California Unveils Important Updates on Climate-Risk Disclosure Laws

Key Takeaways

  • The California Air Resources Board (CARB) released guidance for companies on compliance with climate disclosure laws SB 253 and SB 261.
  • Entities covered by SB 261 must submit their climate-related financial risk reports by January 1, 2026, with a public docket to be opened on December 1, 2024.
  • Reports under SB 253 will also be due in 2026, with focus on transparency and a supportive approach for first-time reporters.

California Air Resources Board Guidance on Climate Disclosure Laws

The California Air Resources Board (CARB) released essential guidelines intended to help companies navigate compliance with the newly enacted climate disclosure laws, specifically Senate Bills 253 and 261. The guidance reveals CARB’s procedures for transitioning these climate disclosure regulations into final rules, highlighting ongoing efforts such as initial rulemaking, enforcement notices, and public engagement.

Currently, CARB is gathering information informally in preparation for developing effective regulations by the end of the year. Notably, for businesses covered under SB 261, known as the Climate-related Financial Risk Act, there’s a significant deadline approaching. Companies operating in California that generate annual revenues exceeding $500 million are expected to link their initial climate-related financial risk reports publicly by December 1, 2024. The deadline for submitting these reports is set for January 1, 2026, and the public docket for submissions will remain available until July 1, 2026.

A 2023 analysis indicates that SB 261 is predicted to affect more than 10,000 companies in California, emphasizing its broad impact on transparency regarding climate-related financial risks. While SB 261 specifics have been clarified, reports under SB 253 (the Climate Corporate Data Accountability Act), which mandates annual greenhouse gas emissions disclosures from companies with revenues over $1 billion, will also be due in 2026, although a precise date was not provided.

CARB reiterated its commitment to providing clarity in the reporting process, particularly for businesses unfamiliar with emissions disclosure protocols. As indicated in their guidance, entities covered by SB 253 are expected to disclose their scope 1 and scope 2 emissions in 2026, with scope 3 emissions reporting commencing in 2027. Ceres, an environmental nonprofit organization, estimates that over 5,300 companies will be affected by this legislation.

To ease the transition, CARB previously issued an Enforcement Notice indicating that it would exercise discretion on enforcement against entities for incomplete reporting during the initial cycle, as long as they make good faith efforts in retaining relevant emissions data. This approach is aimed at assisting companies as they establish necessary compliance infrastructures amid the complexities of emissions reporting.

CARB has clarified that the enforcement leniency applies to SB 253 and not to SB 261. The agency’s flexible stance has been reaffirmed following recent amendments introduced by Governor Gavin Newsom through Senate Bill 219, which fine-tunes both SB 253 and SB 261.

Indicating a willingness to adapt, CARB is also seeking stakeholder input on the definition of “doing business in California” in relation to greenhouse gas reporting. The agency is considering potential exemptions for companies that, despite exceeding the revenue thresholds, largely operate outside California.

The proactive measures taken by CARB signal a supportive transition for businesses gearing up for these climate disclosure requirements, ensuring a manageable integration into necessary reporting practices. This collaborative approach is intended to facilitate compliance, highlighting the importance of transparency and preparation for first-time reporters in California’s evolving regulatory landscape.

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