The governor of California signed off on a pair of bills containing requirements for large businesses operating in the state to make disclosures regarding their climate-related risks and impacts, though not without mentioning work to be done on the compliance ramifications associated with each law.
Gov. Gavin Newsom approved the “Climate Corporate Data Accountability Act” (SB 253) on Saturday. The bill directs the California Air Resources Board to establish by 2025 regulations requiring businesses with total annual revenue of more than $1 billion to disclose greenhouse gas emissions each year to a reporting organization contracted by CARB.
Newsom also signed a separate bill (SB 261) that will require California businesses with more than $500 million in annual revenue to develop a report on their climate-related financial risks.
The bills together have been a popular talking point as the Securities and Exchange Commission (SEC) drags out final rulemaking on its climate-related disclosure mandates first proposed in March 2022. Unlike the SEC’s proposed rule, the California bills will apply to private companies that fall in scope.
Under SB 253, annual disclosures would begin for Scope 1 (direct) and Scope 2 (indirect from purchased electricity) emissions in 2026. Requirements for Scope 3 (across supply chain) emissions would begin in 2027, and the disclosures would need to come within 180 days of Scope 1 and Scope 2 reporting.
The bill also contains requirements for third-party assurance on disclosures and would allow CARB to issue financial penalties not exceeding $500,000 for businesses that don’t comply.
SB 261 will require covered entities to publish on their websites their climate-related financial risks in line with recommendations from the Task Force on Climate-Related Financial Disclosures and what they are doing to address those risks. The bill allows for penalties not exceeding $50,000 for noncompliance.
Newsom, in signing each bill, expressed concerns regarding the financial impacts of their requirements. He described the implementation deadlines of SB 253 as “likely infeasible” and said he does not believe CARB will have enough time to play its part in setting up a reporting framework for SB 261.
“I am instructing CARB to closely monitor the cost impacts as it implements this new bill and to make recommendations to streamline the program,” he said of each law.
The California Chamber of Commerce raised similar concerns.
“SB 253 and SB 261 are major changes in climate policy and will add considerable obligations on affected businesses,” said Chamber President and Chief Executive Jennifer Barrera in a statement. “We look forward to working with the governor’s office on SB 253 cleanup legislation that will address some of the major concerns of our members, particularly the impact on small business.”
The bills could face legal challenge, like what is expected to take place after the SEC finalizes its climate-disclosure rules.