Less than a year after their adoption, California has amended two landmark corporate climate disclosure laws. The changes come after California Gov. Gavin Newsom on Friday signed Senate Bill 219 (SB 219), which provides certain administrative changes to Climate Corporate Data Accountability Act (SB 253) and the Climate Related Financial Risk Act (SB 216), including the following.
Changes to the Climate Corporate Data Accountability Act (SB 253)
- The California Air Resources Board (CARB) now has until July 1, 2025, to adopt implementing regulations, instead of January 1, 2025.
- CARB will now determine the specific deadline for reporting entities to publicly disclose their Scope 3 GHG emissions (sometime in 2027), rather than the previous deadline, which was within 180 days of a company’s disclosure of Scopes 1 and 2 GHG emissions. SB 219 will not change the 2026 deadline for reporting Scopes 1 and 2 GHG emissions. The dates for assurance set forth in SB 253 also remain intact (limited assurance for Scopes 1 and 2 emissions starting in 2026).
- Reports may now be consolidated at the parent company level. If a subsidiary qualifies as a reporting entity, the subsidiary will not be required to prepare a separate report.
- The annual fee will no longer be due at the time of filing the report. The fee will still be required, but the date for payment is no longer specified.
Changes to the Climate-Related Financial Risk Act (SB 261)
- As with the amendments to SB 253, the annual fee required by SB 261 will no longer be due at the time of filing the required disclosures. The fee will still be required, but the date for payment is no longer specified.
- Climate-related financial risk reporting is still required on or before January 1, 2026, and biennially thereafter.
What Next?
SB 253 and SB 261 are, of course, still being challenged in the U.S. District Court for the Central District of California. The court is set to hear motions for summary judgment on October 15, 2024. However, unlike the SEC’s climate disclosure rule, the implementation of SB 253 and SB 261 are not currently stayed pending a determination in this case.
Significant questions remain regarding some of the specifics of the two laws, including the definition of “doing business” in California, how annual revenue should be calculated for purposes of meeting the financial threshold tests specified in the two laws, and the specific reporting deadlines for the required reports.
Even while those questions are being addressed, companies should determine whether they may be in scope for the two laws and begin taking the necessary steps to comply if they have not already. Companies that already disclose GHG emissions on a voluntary basis and/or are gearing up for mandatory disclosure under the European Union’s Corporate Sustainability Reporting Directive, which will impact most in-scope companies beginning in 2025 (with 2026 reporting), will have an obvious advantage.
In-scope companies that have not taken steps to prepare for compliance with the California climate disclosure laws should consider taking the following actions.
The Climate Corporate Data Accountability Act (SB 253)
- Determine the parties who will be responsible for ensuring your compliance, which may include forming a management-level ESG/climate committee and delegating oversight to a board-level committee.
- Develop an action plan for collecting, measuring, and reporting on GHG emissions, beginning with Scopes 1 and 2 emissions in 2025 (with reporting in 2026), followed by Scope 3 emissions in 2026 (with reporting in 2027).
- Implement a process for conducting an emissions inventory, which may involve engaging a consultant or leveraging an emissions software platform.
- Engage a third-party auditor or other qualified firm that meets the competency and independence requirements of the rules to provide the necessary assurance over GHG emissions.
- Consider engaging legal counsel or other consultants to assist in the process and preparation of the required reports.
The Climate-Related Financial Risk Act (SB 261)
- Determine the parties who will be responsible for identifying and reporting on climate-related financial risk on or before January 1, 2026, and biennially thereafter.
- Review the Task Force on Climate-Related Financial Disclosures framework to help identify and assess your climate-related financial risks and guide the related disclosures.
- Identify the measures you’ve adopted to reduce and adapt to climate-related financial risks.
- Ensure consistency in all external disclosures that include climate-related financial risks, such as sustainability reports, ESG webpages, and SEC filings for companies that are public.
- Consider engaging legal counsel or other consultants to assist in the process and preparation of the required report.
Voluntary Carbon Market Disclosure Act
Companies should also prepare to comply with the Voluntary Carbon Market Disclosure Act (AB 1305) no later than January 1, 2025.
As we previously reported, the California legislature proposed extending the compliance deadline for disclosures under AB 1305 to July 1, 2025, under Assembly Bill 2331. That bill did not clear the Assembly, however, and the current compliance deadline for AB 1305 will hold unless another bill amending AB 1305 is passed during the 2025 California legislative session beginning in January.