In 2023, when California Governor Gavin Newsom signed into law two bills related to climate disclosure—Senate Bill 253, the Climate Corporate Data Accountability Act, and SB 261, Greenhouse gases: climate-related financial risk—he questioned whether the implementation deadlines in the bills were actually feasible. (See this PubCo post.) So even as the bills were being signed, it looked like they might be in for an overhaul at some point—sooner rather than later. In July this year, Newsom proposed, along with several other changes, a delay in the compliance dates for each bill until 2028. (See this PubCo post.) However, one of the bills’ key sponsors opposed the administration’s proposal, telling Politico that the proposal didn’t reflect an agreement with lawmakers: the “administration really wants additional delays for the disclosures. And we don’t agree on that.” Apparently, Newsom’s proposal did not go anywhere. Then, at the end of August, the California Legislature passed a bill, SB 219, introduced by two sponsors of SB 253 and SB 261, that seeks to meet the Governor part way. But many may view it as pretty weak tea: while the bill gives the California Air Resources Board, which was charged with writing new implementing regulations, a six-month reprieve in the due date, for reporting entities, there is no compliance delay in commencement of reporting—it’s a big goose egg. Newsom has until the end of September to veto or sign the bill; if he does neither, the bill will become law.
SB 253, you may recall, mandates disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities (public or private) with total annual revenues in excess of a billion dollars that “do business in California.” SB 253 has been estimated to apply to about 5,300 companies. Currently, SB 253 requires disclosure regarding Scopes 1 and 2 GHG emissions beginning in 2026 (on a date to be determined by the state board), with Scope 3 (upstream and downstream emissions in a company’s value chain) disclosure in 2027. SB 261, with a lower reporting threshold of total annual revenues in excess of $500 million, requires subject companies to prepare reports disclosing their climate-related financial risk in accordance with the TCFD framework and describing their measures adopted to reduce and adapt to that risk. SB 261 has been estimated to apply to over 10,000 companies. Currently, SB 261 requires that preparation and public posting on the company’s own website commence on or before January 1, 2026, and continue biennially thereafter. Existing law also requires the state board to contract with a climate reporting organization to prepare a biennial public report on the climate-related financial risk disclosures and other actions. Notably, the laws exceed the requirements of the SEC’s climate disclosure regulations because, among other things, one of the laws covers Scope 3 emissions, and they both apply to both public and private companies that meet the applicable size tests. (For more information about these two laws, see this PubCo post.)
As noted above, even on signing the bills, Newsom made clear that, in his view the implementation deadlines for these bills just didn’t work. Instead, in July, his administration proposed amendments to Sections 38532 (formerly SB 253) and 38533 (formerly SB 261) of the Health and Safety Code, which appeared in “budget trailer bill language” released by the Department of Finance. With regard to SB 253, Newsom’s proposal would have required CARB to develop and adopt those regulations on or before January 1, 2027, rather than 2025 and delayed for two years the initial compliance dates for reporting entities, along with conforming changes. In addition, the proposal would have “require[d] that the regulations adopted by the state board require, among other things, a reporting entity to make the annual disclosure to either the emissions reporting organization or the state board, and that the reporting entity publicly disclose its scope 3 emissions on a schedule specified by the state board,” rather than, as is currently required, no later than 180 days after its scope 1 emissions and scope 2 emissions are publicly disclosed. The bill would also have “authorize[d] reports to be consolidated at the parent company level and…delete[d] the requirement that the annual fee be paid upon filing the disclosure. The bill would [have] authorize[d], rather than require[d], the state board to contract with an emissions reporting organization to develop a reporting program to receive and make certain required disclosures publicly available. The bill would [have made] other related changes to the duties of the emissions reporting organization and the state board, as provided.”
With regard to SB 261, Newsom’s proposal would have delayed until January 1, 2028, the date for the initial climate-related financial risk report and made conforming changes. In addition, it would have authorized, rather than required, the state board to contract with a climate reporting organization to carry out the various mandated actions “that the state board deems appropriate. The bill would also [have] delete[d] the requirement that the entity’s fee be paid upon filing its disclosure.” (See this PubCo post.)
On August 31, the California Legislature passed SB 219, which, if signed into law, would, among other things, delay some of the compliance dates in Section 38532 (SB 253). The bill provides some reprieve to CARB in the timing of the requirement to adopt regulations, but practically zilch for reporting entities. More specifically, the bill would delay from January 1, 2025 to July 1, 2025 the requirement that CARB adopt regulations to require a reporting entity to disclose annually its scope 1, 2 and 3 emissions and to obtain assurance from an independent third-party assurance provider. However, the bill would not delay the initial compliance dates for reporting entities; reporting of scopes 1 and 2 would still begin in 2026 on a date determined by CARB. (In effect, because the regulations could be delayed by six months, reporting entities might actually have less time to initially comply with them.) By comparison, Newsom’s proposal would have delayed the initial compliance dates for reporting entities by two years. For scope 3 emissions, a reporting entity would still be required to disclose its scope 3 emissions beginning in 2027, but on a schedule specified by the state board, rather than no later than 180 days after its scope 1 emissions and scope 2 emissions are publicly disclosed as is currently required. (So perhaps there might be some compliance delay permitted there.) In addition, consistent with the Newsom proposal, the bill would (1) authorize reports to be consolidated at the parent company level; (2) delete the requirement that the annual fee be paid upon filing the disclosure; (3) provide that the regulations adopted by the state board must require, among other things, a reporting entity to make the annual disclosure to either the emissions reporting organization or the state board; and (4) authorize, rather than require, the state board to contract with an emissions reporting organization to develop a reporting program to receive and make certain required disclosures publicly available. The bill would make other related changes to the duties of the emissions reporting organization and the state board, as provided.
The bill would make only a few changes to Section 38533 (SB 261). More specifically, as described in the Legislative Counsel’s Digest, the bill would authorize, rather than require, the state board to contract with a climate reporting organization to carry out any of specified actions, such as preparing biennially a public report on climate-related financial risk disclosures or monitoring federal regulatory actions, that the state board deems appropriate. The bill would also delete the requirement that a reporting entity’s fee be paid upon filing its disclosure. Once again, the bill would not change the timing for compliance with reporting requirements for reporting entities.
And don’t forget that all of these requirements could be complicated by pending litigation. Earlier this year, the U.S. and California Chambers of Commerce, the American Farm Bureau Federation and others filed a complaint against CARB (later adding the California Attorney General) challenging these two California laws. The lawsuit seeks declaratory relief that the two laws are void because they violate the First Amendment, are precluded by federal law, and are invalid under the Constitution’s limitations on extraterritorial regulation, particularly under the dormant Commerce Clause. The litigation also seeks injunctive relief to prevent CARB from taking any action to enforce these two laws. For more on this litigation, check out the SideBar in this PubCo post.
