Preparing for California’s Climate Disclosure Laws

When California Governor Gavin Newsom signed SB 253 and 261 [1] into law last year—creating the first broad, industry-agnostic domestic climate reporting obligations for U.S. companies doing business in California—he did so with a caveat. His signing statements pointed out infeasible implementation deadlines (here and here) and potentially “inconsistent” reporting that could result based on the required reporting protocol under SB 253, and called upon his Administration to work with the bills’ authors and the state legislature to address those concerns in the 2023-2024 legislative session. Since then, the laws have been somewhat in limbo, first due to lack of funding in the Governor’s proposed budget, and then as negotiations ensued over revisions to the implementation timelines. [2]

Now the picture has finally cleared, with funding secured in the Governor’s finalized budget (signed in June 2024) to enable the California Air Resources Board (“CARB”) to draft regulations, and a new bill enacted to amend SB 253 and 261. Senate Bill 219, signed by Gov. Newsom last week after the state’s legislative session closed, maintains the original 2026 timing for Scope 1 and 2 greenhouse gas (“GHG”) emissions reporting and 2027 for Scope 3 GHG emissions, but postpones the deadline for implementing regulations by six months. Appendix A and B provide further detail regarding the requirements (as amended) under each of the laws.

While SB 219 tweaked certain elements of SB 253 and 261, key questions (including as to scoping) will remain unanswered until CARB finalizes its implementing regulations. However, with the first reporting period kicking off just three months from now in 2025, it’s prudent to take action to prepare for compliance.

Key Takeaways from SB 219

• CARB now has six additional months (until July 1, 2025) to adopt implementing regulations. Those regulations will be required to answer key questions such as:
  • The definition of “doing business” in California for purposes of determining application of SB 253 and 261. [3]
  • Calculation of annual revenue for purposes of meeting the financial thresholds specified in the laws. [4]
  • The specific timing of covered entities’ initial, annual Scope 1 and 2 GHG emissions reporting due in 2026.
  • The specific timing of covered entities’ initial, annual Scope 3 emissions reporting due in 2027.
  • Administrative penalties for violations of SB 253 and 261 reporting obligations.
• GHG emissions reports under SB 253 may be consolidated at the parent company level, meaning that in-scope subsidiaries will not be required to submit separate reports.
• With respect to both SB 253 and 261, CARB may, but is not required to, contract with third-party reporting organizations for disclosure and/or public reporting purposes.

Next Steps for Compliance

Although scoping nuances under the laws may not be clarified until CARB issues the required regulations, business entities (which includes corporations, partnerships and LLCs) should evaluate their likely status under the criteria laid out in Appendix A and B. Additionally, given that CARB is required to consider industry feedback when determining reporting timelines—particularly as to the Scope 3 emissions reporting schedule— companies should consider whether active engagement in the rulemaking process may be advisable. For those entities likely to be in scope, now is the time to begin preparing, by:

• Determining and designing a course of action for the first reporting period (2026 reports, covering 2025), including potentially retaining consultants and legal counsel to assist in process design and implementation, and preparing first reports;
• Implementing a process for gathering data and information necessary to fulfill reporting requirements, including Scope 1 and 2 emissions for 2025 (i.e., GHG inventory calculations);
• Engaging a third-party auditor or other organization meeting the competency and independence requirements set out in SB 253 to provide assurance over Scope 1 and 2 emissions reporting; and
• Evaluating the Task Force on Climate-Related Financial Disclosures (TCFD) framework and recommended disclosures and beginning to perform a gap analysis.

Finally, while SB 253 and 261 are set to go into effect in amended form on Jan. 1, 2025, both laws are currently subject to ongoing litigation [5] in the U.S. District Court for the Central District of California, with plaintiffs seeking a permanent injunction on the argument that the laws violate the First Amendment by compelling corporate speech. A hearing on motions for summary judgement is scheduled for October 15, and the laws are not stayed pending the determination of the case—nor is CARB refraining from pushing forward with rulemaking—meaning preparation should proceed in the meantime.

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1For an introduction to California’s climate disclosure laws SB 253 and 261, see our prior alerts, Far-reaching California climate disclosure bills signed into law and California’s Flurry of ESG Lawmaking, and our alert comparing the CA laws and the SEC’s Climate Disclosure Rules, SEC Finalizes Landmark Climate-Related Disclosure Rules.(go back)

2Governor Newsom’s original 2024-2025 state budget proposal in January left out funding for CARB’s implementation of SB 253 and 261. Funding was added to the Governor’s May Revision budget proposal, which was included in the final budget adopted in June. Following adoption of California’s 2024-2025 budget, draft trailer bill language surfaced on the California Department of Finance’s website proposing a delay in implementation of SB 253 and 261 by two years (until January 1, 2028 from January 1, 2026). This draft trailer bill became SB 219, however, the bill as introduced by Senators Weiner and Stern (and now signed into law) did not adopt the proposed two year implementation delay, instead retaining the original reporting deadlines.(go back)

3While neither SB 253 nor 261 explicitly requires regulations on this point, we understand that CARB expects to address it through regulation.(go back)

4Ibid.(go back)

5Chamber of Commerce of the United States of America, et al. v. California Air Resources Board, et al., No. 2:24-cv-00801 (C.D. Ca.).(go back)