This Time is Different: New SEC Climate Data Rules, California's Stakes and Web3's Arrival
We're not reducing climate impacts very much, but at least we're beginning to measure them. If data drives better decisions, special interests are hobbling California from opportunities to lead in a data-first, Web3 world. The question is, will we use data to create the state and country we want? Or are we content for California to use a fraction of data's potential and forego competitive advantage, high-wage jobs, and climate resiliency? The SEC's new rules include only a subset of corporate data governance, AI risk management, and cybersecurity. The rules are an anchor when they should be a sail.
The problem for California is that the European Union is rushing towards data-first transparency, sustainability, measurement, and interactive governance on the Web3 Internet. Large companies begin reporting auditable climate data in 2024. If California fails to recognize the stakes, we surrender leadership, competitiveness, and lower costs for Williams-Sonoma, Levi-Strauss, Gap, Apple, and other great California companies with big export footprints.
Why is everything converging now? The pandemic, Russia's invasion of Ukraine, a swaggering China, and the simple fact that other countries are not meeting carbon commitments hardened the EU's posture on strategic autonomy. How will we feel about foregoing basic data in twenty years? Let's set aside climate for now to talk about how forfeiting data leadership kneecaps California's strategic posture in the new fields of competition. We're in the Fourth Industrial Revolution's automated everything, everywhere, all-at-once—where competitive forces are more like chemical reactions than business as usual. Suppose we recognize that national security is embedded in energy and materials supply chains. In that case, we need to start discussing to what extent robust data is in the national interest. The nature of frontier technologies is that getting there first means pioneers can usually keep the lead. Data capabilities gained or surrendered now will be long-lasting.
There are notable differences in how the EU, the US, and California are proceeding. The EU includes more types of companies and data that power an innovation called Digital Product Passports (DPPs). Product Passports build a digital wall that delivers huge strategic, economic, and geopolitical advantages to common market countries. Who needs tariffs if the EU blocks imports that don't meet EU values for transparency, safety, labor, and sustainability—on grounds of legitimate national interests? With one stroke, the new EU regulations will decrease Chinese (and US) imports, narrow cost advantages, and destabilize China's race to the bottom—while building the EU their citizens want. The economic and strategic benefits are durable unless export goods embrace auditable transparency. China Hawks take note.
Earlier this month, the United States joined Japan, California (253 & 261), and the European Union in reporting climate risk to support the transparency institutional investors need. The US Securities and Exchange Commission, (SEC), rolled back rules that would have measured Scope 3 impact data, (Scope 3 data comes from a product's suppliers). Without Scope 3 data, we'll have less than half the story. The energy lobby balked at measuring supplier impact because they're concerned about increased costs, activism, and litigation. Especially litigation. The US Chamber of Commerce is suing to roll back the SEC's diluted data reporting because the rules included a bigger group of companies and Scope 3 emissions. Meanwhile, special interests prioritize legacy oil and gas by suing California to weaken data leadership even more. Without Scope 3 supply chain data, the EU's new digital wall will block California's exports.
The convergent megatrends of Artificial Intelligence and the Web3 blockchain Internet have arrived. California leads on AI and could catch up on industrial data capabilities. Still, the European Union has a multi-year head start. While we were sleeping, the EU's Green Deal (EGD) legislation (with approval ratings of between 70% and 93%), made Web3 inevitable by weaving a data-first strategy throughout every part of their economy. The EU is automating oversight and compliance with blockchain and adding velocity from Web3's interactivity.
Here's a scenario. Soon, an EU-brand shirt will provide radical transparency into the cotton communities that grew, harvested, processed, and wove the cloth. The Web3 blockchain Internet will record real-time data like water, pesticide, electricity, and transportation usage at every step to build an accurate picture of sustainability impacts. We'll know the veracity of marketing claims and more about the maker's work-life fairness and culture. We'll have circularity assistance, such as how to care for and repair our clothes to make them last longer. The design motif printed on the shirt generates a smart contract royalty payment directly to the artists or the cultural community that owns it. The EU strategy of growth without consumption means we'll know how to recover anything valuable for recycling or reuse and the safe disposal of a garment when it no longer has economic value. Suppose you bought the shirt on the secondary market. In that case, an agreement may be that your on-chain purchase returns a percentage of the resale to the farming/weaving communities. By automating business processes, retailers will save 10%-30% of operating costs. Retailers will have accurate, real-time project management and advanced ERP tools to reorder shirts when stock gets low. Consumers will have x-ray transparency into what they buy.
Businesses will like the cost savings and better predictability. We'll all have accurate, real-time climate measurement and decarbonization prompts. If the technology exists (it does), and consumers like it (they will), it is hard to come up with arguments for why anyone would want to delay.
The EU's Ecodesign for Sustainable Products Regulation (ESPR) is how this scenario becomes real. Digital Product Passports (DPPs) are the EU Green Deal's Swiss army knife of offensive and defensive strategies and economic policy flexes. Product Passports use a dynamic ethos to function as the builders, police, accountants, librarians, and trade negotiators of Green Deal policy success. Product Passports will launch in 2024 and drive how products are made, brands compete, and businesses operate.
A definition: Digital Product Passports are unique identifiers that link to real-time tracing of a product's supply chain, circularity practices, sustainability reporting, and safe handling—including tricky Scope 3 emissions. They rewrite, interconnect, align, and enforce policies around carbon neutrality, sustainable economies, strategic autonomy, fair competition, quality of life, circular economy principles, and national security. In effect, Digital Product Passports build a digital wall around the EU that transforms governance and regulation.
National events make our decisions even more critical. California needs our own tech-first industrial policy with eyes open about where we are competitively in the innovation cycle. By measuring everything and building a digital wall, the EU will soon be the biggest tech player in trade data. If the US insists on lagging, California should act independently to protect what we create. While industry criticism is fair play, we're at an existential moment where special interest critiques should matter less. California should model the future and agitate for the rest of the USA to catch up. Let's not abdicate economic leadership to special interests without a fight.