California Places Climate Disclosures Back at the Forefront

On September 27, 2024, California’s Democratic governor, Gavin Newsom, signed into law Senate Bill 219 (SB 219), which enacts several amendments to the Climate Corporate Data Accountability Act (SB 253) and the Climate‐Related Financial Risk Act (SB 261), both of which are summarized in this previous Sidley Update. SB 253 and SB 261 imposed unprecedented reporting requirements on U.S. public and private companies doing business in California that meet the requisite financial thresholds, including the disclosure of scopes 1, 2, and 3 greenhouse gas (GHG) emissions (applicable to companies with more than $1 billion in total annual revenue) and the submission of a biannual climate-related financial risk report to the California Air Resources Board (CARB) (applicable to companies with more than $500 million in total annual revenue) starting as early as January 1, 2026, for calendar year 2025.

While SB 219 does not eliminate these reporting requirements, it does provide some additional flexibility for reporting/covered entities and is less prescriptive in terms of the regulations to be adopted by CARB. This Sidley Update summarizes the principal features of SB 219 and provides practical guidance for companies considering next steps.

SB 253 and SB 261 Background

On October 7, 2023, Gov. Newsom signed into law two bills, SB 253 and SB 261, collectively referred to as the Climate Accountability Package. The Climate Accountability Package received considerable attention, as in effect the landmark legislation compelled climate-related disclosures for all U.S. companies “doing business” in California that meet certain annual revenue thresholds, that is, more than $1 billion under SB 253 and more than $500 million under SB 261. Due to the size of the California economy — the fifth largest economy in the world when measured by gross domestic product — many commentators estimated that SB 253 and SB 261 would apply to a large swath of large U.S. companies, with some estimating it would capture the majority of the Fortune 1000.ⁱ In addition to the notoriety SB 253 and SB 261 garnered because of the breadth of entities covered, the regulations became the subject of litigation seeking to block the regulations from going into effect.

How Does SB 219 Change SB 253 and SB 261?

The predominant theme of the amendments to SB 253 and SB 261 by SB 219 center around the provision of additional time for the promulgation of related regulations while by and large maintaining the same reporting deadlines. Consequently, this will likely reduce the amount of time subject companies will have to prepare these disclosures with the benefit of interpretative regulations. Principal substantive changes between SB 219 and SB 253/SB 261 include:

• Providing an additional six-month delay for the publication of regulations for scope emissions disclosures. SB 219 extends the rulemaking deadline for CARB for scopes 1, 2, and 3 emissions by an additional six months, from January 1, 2025, to July 1, 2025.
• Changing the timeline of scope 3 emissions disclosure. SB 219 permits CARB to prepare a schedule for disclosure of scope 3 emissions rather than the previous timeline requiring scope 3 emissions disclosure no later than 180 days after scopes 1 and 2 emissions disclosure.
• Providing CARB with greater permissive authority. SB 219 provides CARB with far greater permissive authority. For example, under both SB 253 and SB 261, CARB was required to engage a “climate reporting organization” to perform certain responsibilities, such as receiving GHG emissions disclosures. SB 219 now permits CARB, at its option, to assume these duties rather than engaging a third party to perform them.
• Permitting consolidated reporting at the parent level for scope emissions. The law clarifies that for purposes of the scopes 1, 2, and 3 emissions disclosures, consolidated reports at the parent company level would be acceptable, which in effect relieves a subsidiary from having to generate a separate report. This change aligns SB 253 with SB 261, the latter of which already permitted entities to rely on consolidated parent-level reporting.
• Eliminating the payment at filing requirements. SB 219 eliminates the requirement that reporting entities pay a filing fee when filing their disclosure reports for SB 253 and SB 261. Meaning while the time period for when an entity pays the fee has changed, the fee itself has not.

Appendix A includes a chart highlighting key changes from originally enacted versions of SB 253 and 261.

SB 219 Compliance Dates

While SB 219 largely comports with the compliance dates set forth in SB 253 and SB 261, in the few instances where SB 219 amends such compliance requirements, the legislature has generally provided greater flexibility. The table below summarizes the compliance dates of covered entities and notes where SB 219 deviates from the original dates under SB 253 or SB 261, as applicable.

AB 1305 Voluntary Carbon Market Disclosures — Prepare for Compliance

On October 7, 2023, Gov. Newsom signed into law Assembly Bill 1305 (AB 1305), summarized in this previous Sidley Update. AB 1305, also known as the Voluntary Carbon Market Disclosure Act, regulates companies involved in the marketing, selling, and purchasing of voluntary carbon offsets (VCOs) in California. As enacted, AB 1305 effectively provided covered entities with approximately three months from the date of signing to the effective date to prepare for compliance — a timeline heavily criticized by the California business community. Due to political pressure, California Democratic Assemblymember Jesse Gabriel, the principal author of AB 1305, sent a public letter to the Chief Clerk of the California Assembly clarifying his intentions that the first disclosures be posted on January 1, 2025, giving covered entities an additional year to prepare for compliance. As a result of Assemblymember Gabriel’s letter, AB 1305 enforcement was deferred until 2025, giving covered entities a reprieve from the potential civil penalties for noncompliance.

Introduced in early 2024, Assembly Bill 2331 (AB 2331), which was intended to clarify ambiguities in AB 1305 and would further delay the enforcement timeline of AB 1305 until July 1, 2025, failed to pass before the close of the California legislative session. This means that absent another bill amending AB 1305 being introduced in the January 2025 California legislative session, covered entities must comply with the current requirements no later than January 1, 2025. 

Next Steps for Companies With Operations in California

• Evaluate whether your company is in scope for purposes of the Climate Accountability Package. California’s Climate Accountability Package is very broad, as it is not based on domicile but rather financial thresholds and applies to both public and private companies. Because of this, many businesses will be in scope for purposes of these novel disclosures and therefore will need to determine whether they apply to them.
• If your company is in scope, evaluate how the Climate Accountability Package may affect your operations. While the Climate Accountability Package pertains only to disclosure, it may affect corporate behaviors, as companies may be encouraged or compelled to take actions, to the extent they are not doing so already, to have monitoring, accounting, planning, and operational and governance practices in place so that required disclosures can be made. Many of the disclosure requirements will create new challenges for companies that have not made similar disclosures in the past. Because of the novelty of these new disclosures, it is highly recommended that the preparation process begin sooner rather than later so that any pain points or difficulties in generating disclosure level-response and compliance can be resolved ahead of time.
• Alignment with EU and UK legislation. The European Union (EU) and the United Kingdom (UK) have also adopted mandatory disclosure requirements for corporations. In the EU, the disclosure requirements under the Corporate Sustainability Reporting Directive (CSRD) will apply to many U.S. companies subject to the Climate Accountability Package. In most of these cases, CSRD reporting will begin in 2026 for 2025 activities, with reporting in respect of non-EU parent companies to follow in 2029. Disclosures will be subject to limited assurance, moving to reasonable assurance over time. CSRD is much broader than the Climate Accountability Package: It covers 10 distinct sustainability topics of which climate is just one. With respect to climate change, CSRD requires broader and more detailed disclosures, including energy consumption, mix, and intensity; separate disclosure of emission reduction and net-zero targets; board expertise on climate change; and the relevance of climate considerations to board remuneration. In 2022, the UK adopted disclosure requirements on climate change-related risks and opportunities for certain companies and limited liability partnerships with more than 500 employees and £500 million turnover. The required disclosures include how climate change is addressed in corporate governance, performance measures, and targets applied in managing climate change-related risks. Companies should begin assessing whether they are subject to these requirements and, if so, planning compliance, which can be challenging. Companies should consider cross-jurisdictional requirements holistically, to ensure appropriate coherence and consistency.
• Continue to monitor global greenwashing litigation. The global trend toward increased environmental, social, and governance (ESG) disclosures comes with a growing global trend in ESG-related litigation. Cases are being brought around the world by government authorities, investors, consumers, and civil society, and in many parts of the world, plaintiffs are enjoying considerable success, including in challenging elements of a company’s business model as misaligned with corporate sustainability statements. New sustainability disclosures will provide an additional source of public information that will likely drive a further increase in ESG-related litigation. Companies must weigh these risks as they meet their new disclosure requirements. These risks are more pronounced when companies are subject to disclosures across jurisdictions, placing a premium on coherence and consistency, wherever appropriate.

Appendix A

Substantive Changes to the California Climate Accountability Package

ⁱ Manifest Climate, Manifest Climate’s Experts Discuss What California’s New Climate Disclosure Rules (SB 261 and SB 253) Mean for US Businesses (December 4, 2023), https://www.manifestclimate.com/blog/manifest-climates-experts-discuss-what-californias-new-climate-disclosure-rules-mean-for-us-businesses/; see also Sadie Frank, How Might California’s New Climate Disclosure Law Impact Federal Rulemaking? (October 26, 2023), https://www.citizen.org/article/california-sec-climate-disclosure-report/; see also Watershed, California SB 253 and SB 261: a guide for companies, (November 27, 2023), https://watershed.com/blog/california-sb-253-and-sb-261-a-guide-for-companies.