Climate Disclosure Mandates: California Lawmakers Press Forward Ahead of Forthcoming Federal Rule

Client Alert

Two proposed climate-related disclosure mandate laws moved closer to becoming law in California. Collectively, the two proposed laws largely mirror a federal rule proposed by the Securities and Exchange Commission (SEC). The yet-to-be-released SEC rule would apply only to publicly traded companies, but the proposed California laws would apply to any entity doing business in the state above a specified threshold. See our prior update on climate disclosure mandates here.

At issue are two categories of disclosures. First, entities must disclose all greenhouse gas emissions related to that entity’s operations and production. Such emissions are parsed relative to Scope 1, Scope 2 and Scope 3. Scope 1 emissions are those directly produced by the entity’s activities. Scope 2 emissions are those attributable to the generation of energy consumed by the entity. Scope 3 is everything else, including, for example, employee commutes and travel, supply chain emissions, and emissions from consumers’ use and consumption of the entity’s products or services. Acknowledged as highly speculative and difficult to quantify, Scope 3 emission disclosures are the most controversial and vigorously opposed by industry.

The second category of disclosures has to do with climate “risks.” Such disclosures are as to asset and operational risks to the business entity posed or exacerbated by climate-related phenomena. For example, are physical facilities of the entity at greater risk due to increased and dramatic flood events? Is the facility impacted by severe drought conditions? Is the entity’s supply chain impacted by such risks? Are the entity’s employees at risk?

In California, SB 253 (Wiener) mandates the disclosure of emissions, including Scopes 1–3. As to Scope 3, the bill allows for estimations relative to standardized metrics and industry practices as opposed to verified precise measurements to account for uncertainty. SB 261 (Stern) requires the climate “risk” disclosures.

At the federal level, the proposed SEC rule includes both the emissions disclosures—including Scopes 1–3—and the climate “risk” disclosures. As the SEC rule has undergone public review and comment, some news outlets report of anonymous but credible sources stating that SEC commissioners are considering lessening the requirements as to Scope 3 emissions disclosures. While the SEC has made no specific time commitments, observers believe the final rule will be released by the end of March.

SB 253 and SB 261 passed the Senate Environmental Quality Committee last week and have advanced to consideration in the Senate Judiciary Committee.

For updates on SB 253, SB 261, the forthcoming SEC Climate Risk rule or any related matters, contact David C. Smith.



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