Full emissions disclosure under California Senate Bill 253 could change carbon evaluations and redirect investment

Why This New Climate Rule Matters to You

Most of us now hear about companies "going green," but it is surprisingly hard to know how much climate pollution a business truly causes. A new California law, Senate Bill 253, could change that—not just for Californians, but for investors and companies across the United States. This study explores what happens when big firms are forced to reveal their entire carbon footprint, including pollution hidden in their supply chains and in how their products are used. The findings suggest that our current view of which companies are climate-friendly may be flipped on its head, with real consequences for where billions of investment dollars flow.

What California’s Law Actually Does

California’s SB 253 targets large U.S. companies that do business in the state and earn more than $1 billion a year worldwide. These firms must report three types of greenhouse gas emissions. The first two are relatively familiar: pollution from their own operations (like factory smokestacks) and from the electricity and heat they buy. The third category is much broader and more elusive: emissions up and down the value chain, from suppliers’ activities to how customers use and dispose of products. While many big firms already report the first two types voluntarily, value‑chain emissions have been patchy, estimated with rough models, or left out entirely. SB 253 turns this sprawling, often hidden piece of the carbon puzzle into mandatory information for investors.

Most Pollution Is Hiding in the Value Chain

The authors first identify more than 2,400 U.S. companies that likely fall under SB 253 and examine their historical emissions data from 2017 to 2023. They find that only about 14% of these firms’ climate pollution comes from their own operations and purchased energy combined. A striking 86% comes from value‑chain emissions, such as the production of raw materials, transportation, and the use of products like cars, phones, and financial services. In sectors like technology, consumer goods, and finance, more than 90% of emissions lie in this third category. This means that the piece of the carbon story investors have mostly ignored is actually the largest part.

How Full Disclosure Scrambles the Leaderboard

Investors often rank companies within each industry by how much carbon they emit per dollar of sales. Today, those rankings mostly rely on the first two types of emissions, because that is where the data are most available. The researchers simulate what happens when value‑chain emissions are added to the picture. They find that the connection between the old and new rankings is weak: on average, a company’s position shifts by about 23 percentile points within its sector. A firm that looks like a climate leader when only direct emissions are counted can slide toward the middle or bottom once the emissions lurking in its supply chain and product use are included. Well‑known examples include firms whose sleek, low‑pollution headquarters mask carbon‑heavy manufacturing and product use elsewhere.

What This Means for Your Savings

Many investment funds now promise to tilt portfolios toward lower‑carbon companies, but most do so using the partial rankings that leave out most value‑chain pollution. The authors construct two hypothetical portfolios: one that favors firms with low direct and energy‑related emissions, and another that favors firms with low full‑chain emissions. Both earn similar financial returns to a standard market portfolio, but their climate footprints differ sharply. The portfolio based only on direct emissions cuts financed emissions by a modest 6%. The portfolio based on full‑chain emissions, by contrast, nearly halves the overall carbon footprint, including a large drop in pollution tied to how products are used. Moving from the old to the new portfolio would require reshuffling roughly 29% of invested capital, with even larger shifts in sectors where value‑chain emissions dominate.

Costs, Challenges, and Global Ripple Effects

Requiring this level of disclosure is not free. Companies will need better data systems, closer coordination with suppliers and customers, and new internal checks so third‑party auditors can sign off on the numbers. Estimating value‑chain emissions also involves judgment and can lead to double counting when several firms claim responsibility for the same pollution. These concerns have fueled legal challenges to SB 253, especially around whether the law compels speech and whether the estimates are precise enough. Still, the study finds that the dramatic reshuffling of carbon rankings shows up across different data providers and for firms with both weaker and stronger existing sustainability reporting, suggesting that the effect is not just a measurement quirk.

Why This Could Change Corporate Behavior

For a layperson, the core message is straightforward: once companies must reveal the full climate impact of the products they make and sell, investors can no longer treat "clean" headquarters as proof of a clean business. California’s law will shine light on the much larger, hidden part of corporate carbon footprints. The study suggests that this could redirect large sums of money toward firms whose entire value chains are less polluting and away from those whose emissions have so far escaped notice. If that happens at scale, it would strengthen financial incentives for companies to clean up not just their own facilities, but also their suppliers, logistics, and the design and use of their products—potentially making climate promises more meaningful for the planet.

Citation: Dutta, S., Hwang, J. & Patatoukas, P.N. Full emissions disclosure under California Senate Bill 253 could change carbon evaluations and redirect investment. Commun. Sustain. 1, 42 (2026). https://doi.org/10.1038/s44458-026-00051-9

Keywords: corporate emissions, climate disclosure, California SB 253, sustainable investing, Scope 3 emissions