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11 October 202310 minute read

Governor Newsom enacts two California laws on disclosures of GHG emissions and climate-related financial risk

UPDATE: On Saturday, October 7, 2023, California Governor Gavin Newsom approved and enacted two regulations requiring both public and private companies with certain minimum thresholds (revenue and operations) to disclose their climate-related data regarding their GHG emissions (Scope 1, 2, 3) and climate-related financial risks.

These regulations pre-empt the finalization of the SEC's proposed rules on climate-related disclosures for public companies (which are due this month).

The California Air Resource Board (CARB) is tasked with rulemaking and will provide guidance on reporting dates for the disclosures, reporting process, and format for disclosures. CARB has until January 1, 2025, to publish the rules.

Continue reading below to see our original alert on the two laws.

The California Senate recently passed two sweeping laws requiring public and private companies to report their greenhouse gas emissions and climate-related financial risk. The new laws indicate a shift towards mandatory and comprehensive disclosure requirements so that California can track and address its climate risk.

These laws are a first at both the state and federal level in the US. Many major companies in the US already measure and disclose GHG emissions under voluntary frameworks such as those of the Task Force on Climate-Related Financial Disclosures, and some are positioned as industry leaders in climate-related compliance policies and processes.

On September 12, 2023, California passed the SB-253 Climate Corporate Data Accountability Act requiring large public and private companies to report their greenhouse gas emissions annually. The law applies to companies with a total gross revenue of $1 billion and that are “doing business in CA,” and more than 500 companies are expected to be covered. The law is now awaiting California Governor Newsom’s signature, and he has until October 14, 2023, to sign it.

Once signed, the Act will authorize the California Air Resources Board (CARB) to make regulations to implement the Act. CARB will move to designate a nonprofit reporting organization to develop an emissions reporting program, receive disclosures on GHG emissions from companies, and then publicly disclose the data on its website. CARB will also announce the exact dates and deadlines for companies to submit their first set of disclosures.

Key highlights of the Act

  • Covered companies must report their Scope 1 emissions (direct GHG emissions from operations), Scope 2 emissions (indirect GHG emissions from energy use), and Scope 3 emissions (indirect upstream and downstream GHG emissions in supply chains).

  • The first disclosures of Scope 1 and Scope 2 emissions are to be made in 2026 for FY 2025, and annually thereafter.

  • The first disclosures of Scope 3 emissions are to be made in 2027 for FY 2026, and annually thereafter.

  • Disclosures must conform with GHG Protocol Standards developed by the World Resources Institute and the World Business Council for Sustainable Development.

  • Companies must obtain GHG emission data assurances from an independent third-party assurance provider.

  • Disclosures must address any acquisitions, divestments, mergers, and other structural changes that can affect the company’s GHG emissions. Companies must therefore track emissions and undertake environmental due diligence in mergers and acquisitions.

  • Companies could face a fine of up to $500,000 for failing to comply.

The California Senate also passed SB-261 Greenhouse gases: climate-related financial risk, requiring companies with a total gross revenue of $500 million and that are “doing business in CA” to disclose their climate-related financial risks every two years. The law is now awaiting Governor Newsom’s signature, and he has until October 14 to sign it.

This California legislation will preempt the SEC’s proposed rules on climate-related disclosures in public companies’ registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition. Under the SEC rules, publicly traded US companies’ disclosures on climate-related risks will also cover GHG emissions. This follows the European Union’s mandatory climate-related disclosure rules under the Corporate Sustainability Reporting Directive (CSRD), which took effect on December 14, 2022.

The California laws thus codify industry and global climate policy trends calling for increased transparency through consistent disclosures of GHG emissions and climate strategy. Covered companies must proactively examine their climate strategy and policies and prepare to provide climate-related disclosures. 

Find out more about the implications of these new laws by contacting any of the authors or your usual DLA Piper relationship attorney.