The California legislature has passed, and Governor Newsom has signed, Senate Bill 219, which makes minor changes to California’s far-reaching climate disclosure legislation. But, despite the Governor’s request, the legislature declined to postpone the reporting deadlines. Litigation challenging the Constitutionality of the California requirements has also, at least so far, failed to delay implementation.
In late 2023, California enacted broad climate disclosure legislature. See California Outflanks the SEC on Climate Disclosure, October 2023 Update, and California Weighs in on Net Zero Disclosure, November-December 2023 Update. Among other things, the legislation requires every U.S. public or private entity with annual global revenue exceeding $1 billion that does business in California to annually report its Scope 1, 2, and 3 greenhouse gas (GHG) emissions and to obtain assurance from an independent third party on the reporting. This disclosure begins in 2026 for FY 2025 Scope 1 and Scope 2 emissions and in 2027 for FY 2026 Scope 3 emissions. In addition, companies doing business in California that have annual global revenue exceeding $500 million must prepare a biennial climate-related financial risk report. The first risk reports are due January 1, 2026.
While Senate Bill 219 does not extend the reporting deadlines, it does make technical changes that affect the disclosure requirements. These include:
GHG emissions may be consolidated and reported at the parent company level. Subsidiaries that are reporting entities are not required to report separately.
The California Air Resource Board (CARB) has until July 1, 2025, to write GHG emissions disclosure rules. The original legislation required CARB to adopt rules by January 1, 2025. Since reporting companies still must disclose their 2025 Scope 1 and 2 emissions in 2026, this means that these companies will have six fewer months to implement CARB’s final rules.
CARB has discretion as to the timing of Scope 3 emission disclosures. The original legislation required reporting companies to disclose their Scope 3 emissions 180 days after their Scope 1 and 2 emissions disclosure. Under the new law, CARB can set the Scope 3 reporting schedule.
Reporting companies will not be required to pay a fee when filing climate disclosure reports.
The U.S. Chamber of Commerce has brought a lawsuit challenging the emissions disclosure requirements on First Amendment grounds. On November 5, a federal judge denied the Chamber’s motion for summary judgment and allowed the law to remain in effect while the case is pending. The court indicated it needed more information to determine whether the disclosure requirements are Constitutional.
Many mid-sized or larger U.S. companies will be required to submit a climate-related financial risk report in 2026 and to report their Scope 1 and 2 GHG emissions under CARB’s as-yet-unannounced regulations. Audit committees that have not already done so should discuss with management whether the company is subject to the California climate disclosure requirements and, if so, whether it has processes in place to collect the information needed to comply. Audit committees of companies subject to the GHG emissions disclosure requirement should also consider how they will select an independent third party to provide limited assurance over those disclosures.
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