Last month, the California Legislature passed two broad-reaching bills that would require covered companies doing business in the state to disclose their Scope 1, 2 and 3 greenhouse gas (“GHG”) emissions and their climate-related risk management processes. On October 7, 2023, California Governor Gavin Newsom signed both bills into law. These landmark measures constitute the most significant emissions- and climate-related disclosure laws enacted in the United States to date.
- California State Senator Scott Wiener’s Senate Bill 253, the Climate Corporate Data Accountability Act (“SB 253”), will require an estimated 5,300 public and private in-scope companies to disclose the annual GHG emissions from across their operations and value chains in line with the Greenhouse Gas Protocol (“GHG Protocol”) standards and related guidance.
- California State Senator Henry Stern’s Senate Bill 261, the Climate-related Financial Risk Act (“SB 261”), will apply to an estimated 10,000 companies and require the filing of an annual climate-related financial risk report in accordance with the framework recommended by the Task Force for Climate-related Financial Disclosures (“TCFD”).
In signing messages addressed to members of the California State Senate, Governor Newsom described SB 253 as an “important policy [that] once again[] demonstrates California’s continued leadership with bold responses to the climate crisis, turning information transparency into climate action.” He described SB 261 as “a policy [that] will illustrate the real risks of climate change for businesses operating in California and [] encourage them to adopt practices that seek to minimize and avoid these risks.” However, Governor Newsom noted concerns with respect to implementation deadlines attached to both bills, as well as cost impacts. Accordingly, he is directing his administration to work with the bills’ authors and the California State Legislature to address these issues in 2024.
From a compliance perspective, and based on information provided by Senator Wiener’s and Senator Stern’s offices, companies should continue to operate on the assumption that the reporting timelines written into the legislation (as described below) are ultimately the timelines that will apply. In terms of next steps, trilateral negotiations with the Governor’s administration will seek to iron out issues that will likely be reflected in “clean-up” legislation introduced next year.
SB 253 and SB 261 require many of the same disclosures set out by the SEC’s proposed rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors (“SEC proposed rule”), but with that rule still awaiting finalization, California now precedes (and, in some respects, surpass) pending federal requirements. It is possible that clean-up legislation will align California’s requirements to what the SEC ultimately sets forth, if different, and SB 253 in particular could set a new baseline for the SEC, encouraging the federal agency to take stronger action (i.e., by including a Scope 3 emissions reporting requirement in its final rule).
In this Alert, we discuss the measures in further detail, including the application, scope, requirements, implementation timeline, and consequences of noncompliance, highlighting areas addressed by Governor Newsom at signing and possible impacts on key provisions as a result. Both SB 253 and 261 will be subject to future regulations to be established by the California Air Resources Board (the “State Below, we discuss the measures in further detail, including the application, scope, requirements, implementation timeline, and consequences of noncompliance, highlighting areas addressed by Governor Newsom at signing and possible impacts on key provisions as a result. Both SB 253 and 261 will be subject to future regulations to be established by the California Air Resources Board (the “State Board”) to govern implementation, which body will now also be tasked with monitoring cost impacts and making recommendations to streamline implementation.