Corporate Disclosure

New Law Would Legally Delay Implementation of SB 261 and 253

Posted by CLR

Senate Bill (SB) 219, adopted in September 27, 2024, would delay implementation of California’s landmark corporate disclosure acts, SB 261 (governing corporate climate risk disclosure) and SB 253 (corporate climate emissions disclosure). By and large, the changes will delay implementation of the acts slightly. The changes can be summarized as:

Existing Law (SB 261)Proposed Change
CARB must adopt regulations before January 1, 2025, requiring annual reporting for scope 1, 2, and 3 emissions. Under this law, CARB must adopt regulations before July 1, 2025, requiring annual reporting for scope 1, 2, and 3 emissions. 
Starting in 2027, corporations must disclose scope 1, 2, and 3 emissions, although disclosure of scope 3 emissions may trail other disclosures by 180 days.This law would change the reporting requirement so that corporations must disclose scope 3 emissions on a schedule adopted by the state board in regulations rather than on a set statutory schedule. This law would also allow reporting to occur on a parent company level.
Existing law requires reporting entities to pay a fee upon reporting.This law would eliminate the reporting fee requirement.
CARB must contract with an emission reporting  organization to develop a reporting program to receive and make certain required disclosures publicly available.The law would authorize, rather than require, the state board to contract with an emissions reporting organization.
Existing Law (SB 253)Proposed Change
On or before January 1, 2026, a covered entity—defined as a corporation, partnership, limited liability company, or other business entity with total annual revenues in excess of $500,000,000—must prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk.  This reporting is due every two years.     Under existing law, CARB must contract with a climate reporting organization to prepare a report summarizing the disclosures.  The law would authorize, rather than require, the state board to contract with a climate reporting organization.
Existing law requires reporting entities to pay a fee upon reporting.This law would eliminate the reporting fee requirement.

Newsom Seeks to Defer Corporate Accountability Law

Posted by CLR

The Climate Accountability Package, which included Senator Scott Wiener’s SB 253 and Senator Henry Stern’s SB 261, will likely be delayed for several years due to hostility from the administration.

Even back when he signed the bill into law on October 7, 2023, the Governor expressed concern about bill’s financial impact on businesses, and indicated he would direct CARB to “streamline” the program. News reports indicated that CARB itself had urged amendments to weaken the climate disclosure law by removing requirements for businesses to report Scope 3 emissions. (See purported draft here.) Earlier this year, Governor Newsom proposed leaving out funding for their implementation from his January budget proposal; he reinstated funding in the May revised proposal, as part of a compromise that would fund all chaptered laws. That said, he proposed changes in the law that would substantially delay its implementation until 2028 for reporting on Scope 1 and 2 emissions and 2029 till Scope 3 emissions. A trailer bill incorporating this language has been drafted and is part of this year’s overall budget negotiations.

The Senators who drafted these bills are opposed to the changes.

For more on this, see our earlier blogs: Climate Transparency in California Is at Risk and SB 253 and 261: Climate Accountability Package Includes New Corporate Transparency Requirements.

Climate Transparency in California Is at Risk

Posted by CLR

The Climate Accountability Package — comprised of Senator Scott Wiener’s SB 253 and Senator Henry Stern’s SB 261 — created the nation’s first requirements for large corporations to publicly disclose their greenhouse gas emissions, carbon embedded in supply chains, and climate risks. The New York Times called SB 253 in particular a “landmark climate disclosure bill” […] with national repercussions.”  

The ink on these bills is barely dry and they are already under attack from multiple fronts.

Governor Newsom’s proposed budget included significant cuts to address a $37.9 billion budget shortfall, including all funding to new legislative programs.  Thus, the $9 million requested by the California Air Resources Control Board (CARB) to implement the Climate Accountability Package was part of that proposed cut.  The Newsom Administration has emphasized that the proposed budget was just a starting point for negotiations.  Senator Wiener, author of SB 253, has issued the following statement:  “It’s critical that the May budget include funding to implement these laws so that businesses have the certainty they need to prepare to make these new disclosures.”  Thus, funding to implement these laws is far from certain.

Although having the laws have the support of many major corporations, including  Apple, Google, Salesforce, Levi’s, and Patagonia, the California Chamber of Commerce was stanchly opposed. In fact, it file suit in federal district court to challenge the laws on January 30, 2024.  The petition, drafted by the firm multinational law firm Gibson, Dunn & Crutcher, LLP, raises claims largely rooted in the US constitution. 

  • The petition argues that the laws impermissibly “compels speech” under the First Amendment by making the corporations report on their direct and indirect emissions, which they argue are primarily speculation, as well as requiring them to report on the future risks from climate change.  Further, they complain that some of this reporting is on the company’s website.  Many of the complaints are based on “vagueness” in the law; since both laws require CARB to adopt regulations to implement them, these charges seem premature. 
  • The petition argues that federal law in the United States Constitution and in the Clean Air Act preempts any efforts to require companies to report their emissions related to activities inside and outside of California.   Implicit in this argument is that “reporting” on emissions is “regulation” on emissions.
  • The petition argues that the laws somehow attempt to regulate commerce extraterritorially, both interstate and foreign, which is—according to the petition—an “offense” to the commerce clause. 

All of these arguments are clearly aimed at the activist, conservative United States Supreme Court.

Senator Wiener issued the following statement in response:

“The U.S. Chamber of Commerce’s lawsuit against these groundbreaking climate laws is straight up climate denial,” said Senator Wiener. “Why is the Chamber of Commerce working so aggressively to block basic transparency for the public? We know the answer. It’s not because of the Chamber’s bogus arguments about cost and implementation, since it’s both inexpensive and easy for corporations to make these disclosures. It’s not because of the Chamber’s bizarre and frivolous First Amendment argument. Rather, the Chamber is taking this extremist legal action because many large corporations — particularly fossil fuel corporations and large banks — are absolutely terrified that if they have to tell the public how dramatically they’re fueling climate change, they’ll no longer be able to mislead the public and investors. The Chamber and large corporate polluters don’t want the public to know how much they’re strangling the planet with carbon emissions — that’s why they filed this baseless lawsuit.

“The climate crisis is a real and present threat to our planet and to businesses’ success. Investors and consumers have a right to know the details of how billion dollar companies are navigating the greatest challenge of our time, and many major corporations like Apple and Google are already making these disclosures and support these laws because they understand that need. While corporate lobby groups continue to wage an unhinged misinformation campaign against these laws, investors and consumers are being deprived of vital information to navigate our rapidly warming planet.”

See more from Senator Weiner on the need to fund these measures at Four questions for Scott Wiener.

SB 252 Fails as CalPERS and CalSTRS Oppose Its Proposal for Divestment from Fossil Fuels

Posted by CLR

The Legislature proposal in SB 252 this year would have required the California Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS) to stop investing in fossil fuels as of January 1, 2024, and to sell their remaining fossil fuel investments by the 2030, if consistent with their fiduciary duty. (The Legislature is allowed by the California Constitution prohibit certain investments by these retirement boards, where it is in the public interest to do so, provided that the prohibition satisfies the standards of fiduciary care and loyalty owed by the boards to pension plan participants. (Cal. Const., art. XVI, § 17.) ) The bill would also require annual reporting on fossil fuel holdings.

The bill noted that the combustion of coal, oil, and natural gas, known as fossil fuels, is the single largest contributor to global climate change, and that fossil fuel companies’ plans to expand production, public relations campaigns, and efforts to obstruct climate stabilization policies are incompatible with California’s climate goals, and our obligation to current and future generations. The idea behind the bill is that, to meet our zero carbon goals, money needs to move from funding fossil fuel infrastructure and instead be invested at scale in clean energy. CalPERS has investments of $9.4 billion currently in fossil fuels.

The bill was blocked by the chair of the Assembly Committee on Public Employment and Retirement–Senator Lena Gonzalez (D-Long Beach).  CalPERS specifically expressed strong opposition to the bill. In its message to the public, expressed both on its website and in mailers sent to public employees, presumably in the thousands, CalPERS noted that divestment would not be consistent with its fiduciary duty. The logic there is circular in as much as the condition for divestment under SB 252 is that divestment be consistent with the fiduciary duty.

In point of fact, CalPERS appears to have a divestment policy to oppose all calls for divestment that are not “investment related.” CalPERS opposes the potential lost investment performance and the transaction costs associated with divestment. It’s divestment policy states that its fiduciary obligations require it to oppose this and all other divestment initiatives by the Legislature: “However, fiduciary obligations generally preclude CalPERS from sacrificing investment performance for the purpose of achieving goals that do not directly relate to CalPERS’ operations or benefits.”

CalPERS also may have been opposed to the limits on future investments as well as the requirement to report on the scale of its investments in fossil fuels on a regular basis.

The proposal is up for reconsideration next year.

Voluntary Carbon Market Disclosures Act (VCMDA) Adopted

Posted by CLR

The recently adopted Voluntary Carbon Market Disclosures Act (VCMDA) will go into effect on January 1, 2024.  (See Assembly Bill (AB) 1305 (Chapter 365, of Statutes of 2023).) 

According to the bill’s author, the “voluntary carbon offset industry is currently a wild west with all transparency or regulation being entirely voluntary.  While offsets used for compliance market are regulated, voluntary carbon offset credits sold to consumers or businesses to voluntarily offset their emissions are completely unregulated. With a variety of recent reports all demonstrating consistent over crediting and lack of legitimate additionality in voluntary offset projects, there is a clear and pressing need for increased accountability and transparency. Requiring important details about the offsets being sold and purchased, such as the site location and how the total number of credits to be sold were calculated allows researchers and the public to better evaluate the validity of the credits being sold. By doing this, AB 1305 will combat greenwashing and give consumers a meaningful tool to decide which projects are worth investing in to reduce their carbon footprint.”

The VCMDA will apply to public and private companies operating in California that make claims or purchase or use VCOs, or sell or market VCOs in the state. Violations of the VCMDA could result in civil penalties of up to $2,500 per day per violation, not to exceed $500,000.

SB 253 and 261: Climate Accountability Package Includes New Corporate Transparency Requirements

Posted by CLR

Recently, California enacted two climate-related reporting statutes, making it the first state in the U.S. to impose requirements on companies to disclose and report their emissions. The Climate Corporate Data Accountability Act (SB 253, Chapter 382, Statutes of 2023)) and the Climate-Related Financial Risk Act (SB 261, Chapter 383, Statutes of 2023)) require certain public and private entities doing business in California to make public disclosures of their scope greenhouse gas emissions and publicly report their climate-related risks and efforts to address them. These statutes expand the scope of companies covered by their requirement beyond those covered by the current Securities and Exchange Commission (SEC) proposed disclosure standards. The California Air Resources Board (CARB) must promulgate regulations implementing SB 253 by January 1, 2025, and reporting obligations under both statutes will begin in 2026.

The new California laws impose unprecedented reporting requirements on large U.S. public and private companies doing business in California, including disclosure of Scope 1 and Scope 2 greenhouse gas emissions beginning in 2026 and Scope 3 GHG emissions in 2027, submission of biennial climate-related financial risk reports to CARB beginning in 2026, and obtaining third-party assurance of disclosures. The California Climate Accountability Package requires both public and private U.S. companies doing business in California and generating over $1 billion in gross annual revenue to disclose their Scope 1, Scope 2, and Scope 3 GHG emissions to the state of California on an annual basis.

The California legislature’s stated purpose in adopting this legislation is to address the impact of climate change on the state’s residents and economy, increase corporate transparency and informed decision making, standardize climate-related disclosure, and increase corporate accountability in the effort to move toward a net-zero carbon economy.