California Climate Disclosure Laws Survive a Challenge

California’s climate disclosure requirements have cleared a major hurdle.  On August 13, the U.S. District Court for the Central District of California issued an order declining to grant a preliminary injunction that would have blocked enforcement of Senate Bill 253 and Senate Bill 261. The U.S. Chamber of Commerce and other plaintiffs challenged the validity of these laws and sought a preliminary injunction on First Amendment grounds. The district court held that, while both statutes regulate commercial speech, the plaintiffs had not established that they were likely to succeed in establishing that the laws are unconstitutional.  The court has previously ruled against several of the plaintiffs’ other arguments.  The plaintiffs have appealed the district court’s decision to the U.S. Court of Appeals for the Ninth Circuit.

Senate Bill 253, the Climate Corporate Data Accountability Act, requires U.S. public or private entities with annual global revenue exceeding $1 billion that do business in California to report their Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions. See California Outflanks the SEC on Climate Disclosure, October 2023 Update. The first reports, covering Scope 1 and Scope 2 emissions during the reporting entity’s 2025 fiscal year, are due in 2026.  The California Air Resources Board (CARB) has proposed June 30, 2026, as the deadline for initial Scope 1 and Scope 2 emissions reporting, although it has also announced that it will not take enforcement action against companies that fail to report in 2026, provided they demonstrate good faith efforts to comply.  See California Will Go Easy on Enforcement of GHG Emissions Reporting in 2026, January 2025 Update.  Senate Bill 253 requires third-party assurance over Scope 1 and Scope 2 reporting on a limited assurance basis beginning in 2026 and on a reasonable assurance basis beginning in 2030. CARB has proposed to accept assurance provided under certain existing attestation standards, including the International Auditing and Assurance Board’s ISSA 5000, General Requirements for Sustainability Assurance Engagements.

Senate Bill 261, the Climate-Related Financial Risk Act, requires U.S. public or private entities with annual global revenue exceeding $500 million that do business in California to disclose their climate-related financial risks and the measures they are taking to reduce and adapt to those risks. The first reports under this law are due on or before January 1, 2026.

Audit committees of companies that are subject to California’s climate disclosure requirements should discuss with management whether it has processes in place to collect the information needed to comply.  Necessary steps may include GHG measurement mechanisms, agreements with suppliers to provide GHG information, and controls and procedures to support third-party assurance that GHG disclosures are accurate. Audit committees and managements of companies subject to the GHG emissions disclosure requirement should also consider whether the company can fully report Scope 1 and 2 GHG emissions for FY 2025 and, if not, how it would demonstrate good faith efforts to work toward full compliance. In July, CARB released California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure Programs: Frequently Asked Questions Related to Regulatory Development and Initial Reports to provide guidance on Senate Bills 253 and 261, and companies should review that paper as they prepare to comply. Audit committees should also be considering who they will engage to provide assurance over the company’s GHG reporting in 2026.

The California climate disclosure requirements have broad jurisdictional reach and will affect many public and private U.S. companies.  In addition, several other states, including New York, New Jersey, and Illinois, have proposed climate disclosure laws similar to California’s. Even companies that are not within the scope of the California requirements could eventually become subject to state climate reporting and should monitor the progress of these bills.