Legal Update
Sep 19, 2024
California Mandatory Climate Disclosure Laws Move Forward With Little Concession
As discussed in our prior legal update available here, in 2023, California enacted two laws that mandate certain climate-related emissions disclosures and financial risk reporting for thousands of public and private companies “doing business” within the state. See Senate Bill 253, the Climate Corporate Data Accountability Act (“SB 253”); Senate Bill 261, the Greenhouse gases: climate-related financial risk (“SB 261”). Together, the legislation is referred to as the Climate Accountability Package. California took the lead – among states and the federal government – to require emissions disclosures without regard to materiality of what is known as Scope 3 disclosures.[1]
While SB 253 and 261 are currently being challenged in court, implementation of the laws have not been stayed. As such, companies subject to either or both SB 253 and SB 261 have had to take the necessary steps to ready themselves for compliance with the laws absent regulatory guidance from the California Air Resources Board (“CARB”), the regulatory body charged with rulemaking related to, among, other things, healthful air quality. While CARB received funding this summer, the California Chamber of Commerce, on behalf of a number of organizations, and the California Bankers Association expressed concerns regarding compliance and infeasible timelines. They also offered ways to narrow the requirements, including, striking Scope 3 emissions disclosures to align with the SEC’s final climate disclosure rules or adding a materiality qualifier as an alternative; limiting Scope 1 and 2 emissions to in-state emissions; permitting reliance on a parent company’s emissions reporting; and a delay in rulemaking and implementation timelines.
On August 31, 2024, after much back and forth about whether to delay the implementation of the Climate Accountability Package the California legislature, through Senate Bill 219 (“SB 219”), approved of the package going forward without extending the original 2026 and 2027 reporting deadlines and providing one concession on emissions reporting. It also gave CARB an additional 6 months to issue regulations under SB 253. Governor Newsom has yet to officially sign SB 219 into law and has until September 30 to do so, or to veto the bill.[2] This alert assumes that SB 219 will go into effect as law and discusses the key points covered entities should know for immediate compliance.
Key Takeaway 1: Reporting Deadlines
SB 253 (Greenhouse Gas Emissions), 2026 & 2027 Deadlines: Starting in 2026, any public or private company “doing business” in California with total annual revenue of at least $1 billion must begin its annual disclosures for Scope 1 and 2 greenhouse gas emissions. In other words, companies are expected to start tracking and reporting on their 2025 emissions. No later than July 1, 2025, CARB is to determine the exact deadline for the first round of reporting in 2026. Scope 3 annual disclosures under SB 253 will begin in 2027 “on a schedule to a schedule specified by the state board.” Previously, Scope 3 emissions disclosures were due no later than 180 days after public disclosure of Scope 1 and 2 emissions. SB 253 disclosures must be filed with an “emissions reporting organization” contracted by California and also made publicly available.
SB 261 (Climate Risks), January 1, 2026 Deadline: Pursuant to SB 261, by January 1, 2026, any public or private company “doing business” in California with the total annual revenue of at least $500 million must disclose its climate-related risks and measures adopted to reduce these risks. These disclosures must be filed with CARB and also made publicly available on the entity’s website. Covered entity’s must refile this SB 261 disclosure every two years thereafter.
Key Takeaway 2: Parent Company Consolidated Reporting
SB 261 already permitted covered entities to rely upon consolidated parent company level reporting of climate related risks. SB 219 will now also allow covered entities to rely on parent company reporting for SB 253 greenhouse gas emission disclosures, eliminating the need for covered subsidiaries to file separate and distinct SB 253 disclosures. This should be welcome relief given the original mismatch between SB 253 and 261.
If you have questions, please reach out to the authors and the Seyfarth Impact & Sustainability team for assistance.
[1] The SEC’s proposed climate-related disclosures rules contained a materiality requirement for disclosure of Scope 3 emissions. In the SEC’s final rules, the SEC eliminated the requirement to disclose Scope 3 emissions. See our Legal Update for more information.
[2] While Governor Gavin Newsom proposed to delay the implementation deadlines for both SB 253 and SB 261 by two years through a budget trailer bill, the legislature did not vote on it prior to the end of the legislative session, effectively eliminating the trailer bill. Governor Newsom’s previously proposed delay may influence his ultimate decision on SB 2019.