In September 2023, the California legislature passed its Climate Accountability Package including Senate Bill 253 (Climate Corporate Data Accountability Act) and Senate Bill 261 (Climate-Related Financial Risk Act). These new laws imposed significant climate-related reporting and disclosure requirements on thousands of public and private corporate entities that do business in California. We previously summarized the key provisions of these laws following their passage in late 2023 in our briefing here.
A year later, on September 27, 2024, California’s Governor Gavin Newsom signed into law Senate Bill 219, thereby amending SB 253 and SB 261. Below we examine how these amendments will affect companies subject to the California climate-related reporting requirements.
Amendments to SB 253
SB 253 (Cal. Health & Saf. Code § 38532) sets out the strictest corporate emissions disclosure requirements in the United States. Under the law, all companies (public and private) with over $1 billion in annual revenue (not limited to in-state revenue) that are “doing business” in California must prepare an annual disclosure of its GHG emissions from all activity (whether activities occur in California or not). California Air Resources Board (“CARB”) is directed to adopt regulations implementing the requirements of SB 253, including setting a specific deadline for the required disclosures.
SB 219 amends SB 253 as follows:
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Extends the date by which CARB is required to adopt implementing regulations by six months: from January 1, 2025 until July 1, 2025. There are no material changes to the timing with respect to scope 1 and scope 2 emissions reporting which will begin for covered entities in 2026 on or by a date determined by CARB. The implementing regulations will likely address the specific deadline for filing scope 1 and scope 2 emissions reporting.
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Scope 3 emissions disclosures are required beginning in 2027 pursuant to a scheduled specific by CARB, rather than being due no later than 180 days after an entity’s scopes 1 and 2 emissions are disclosed.
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Explicitly authorizes the required disclosure report to be consolidated at the parent company level (similar to SB 261).
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De-couples payment of the annual fee from the annual filing of the disclosure.
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Authorizes, rather than requires, CARB to contract with an emissions reporting organization to develop a reporting program to receive and make certain required disclosures publicly available.
Critically, CARB has expressed concerns about meeting the July 1, 2025 deadline to finalize its implementing regulations. CARB representatives have indicated that a two-year extension is more realistic to complete the regulatory process due to the public comment timelines in the state Administrative Procedures Act, under which regulations are adopted, coordination with the Office of Administrative Law, and the requirements in the Bagley-Keene Open Meeting Act, to which CARB is subject (see August 31, 2024 Senate Floor Analyses for SB 219).
Governor Newsom, in fact, proposed legislation in late June 2024 – through a budget trailer bill – that would have delayed the deadline for CARB rulemaking to implement SB 253 by two years (until January 1, 2027). However, the legislature failed to vote on the Governor’s proposal before the end of the 2024 legislative session. This demonstrates the legislature’s resistance to extend CARB’s rulemaking deadline beyond the six months afforded in SB 219.
Nonetheless, CARB has indicated it is positioned to hire staff in Fall/Winter 2024 to implement SB 219 and plans to begin informal workshops with stakeholders, to develop the required regulations, in early to mid-2025 (see August 31, 2024 Senate Floor Analyses for SB 219).
The regulatory process is critical to the law because SB 253 is not self-implementing: CARB must adopt rules before reporting requirements under SB 253 are triggered. And there is no certainty with respect to the specific deadline for reporting the required climate emissions disclosures except that it will be some time in 2026 for scopes 1 and 2, as determined by CARB.
Nevertheless, recognizing that the initial reporting deadline could be set by CARB to occur as early as January 2026, companies should start planning how to comply with SB 253’s requirements if they are a covered entity. Regulated entities should also evaluate whether issues raised by SB 253 (e.g., what constitutes “doing business” in California) support commenting during CARB’s rulemaking process.
Amendments to SB 261
SB 261 (Cal. Health & Saf. Code § 38533) requires covered entities – which include public and private companies with over $500 million in annual revenue (not limited to in-state revenue) that are “doing business” in California (except for insurance companies) – to publicly disclosure climate-related financial risk and measures taken to reduce and adapt to risk on its website. Further details are discussed here.
SB 219’s changes to SB 261 are minimal and do not affect the original timing. The first reports subject to SB 261 are due “on or before January 1, 2026, and biennially thereafter.” SB 219 does not change this date and it seems unlikely that there will be any future modification of the deadline.
Minor amendments to SB 261, via passage of SB 219, include:
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Authorizing, rather than requiring, CARB to contract with a climate reporting organization to compile and summarize information reported by regulated entities.
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De-coupling payment of the annual fee from the annual filing of the report.
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The broad range of expertise at Hogan Lovells US LLP – including the Environment and Natural Resources, Litigation/Consumer Products, Sustainable Finance and Investment, Corporate and Finance, and Infrastructure, Energy, Resources and Projects teams – are available to advise clients on GHG emissions disclosures and climate-related financial risk reports pursuant to SB 253, 261, and 219 and can help you understand interactions with other relevant sustainability-related reporting regimes required globally.
Authored by Tom Boer and Olivia Molodanof.
