California Governor Gavin Newsom recently pledged to sign two groundbreaking climate disclosure bills into law. These bills will mandate most large U.S. companies to reveal their complete emissions along their value chains and report on their financial risks and adaptation measures related to climate change.

The California Senate bills, SB 253 ("Climate Corporate Data Accountability Act") and SB-261 ("Greenhouse gases: climate-related financial risk"), have already been approved by the California Assembly and are awaiting the Governor's signature by October 14. Governor Newsom emphasized California's historic leadership in climate legislation, such as establishing the first cap and trade program and emissions standards for vehicles, low carbon fuel requirements, and the mandate for selling alternative fuel cars by 2035.

The Governor confirmed his intent to sign these bills during a climate change (aka "Climate Week NY") event (ending September 24) but mentioned minor language adjustments are needed before they become law.

SB 253 applies to all United States companies (and other "business entities") with total annual revenues in excess of one billion dollars revenue doing business in California. This is predicted to impact over 5,300 business entities operating in California. These companies must annually report emissions from all scopes, including direct emissions from their operations (Scope 1), indirect emissions generated by their use of electricity (Scope 2), and emissions relating to their supply chain (Scope 3). Reporting begins in 2026 for some emissions and follows the Greenhouse Gas (GHG) Protocol standards, with third-party verification required. The GHG Protocol is the globally recognized GHG emissions accounting and reporting standard developed and updated by the World Resources Institute and the World Business Council for Sustainable Development. For additional information on SB 253, see Full Value Chain Emission Disclosures – A California ESG Bill Resurrected and Updates to SB 253: California's Comprehensive Carbon Disclosure Legislation.

SB 261 applies to US companies with total annual revenues in excess of five hundred million dollars revenue and that do business in California. It mandates disclosure of climate-related financial risks and measures for risk reduction, aligning with the internationally recognized Task Force on Climate-Related Financial Disclosures framework. Reporting begins in 2026, with biennial reporting instead of annual.

At the federal level, the Securities Exchange Commission (SEC) proposed similar significant increases in climate change reporting for publicly traded corporations (see proposed rule here and our brief recent update here). However, the proposed rule (particularly the portions requiring reporting on Scope 3 emissions) resulted in significant pushback from industry, as evidenced by the large number of comments the SEC received in response to publishing its proposed rule.

The SEC rule is expected to be finalized by the end of 2023, but no updates have been announced since the close of the comment period in June 2022. The SEC is likely to face legal challenges, particularly on the SEC's authority to require Scope 3 emissions data. Commentators are now speculating whether the SEC will weaken its proposed regulations but that may now be impacted by the likely passage of the above two bills. Future updates will be provided as we analyze California regulatory scheme and the SEC's final rule.

This article is presented for informational purposes only and is not intended to constitute legal advice.