September 20, 2023
California Moves Forward with Climate Disclosure Requirements
Pending California legislation imposing climate disclosure requirements on companies doing business in the Golden State was a topic of discussion at yesterday’s “2023 Practical ESG Conference.” Troutman Sanders’ Brinkley Dickerson reports that this legislation isn’t going to be “pending” for much longer:
Over this past weekend California’s Governor Newsom indicated that he would sign SB 253 and SB 261. SB 253, when fully implemented with rules, will require any entity with $1 billion or more in revenue (anywhere) and that “does business” in California to file annual reports covering Scope 1 and Scope 2 emissions (wherever they occur) and, ultimately, Scope 3 emissions (wherever they occur).
The reporting requirements will be effective in 2026 for 2025 Scope 1 and Scope 2 emissions, and 2027 for Scope 3 emissions. Assurance reports will be required for Scope 1 and Scope 2 emissions at the limited assurance level beginning in in 2026 and at the reasonable assurance level beginning in 2030. Assurance reports will be required for Scope 3 emissions at the limited assurance level beginning in 2030.
SB 261, when fully implemented with rules, will require any entity with $500 million or more in revenue (anywhere) and that does business in California to prepare a biennial report disclosing (i) climate-related financial risk (using the TCFD approach) and (ii) measures adopted to “reduce and adapt to climate-related financial risk disclosed” under clause (i).
The implementing rules will be critical as SB 253 does not contemplate consolidate reporting, while SB 261 does.
While both bills are likely to be challenged, the challenges will be more difficult than those to the SEC climate disclosure rules (if and when finalized) given the clear statutory authority (which was the prevailing challenge in the Supreme Court’s EPA vs. West Virginia opinion) and the recent cases narrowing preemption by the Commerce Clause. It is unclear what impact, if any, the California legislation will have on the SEC rulemaking.
– John Jenkins