By: Madison Olson

On October 7, 2023, California Governor Gavin Newsom signed SB 253 and SB 261.[1]  This “Climate Accountability Package” will require companies, specifically those with over $1 billion in revenue – whether private or public – that “do business” in California to disclose Scope 1, Scope 2, and Scope 3 greenhouse gas (“GHG”) emissions.[2]  Additionally, it will compel companies with over $500 million in revenue, whether private or public, that “do business” in California to disclose their climate-related financial risk and measures taken to reduce such risk.[3]  The disclosure of Scope 1 and Scope 2 GHG emissions are set to begin in 2026, and Scope 3 GHG emissions in 2027.[4]  The submission of “biennial climate-related financial risk reports to the California Air Resources Board (CARB)” are set to begin in 2026.[5]  Many companies supported California’s bills, including Microsoft, Sierra Nevada Brewing Co., Everlane, Patagonia, and Apple.[6]  However, Western States Petroleum Association, which includes members like oil giants Chevron, Exxon, and Shell opposed the bill.[7]

Senate Bill No. 253,[8] Climate Corporate Data Accountability Act, (“SB 253”) creates new GHG emissions reporting requirements for companies that are organized in the United States, have total annual revenues over $1 billion, and do business in California.[9]  SB 253 will likely affect about 5,400 companies, including Chevron, Wells Fargo, Amazon, and Apple.[10]  SB 253 requires affected companies to annually disclose their emissions at certain levels.[11]  Under SB 253, companies must publicly disclose how much carbon is produced by their operations and electricity use, or their Scope 1 and Scope 2 emissions, by 2026.[12]  By 2027, companies will also be required to report Scope 3 emissions, or emissions generated by their supply chains and customers.[13]  SB 253 requires varying levels of assurance by independent third-party providers.[14]   Although the exact deadlines have not yet been set by the California Air Resources Board (“CARB”), SB 253 requires CARB to develop regulations implementing the reporting requirements on or before January 1, 2025.[15]  SB 253 outlines that CARB should “ensure that its emissions reporting regulations are structured in a way that ‘minimizes duplication of effort’ and allows companies to ‘meet other national and international reporting requirements.’”[16]

Senate Bill No. 261,[17] Greenhouse Gases: Climate-Related Financial Risk (“SB 261”) imposes new reporting requirements on companies, other than insurance companies, that are organized in the United States, have total revenues greater than $500 million, and do business in California.[18]  SB 261 requires affected companies– upwards of 10,000 public and private– to biannually prepare and disclose a climate-related financial risk report.[19]  These reports also include actions companies are taking to reduce and adapt to them.[20]  SB 261 requires that these companies begin reporting in 2026 or face annual penalties.[21]  Disclosures must be made following the recommended framework developed by the Task Force on Climate-related Financial Disclosures (“TCFD”) or an equivalent reporting requirement.[22]  During a signing message, Governor Newson stated that “[t]his policy will illustrate the real risks of climate change for businesses operating in California and will encourage them to adopt practices that seek to minimize and avoid these risks.”[23]

The “Climate Accountability Package” will likely have an impact outside of the state. The laws are written so that they apply to companies of a certain size “doing business” in California.[24]  “Doing business” in California, although not explicitly defined in the current language, was previously defined in existing tax code prevision as “engaging in any transaction for the purpose of financial gain within California, being organized or commercially domiciled in California, or having California sales, property or payroll exceed specified amounts: as of 2020 being $610,395, $61,040, and $61,040, respectively.”[25]

Moreover, many companies will be affected by the new laws.  Both private and public companies of a certain size and doing business in California will soon have to track and disclose their GHG emissions.[26]  While public companies are somewhat more accustomed to collecting, reporting, and verifying business information to the government, California’s legislation goes beyond this, requiring private companies to do so as well.[27]  Although this means large corporations would have to report soon, there are some that have already begun doing so as required by other regions and countries, like the EU, the UK, and New Zealand.[28]

The EU, specifically, has finalized the Corporate Sustainability Reporting Directive (“CSRD”).[29]  This framework will introduce more detailed sustainability requirements for both EU and non-EU companies.[30]  The updated rules are to be phased in starting January 2024 and will continue to be implemented, applying to all companies by January 2028.[31]  The affected “companies will be required to disclose information both about how sustainability-related factors, such as climate change, affect their operations and information about how their business model impacts sustainability factors.”[32]  Like California’s requirements, the CSRD includes climate factors such as Scopes 1, 2, 3, and GHG emissions.[33]  However, the CSRD also includes other environmental factors such as “water/marine resources, circular economy, pollution and biodiversity.”[34]  While the CSRD requirements are regarded as rigorous, unlike California, it does allow “companies to omit emissions disclosures if, as a result of a materiality assessment, a reporting company determines that it is not material and provides detailed explanation to that effect.”[35]

Furthermore, in March 2022, the SEC proposed a climate disclosure rule that that would require public companies to disclose their Scope 1, Scope 2, and in some instances, their Scope 3 emissions.[36]  The rule would also mandate a narrative discussion of the company’s climate-related financial risks and a note addressing the financial impacts of climate change.[37]  It is likely that the SEC’s rule will have a narrower scope than those recently passed in California.[38]  The SEC’s rule will only apply to public companies, while California’s applies to both public and private.[39]  Moreover, the SEC indicated that it hopes the California laws will “make it easier for the agency to pass its own rules.”[40]

[1] Jacob H. Hupart, Gov. Newsom Signs California Climate Disclosure Bills, Although Expressing a Degree of Skepticism Concerning Timing and Cost, Mintz (Oct. 11, 2023), https://insights.mintz.com/post/102ipq5/gov-newsom-signs-california-climate-disclosure-bills-although-expressing-a-degr.

[2] Id.; see Senate Rules Committee, Office of Senate Floor Analyses, infra note 25 (discussing a potential meaning of “doing business”).

[3] Jacob H. Hupart, California Compels Disclosure of Greenhouse Gas Emissions by Major Companies Operating in California, Mintz (Sept. 28, 2023), https://insights.mintz.com/post/102ionk/california-compels-disclosure-of-greenhouse-gas-emissions-by-major-companies-oper.

[4] California Enacts Landmark Climate Accountability Package Requiring Expansive Disclosure of Climate-Related Risks, Sidley Austin LLP (Oct. 10, 2023), https://www.sidley.com/en/insights/newsupdates/2023/10/california-enacts-landmark-climate-accountability-package.

[5] Id.

[6] Clara Hudson, California Climate Disclosure Rule Spurs Supply Chain Overhaul, Bloomberg L. (Oct. 11, 2023, 5:00 AM), https://www.bloomberglaw.com/bloomberglawnews/esg/X5S415E0000000?bna_news_filter=esg#jcite; see also Catherine Clifford, Apple Voices Support For California Climate Bill Proposing Strict Emissions Reporting,CNBC (Sept. 8, 2023, 3:11 PM), https://www.cnbc.com/2023/09/08/apple-letter-we-support-california-bill-to-track-scope-3-emissions.html.

[7] See Hudson, supra note 6.

[8] Climate Corporate Data Accountability Act, S.B. 253, 2023-2024 Reg. Sess. (Cal. 2023).

[9] Eugene Scalia et al., California Passes Climate Disclosure Legislation, Gibson Dunn (Sept. 27, 2023), https://www.gibsondunn.com/california-passes-climate-disclosure-legislation/.

[10] Dharna Noor, California to Require Big Firms to Reveal Carbon Emissions in First Law Of Its Kind, The Guardian (Oct. 9, 2023, 1:40 PM), https://www.theguardian.com/us-news/2023/oct/09/california-carbon-emissions-law; see Covington & Burling LLP, Preparing for Compliance with California’s New Landmark Climate Disclosure Laws, Covington (Oct. 9, 2023), https://www.cov.com/en/news-and-insights/insights/2023/10/preparing-for-compliance-with-californias-new-landmark-climate-disclosure-laws.

[11] See Scalia, supra note 9.

[12] See Boudreau & Noe, infra note 36 (“ Scope 1 are direct GHG emissions from sources owned or controlled by the company.  Scope 2 are GHG emissions from the generation of purchased electricity consumed by the company.  Scope 3 emissions are those that occur from sources upstream and downstream of the company’s operations (e.g., business travel; purchased goods and services; transport of capital goods; operational waste; and processing, use, and disposal of sold products).”).

[13] See Noor, supra note 10.

[14] See Boudreau & Noe, infra note 36.

[15] Id.

[16] Id.

[17] Greenhouse Gases: Climate-Related Financial Risk, S.B. 261, 2023-2024 Reg. Sess. (Cal. 2023).

[18] Eugene Scalia et al., California Passes Climate Disclosure Legislation, Gibson Dunn (Sept. 27, 2023), https://www.gibsondunn.com/california-passes-climate-disclosure-legislation/.

[19] See Covington & Burling LLP, supra note 10.

[20] SB 253 and SB 261: California’s New Climate Disclosure Rules, Explained, Manifest Climate (Oct. 4, 2023), https://www.manifestclimate.com/blog/sb253-sb261-california-climate-rules/.

[21] See Noor, supra note 10.

[22] See Boudreau & Noe, infra note 36.

[23] Sharon Udasin, Newsom Signs Landmark Emissions, Climate Risk Disclosure Laws, The Hill (Oct. 9, 2023, 1:59 PM), https://thehill.com/homenews/state-watch/4245951-newsom-signs-landmark-emissions-climate-risk-disclosure-laws/.

[24] Climate Corporate Data Accountability Act, S.B. 253, 2023-2024 Reg. Sess. (Cal. 2023).

[25] See Senate Rules Committee, Office of Senate Floor Analyses, S.B. 253, 2023-2024 Reg. Sess., at 2 (Sept. 11, 2023), https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=202320240SB253. 

[26] See Hupart, supra note 1.

[27] Sophie Austin, Gov. Newsom Signs New Law Requiring Big Companies In California To Disclose Emissions, PBS Newshour (Oct. 8, 2023, 12:35 PM), https://www.pbs.org/newshour/politics/gov-newsom-signs-new-law-requiring-big-companies-in-california-to-disclose-emissions.

[28] Lily Hsueh, Exxon, Apple and Other Corporate Giants Will Have to Disclose All Their Emissions Under California’s New Climate Laws – That Will Have a Global Impact, The Conversation (Oct. 10, 2023, 8.38 AM), https://theconversation.com/exxon-apple-and-other-corporate-giants-will-have-to-disclose-all-their-emissions-under-californias-new-climate-laws-that-will-have-a-global-impact-214630.

[29] Thibault Meynier et al., EU Finalizes ESG Reporting Rules with International Impacts, Harv. L. Sch. F. on Corp. Governance (Jan. 20, 2023), https://corpgov.law.harvard.edu/2023/01/30/eu-finalizes-esg-reporting-rules-with-international-impacts/.

[30] Id. 

[31] Id. 

[32] Id. 

[33] See id. 

[34] Id. 

[35] Dickson C. Chin et al., California Emissions Bills: What Your Company Needs to Know, Jones Day (Sept. 28, 2023), https://www.jonesday.com/en/insights/2023/09/california-emissions-bills-what-your-company-needs-to-know.

[36] Lorene L. Boudreau & Sarah A. Noe, CA to Require GHG and Climate-Risk Reporting for Companies Nationwide,Ballard Spahr (Oct. 11, 2023), https://www.ballardspahr.com/Insights/Alerts-and-Articles/2023/10/CA-to-Require-GHG-and-Climate-Risk-Reporting-for-Companies-Nationwide (explaining “[t]he proposal would require disclosure of Scope 3 emissions if they are material to an average investor, or if the company has set a GHG emissions target or goal that includes Scope 3 emissions.”).

[37] Id.

[38] Magali Delmas, et al., In California and Europe, A New Dawn For Corporate Climate Disclosure, The Hill (Oct. 5, 2023, 8:30 AM), https://thehill.com/opinion/energy-environment/4238182-in-california-and-europe-a-new-dawn-for-corporate-climate-disclosure/.

[39] Id.; see Hsueh, supra note 28 (comparing and contrasting differences and similarities between SEC’s Rule, California’s Laws (SB 253 and SB 261), and Biden Proposal).

[40] Paul Kiernan, SEC Chair Signals California’s Climate Bill Could Help Clear Path for Agency’s Rule, N.Y. Times, (Sep. 20, 2023, 6:05 PM), https://www.wsj.com/livecoverage/fed-meeting-interest-rate-decision-today-september-2023/card/sec-chair-signals-california-s-climate-bill-could-help-clear-path-for-agency-s-rule-FJa5bVIuKTFAlAp8U0GG.