability. Those traits allow companies to demonstrate that their climate pledges and actions are real and not just a front for greenwashing.

Lily Hsueh does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

In August 2023, residents of Juneau, Alaska, watched as the Mendenhall River swelled to historic levels in a matter of hours. The rushing water undercut the riverbank and swallowed whole stands of trees and multiple buildings.

The source for the flood was not heavy rainfall – it was a small glacial lake located in a side valley next to the Mendenhall Glacier.

Glacier-dammed lakes like this are abundant in Alaska. They form when a side valley loses its ice faster than the main valley, leaving an ice-free basin that can fill with water. These lakes may remain stable for years, but often they reach a tipping point, when high water pressure opens a channel underneath the glacier.

The rapid and catastrophic drainage of lake water that follows is called a glacial lake outburst flood, or GLOF for short. The flood waters race downstream over hours or days and often hit unexpectedly.

Glacial lake outburst floods have destroyed homes, infrastructure and human life around the world. They have killed hundreds of people in Europe and thousands of people in both South America and central Asia. Globally, an estimated 15 million people live downstream from these lakes, with those in Asia’s high mountains at greatest risk.

Flooding from a glacial lake in the Himalayas on Oct. 5, 2023, left dozens of people dead in India as water swept away bridges, damaged a hydropower station and flooded small towns. Satellite images showed that the lake level dropped markedly within hours.

I study Alaska’s glacial lakes and the hazards that glacier-dammed lakes in particular can create. Our latest research shows how these lakes are changing as global temperatures rise.

When glaciers hold back lakes

Some glacial lakes are dammed by moraines – mounds of rock and debris that are left behind as a glacier retreats. Too much pressure from extreme rainfall or an avalanche or landslide into the lake can burst these dams, triggering a devastating flood. Officials say that’s likely what happened when the Himalayas’ Lhonak Lake flooded towns in India in October 2023.

Glacier-dammed lakes, like Suicide Basin off of Mendenhall Glacier, are instead dammed by the glacier itself.

These glacial lakes tend to repeatedly fill and drain due to a cyclic opening and closing of a drainage path under the ice. The fill-and-drain cycles can create hazards every couple of years or multiple times a year.

How glacier lake hazards are changing in Alaska

In a new study, we identified 120 glacier-dammed lakes in Alaska, 106 of which have drained at least once since 1985.

These lakes have collectively drained 1,150 times over 35 years. That is an average of 33 events every year where a lake drains its contents, sending a pulse of water downstream and creating potentially hazardous conditions.

Many of these lakes are in remote locations and often go undetected, while others are much closer to communities, such as Suicide Basin, which is within 5 miles of the state capital and has frequently drained over the past decade.

Our study found that, as a whole, glacier-dammed lakes in Alaska have decreased in volume since 1985, while the frequency of outbursts remains unchanged. This suggests a regional decline in the potential hazards from glacier-dammed lakes because less stored water is available, a trend that has been documented for glacier-dammed lakes worldwide.

To better understand this trend, imagine a bathtub. The higher the sides of the tub, the more water it can hold. For a glacier-dammed lake, the glacier acts as a side of the bathtub. Warming air temperatures are causing glaciers to melt and thin, lowering the tub walls and therefore accommodating less water. That reduces the total volume of water available for a potential glacial lake outburst flood.

Smaller lakes, however, have had less significant change in area over time. As the August 2023 event clearly illustrated, even small lakes can have significant effects downstream.

Alaskans witnessed a new record of destruction in Juneau from the flood. The water reached nearly 15 feet at the Mendenhall River gauge – 3 feet above its previous record.

In summer 2023 alone, Alaskans saw record or near-record flooding from multiple glacier-dammed lakes near populated areas or infrastructure, such as Suicide Basin, near Juneau; Skilak Glacier-Dammed Lake, which affects the Kenai River; and Snow Lake, which impacts the Snow River. These lakes have remained about the same volume but have produced some larger floods in recent years.

One possible explanation is that with a thinner and weaker ice dam, the water can drain much more quickly, though further research is needed to understand the mechanics. Regardless, it’s a reminder that these lakes and events are unpredictable.

How will rising temperatures affect these lakes?

Glacier loss in Alaska is accelerating as temperatures rise. Due to the large volume of glaciers and the many intersecting valleys filled with ice in Alaska, there is a high probability that new lakes will develop as side valleys deglaciate, introducing new potential hazards.

Many of these lakes are likely to develop in remote locations, and their presence may only be noticed in satellite images that reveal changes over time.

Given the abundance of glacial lakes and their potential threat to human lives, early warning and monitoring systems are worryingly sparse. Efforts are underway, such as those in the Himalayas and Chile, but further research is needed to develop reliable, low-cost monitoring systems and to improve our understanding of these evolving hazards.

Brianna Rick received funding from The National Science Foundation.

Lego, the world’s largest toy manufacturer, has built a reputation not only for the durability of its bricks, designed to last for decades, but also for its substantial investment in sustainability. The company has pledged US$1.4 billion to reduce carbon emissions by 2025, despite netting annual profits of just over $2 billion in 2022.

This commitment isn’t just for show. Lego sees its core customers as children and their parents, and sustainability is fundamentally about ensuring that future generations inherit a planet as hospitable as the one we enjoy today.

So it was surprising when the Financial Times reported on Sept. 25, 2023, that Lego had pulled out of its widely publicized “Bottles to Bricks” initiative.

This ambitious project aimed to replace traditional Lego plastic with a new material made from recycled plastic bottles. However, when Lego assessed the project’s environmental impact throughout its supply chain, it found that producing bricks with the recycled plastic would require extra materials and energy to make them durable enough. Because this conversion process would result in higher carbon emissions, the company decided to stick with its current fossil fuel-based materials while continuing to search for more sustainable alternatives.

As experts in global supply chains and sustainability, we believe Lego’s pivot is the beginning of a larger trend toward developing sustainable solutions for entire supply chains in a circular economy. New regulations in the European Union – and expected in California – are about to speed things up.

Examining all the emissions, cradle to grave

Business leaders are increasingly integrating environmental, social and governance factors, commonly known as ESG, into their operational and strategic frameworks. But the pursuit of sustainability requires attention to the entire life cycle of a product, from its materials and manufacturing processes to its use and ultimate disposal.

The results can lead to counterintuitive outcomes, as Lego discovered.

Understanding a company’s entire carbon footprint requires looking at three types of emissions: Scope 1 emissions are generated directly by a company’s internal operations. Scope 2 emissions are caused by generating the electricity, steam, heat or cooling a company consumes. And scope 3 emissions are generated by a company’s supply chain, from upstream suppliers to downstream distributors and end customers.

Currently, fewer than 30% of companies report meaningful scope 3 emissions, in part because these emissions are difficult to track. Yet, companies’ scope 3 emissions are on average 11.4 times greater than their scope 1 emissions, data from corporate disclosures reported to the nonprofit CDP show.

Lego is a case study of this lopsided distribution and the importance of tracking scope 3 emissions. A staggering 98% of Lego’s carbon emissions are categorized as scope 3.

From 2020 to 2021, the company’s total emissions increased by 30%, amid surging demand for Lego sets during the COVID-19 lockdowns – even though the company’s scope 2 emissions related to purchased energy such as electricity decreased by 40%. The increase was almost entirely in its scope 3 emissions.

As more companies follow in Lego’s footsteps and begin reporting scope 3 emissions, they will likely find themselves in the same position, realizing that efforts to reduce carbon emissions often boil down to supply chain and consumer-use emissions. And the results may force them to make some tough choices.

Policy and disclosure: The next frontier

New regulations in the European Union and pending in California are designed to increase corporate emissions transparency by including supply chain emissions.

The EU in June 2023 adopted the first set of European Sustainability Reporting Standards, which will require publicly traded companies in the EU to disclose their scope 3 emissions, starting in their reports for fiscal year 2024.

California’s legislature passed similar legislation requiring companies with revenues of more than $1 billion to disclose their scope 3 emissions. California’s governor has until Oct. 14, 2023, to consider the bill and is expected to sign it.

At the federal level, the U.S. Securities and Exchange Commission released a proposal in March 2022 that, if finalized, would require all public companies to report climate-related risk and emissions data, including scope 3 emissions. After receiving significant pushback, the SEC began reconsidering the scope 3 reporting rule. But SEC Chairman Gary Gensler suggested during a congressional hearing in late September 2023 that California’s move could influence federal regulators’ decision.

This increased focus on disclosure of scope 3 emissions will undoubtedly increase pressure on companies.

Because scope 3 emissions are significant, yet often not measured or reported, consumers are rightly concerned that companies that claim to have low emissions may be greenwashing without taking action to reduce emissions in their supply chains to combat climate change.

At the same time, we suspect that as more investors support sustainable investing, they may prefer to invest in companies that are transparent in disclosing all areas of emissions. Ultimately, we believe consumers, investors and governments will demand more than lip service from companies. Instead, they’ll expect companies to take actionable steps to reduce the most significant part of a company’s carbon footprint – scope 3 emissions.

A journey, not a destination

The Lego example serves as a cautionary tale in the complex ESG landscape for which most companies are not well prepared. As more companies come under scrutiny for their entire carbon footprint, we may see more instances where well-intentioned sustainability efforts run into uncomfortable truths.

This calls for a nuanced understanding of sustainability, not as a checklist of good deeds, but as a complex, ongoing process that requires vigilance, transparency and, above all, a commitment to the benefit of future generations.

The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.