Climate Disclosures: California Mandates Advance in Legislature with Modest Reprieve

Client Alert

Two proposed California laws that would mandate disclosure of climate-warming emissions and organizational “risk” related to climate change moved closer to Governor Newsom’s desk. The tandem mandates largely mirror a proposed rule by the Securities and Exchange Commission (“SEC”); however, the California mandates are not limited to publicly traded companies. The California obligations apply to any company doing business in California whose total revenues (not limited to California) exceed $1 billion as to emissions disclosure and $500 million as to risk disclosure. The disclosure obligations would encompass worldwide operations. In a most modest concession to business interests, the authors extended by one year the reporting mandate for the most speculative and uncertain category of emissions, “Scope 3” emissions.

SB 253 (Weiner), “The Climate Corporate Data Accountability Act” (“Act”), would require specified companies to disclose all emissions related to the business’s operations—Scope 1, Scope 2 and Scope 3 emissions. Scope 1 emissions are those generated by the business’s operations itself, e.g., emissions generated by the company’s own manufacturing processes. Scope 2 emissions are emissions generated by the energy consumed by the business in carrying out its activities, e.g., its electricity bill. Scope 3 is anything and everything else in its operations and supply chain, e.g., employee travel, component suppliers’ emissions and use of the end product by the company’s consumers. Disclosure of Scopes 1 and 2 would commence in 2026, but Scope 3 would be deferred to 2027 under the most recent amendments.

SB 261 (Stern), would require disclosure of risks arising from climate-related phenomena. According to the bill, “‘Climate-related financial risk’ means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.”

The bills today only purport to require disclosure without additional regulatory mandates for reductions. But foreshadowing a likely future regulatory intent, SB 253 requires the California Air Resources Board to contract with the University of California or another research entity to prepare a report on the disclosed emissions and requires “at a minimum” that it consider those emissions relative to “state greenhouse gas emissions reduction and climate goals.” Among others, those “goals” include legislative mandates that California be carbon neutral by 2045 and that by 2030 the state’s emissions be at least 40 percent below 1990 levels.

Both SB 253 and SB 261 were approved by the Senate and will next be heard in the Assembly Natural Resources Committee.

For more information on SB 253, SB 261, the proposed SEC rule or any climate-related regulatory matters, please contact David Smith.



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