By Ross Kerber, US Sustainable Business Correspondent

Last week's rundown on the potential new costs of California's climate-disclosure laws prompted some interesting responses from business lobbyists and investors concerned the actual burden on companies' budgets and executive attention could be much higher than expected.
    
They worry it will be difficult to determine the costs of calculating so-called "Scope 3" emissions tied to a company's value chain. Especially when the concerns come from an sustainability-minded analyst like Andrew Poreda of Sage Advisory I think they're worth airing out. You'll find my interview with Andrew below.
    
I've also provided links to my colleagues' articles including on probes into financial workers' messaging on unauthorized platforms, the end of a carbon-capture pipeline, and bickering ahead of the COP28 United Nations climate conference starting on Nov. 30 in Dubai.

I invite you to connect with me on LinkedIn where I welcome comments and feedback. If you have a news tip, potential content, or general thoughts feel free to email me at ross.kerber@thomsonreuters.com.

Southwest Airlines planes are shown at San Diego International airport in San Diego, California, U.S., May 18, 2023. REUTERS/Mike Blake 

Everyone likes the concept of knowing more details about corporate emissions, but doubts persist about what data is useful or cost-effective. Based on one widely-cited survey some expect new California laws on average will cost companies around $533,000. (Here's a link to the survey.) 
        
Andrew Poreda, senior research analyst for Sage Advisory Services, thinks that relatively low figure is a warning sign, since it's not yet clear how to account for so-called "Scope 3" emissions tied to a company's value chain. 
  
"If you can clear the bar with that low a figure, that means the data is not going to be so useful" for investment decisions, he told me in an interview. "I think it's a mistake to make Scope 3 mandatory, making it a prime-time thing when it's not sorted out," he said.

Scope 1 emissions come directly from sources like company furnaces or vehicles, and Scope 2 emissions from purchased electricity. Scope 3 emissions include things like those resulting from the use of a company's products and disposal at the end of their life, as this guidance shows.

Companies can't control many Scope 3 emissions, Poreda said, and he worries the standards aren't robust. A onetime naval aviator, Poreda says a current model to calculate Scope 3 aircraft component manufacturer emissions focuses too much on the weight of components and ignores other variables like an aircraft's overall efficiency. 
    
Another red flag, Poreda said, is that top accounting firms don't seem to be big fans of the California laws, based on their public comments. He noted they have only a middling share of the market to  assure S&P 500 sustainability reports, says a Teneo study. (see figure 14 on this page). (Also don't miss Teneo's references to 1980s pop songs).
    
The accounting firms "have been very cautious because they see a lot of challenges for this kind of reporting," Poreda said. 

I ran the critique past representatives for the Big Four accounting firms, but none commented. The firms have been more engaged on a pending U.S. Securities and Exchange Commission (SEC) rulemaking likely to mandate less Scope 3 disclosure, going by comment letters you can find here and here.
    
Teneo Senior Managing Director Matt Filosa said while some smaller firms got a head start in the assurance market, "I think the Big Four would want to gain more of that market share" as new rules are introduced.
       
For context, Ideagen Audit Analytics says among 2,452 U.S. and foreign companies registered with the SEC, with an average market cap of $20.3 billion, average audit fees were $5.3 million. Suddenly that $533,000 average price tag looks significant for many companies.
      
Poreda described his firm as pragmatic on sustainability issues and generally prefers more disclosures it can use to make bets such as figuring out a utility's exposure to fire season. Poreda said he is more comfortable with the pending SEC rules, but worries about the impact California's law will have.
 
 "I feel like California just dropped a nuclear bomb on setting these standards," Poreda said. 

A Proterra electric bus drives past solar panel canopies in downtown Los Angeles, California, U.S., August 21, 2021. REUTERS/Bing Guan/

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