Arnold & Porter Discusses California’s Corporate Emissions Disclosure and Climate-Risk Reporting Legislation

The California legislature returned from summer recess two weeks ago, and two key bills regarding corporate emissions disclosures and climate-related financial risk reporting are being considered and could be sent to the governor’s desk for signature by next month.

Senator Scott Wiener (D-San Francisco) authored SB 253, the California Climate Corporate Data Accountability Act, which, if passed, would establish the strictest corporate emissions disclosure requirements in the country — surpassing the requirements contemplated in a draft Securities and Exchange Commission proposed rule released last year. The bill requires any entity — public or private — with total annual revenue in excess of US$1 billion and conducting business in California, to report greenhouse gas emissions (scope 1-3) annually. Reporting on scope 1 emissions, which are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization, and scope 2 emissions, which are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling, will be required starting in 2026. Reporting on scope 3 emissions, which are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain, is required starting in 2027. The bill also requires reporting entities to pay an annual fee that will be deposited into a newly created Climate Accountability and Emissions Disclosure Fund. The fund is to be used to cover the costs of administering and implementing the disclosure program.

It is worth noting that the California Department of Finance (DOF) released its analysis of SB 253 on August 14, stating its opposition to the bill. DOF cites the high cost of implementation, including the need for additional permanent staff at the California Air Resources Board, which will require new General Fund and special fund costs, as the justification for its opposition.

Senator Henry Stern (D-Los Angeles) authored SB 261, which requires companies earning at least US$500 million in revenue and conducting business in California to report on its climate-related financial risks. More specifically, companies covered by the legislation are required — starting no later than December 31, 2024, and annually thereafter — to disclose climate-related financial risk in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication, and the measures they have adopted to reduce and adapt to the identified climate-related financial risk.

Both bills were introduced in the previous legislative session and failed; however, there is reason to believe that both may succeed this year —despite DOF’s opposition to SB 253. Senator Wiener’s bill failed last year in the California State Assembly (Assembly) by a single vote, but this year, there are several new Assemblymembers that will be considering the content of SB 253 for the first time, including members that are expected to be more supportive. Senator Stern’s bill did not make it out of the California State Senate (State Senate) last year, but SB 261 did pass the State Senate this year — a clear indication of more support for the legislation this year.

SB 253 and SB 261 already passed the State Senate earlier this year and are currently in the Assembly Appropriations Committee, which has until September 1 to consider and report bills to the Assembly floor. Should the bills pass out of committee, the Assembly has until September 14 to pass and send bills to the governor. The governor has until October 14 to sign or veto the legislation.

This post comes to us from Arnold & Porter Kaye Scholer LLP. It is based on the firm’s memorandum, “California’s Ambitious Corporate Emissions Disclosure and Climate-Risk Reporting Legislation Could Pass the Legislature in the Coming Weeks,” dated August 22, 2023, and available here.