Assembly Bill 1305 (AB 1305), also called the Voluntary Market Disclosures Act, is a new California statute requiring companies to make certain disclosures if they make claims in the state regarding greenhouse gas (GHG) emissions or they market, sell, purchase or use voluntary carbon offsets to make certain disclosures. It was signed by Gov. Gavin Newsom on Oct. 7, 2023. The statute is far-reaching, and it is raising significant legal questions.

If a Company Isn't Headquartered or Registered in California, Is AB 1305 Still an Issue?

Yes. Similar to California's recently enacted Climate Corporate Data Accountability Act and Climate Related Financial Risk Act (see Holland & Knight's previous alert, "Greenhouse Gas Guessing Game: California's Latest Climate Disclosure Legislation," Sept. 28, 2023), AB 1305 sweeps in businesses outside of the state. In particular, AB 1305 applies to businesses operating in the state or "making claims" in the state. To the extent a company is making claims that are viewable in the state of California (e.g., makes a claim on a website), AB 1305 could arguably apply.

When Does AB 1305 Become Effective?

Disclosure is required by Jan. 1, 2024. The bill's author recently expressed his intent that the statute not take effect until Jan. 1, 2025. However, the California Constitution provides that statutes enacted before the close of the first year of a biennial session become effective the next year – i.e., Jan. 1, 2024. Given the potential penalties, adverse press and the statute's enforceability by a wide range of public attorneys, businesses that do not comply by Jan. 1, 2024, are at risk.

How Can Companies Comply?

Compliance under AB 1305 is fact-specific. However, the following measures have general applicability. The statute applies to businesses that either 1) operate within California or 2) make claims within the state. The statute's disclosure requirements are triggered by:

• claims of "net zero" emissions
• claims of "carbon neutrality," or
• other claims "implying" that the business or a product is carbon-neutral or "has made significant reduction to its" GHG emissions

A covered business must disclose "all information" documenting how that claim was determined and how interim progress to the overall goal is being measured, including the science-based targets for emission reductions and methodology for assessing emissions and emission reductions. The business must also disclose whether these claims have been verified by a third party.

If a business also purchases or uses voluntary carbon offsets and makes the above claims, that business must disclose:

a. the name of the business entity selling the offset and the offset registry or program

b. the project identification number, if applicable

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

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

e. the specific protocol used to estimate emissions reductions or removal benefits

f. whether there is independent third-party verification of company data and claims listed

A "voluntary carbon offset" means any product sold or marketed in California that claims to be a "greenhouse gas emissions offset," "voluntary emissions reduction," "retail offset" or similar claim that "connotes" that the product represents a GHG reduction. Legal or regulatory mandates, such as offsets necessary to comply with California's Cap-and-Trade regulation, are excluded.

AB 1305 requires the entities marketing or selling voluntary carbon offsets to make detailed disclosures that covered companies may use in preparing their own disclosures.

What Happens if a Company Fails to Comply?

Violations of AB 1305 are subject to a civil penalty of not more than $2,500 per day for each day that information is either not available or inaccurate on the company's website and limited to a maximum of $500,000. AB 1305 can be enforced not only by the California attorney general, but also by district attorneys, county counsel and city attorneys.

What's Next?

Businesses purchasing or using offsets should reach out to their providers to collect the relevant information for disclosures. Potentially covered businesses should also carefully review their corporate sustainability claims for statements regarding carbon neutrality or significant GHG reductions in the business or its products.