California Governor Gavin Newsom publicly confirmed that he will sign two unprecedented climate disclosure mandate bills into law. The mandates will apply to thousands of private entities that conduct any business in California, whether or not physically present in the state, and meet specified revenue thresholds. While the jurisdiction trigger is minimal engagement with California, the scope of the required disclosure is unbounded: all operations globally. Outside of Europe, California will now be the first governmental body to impose such sweeping mandates on private business. “The future happens in California first,” said Newsom.
The two laws mandate disclosure of climate-warming emissions and organizational “risk” related to climate change. The tandem mandates largely mirror a proposed rule by the Securities and Exchange Commission (“SEC”), however the California mandates are not limited to publicly traded companies. The California obligations apply to any company doing business in California whose total revenues (not limited to California) exceed $1 billion as to emissions disclosure and $500 million as to risk disclosure. The disclosure obligations would encompass worldwide operations.
SB 253 (Weiner), "The Climate Corporate Data Accountability Act" (“Act”), would require specified companies to disclose all emissions related to the business's operations – Scope 1, Scope 2, and Scope 3 emissions. Scope 1 emissions are the emissions generated by the business's operations itself, e.g. emissions generated by the company's own manufacturing processes. Scope 2 emissions are emissions generated by the energy consumed by the business in carrying out its activities, e.g., its electricity bill. Scope 3 is anything and everything else in its operations and supply chain, e.g., employee travel, component suppliers' emissions, and use of the end product by the company’s consumers. Disclosure of Scopes 1 and 2 would commence in 2026 and Scope 3 in 2027.
SB 261 (Stern), would require disclosure of risks arising from climate-related phenomena. According to the bill, “’Climate-related financial risk’ means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” Risk disclosure reports are due on or before January 1, 2026, and biennially thereafter.
The bills today only purport to require disclosure without additional regulatory mandates for reductions. But SB 253 is linked directly to the state’s existing mandates that California be carbon neutral by 2045 and that by 2030 the state's emissions be at least 40 percent below 1990 levels. The bill requires the California Air Resources Board to contract with the University of California or another research entity to prepare a report on the disclosed emissions and requires "at a minimum" that it consider those emissions relative to "state greenhouse gas emissions reduction and climate goals."
SB 253 is available here.
SB 261 is available here.
For more information on SB 253, SB 261, the proposed SEC rule, or any climate-related regulatory matters, please contact David Smith.