California climate reporting laws may be delayed for two-years

Headline: California climate reporting laws may be delayed for two-years

California Governor Newsom has proposed amendments to Senate Bills 253 and 261 to delay by two years compliance with the emissions reporting and climate-related financial risk reporting requirements in California’s Climate Accountability Package.  Initial compliance would be delayed to 2028 for emissions reporting and climate-related financial risk reporting (with parallel delays in the schedule for assurance requirements), and the Governor’s amendments would make other limited changes, including flexibility to consolidate reporting at the parent company level.  

At Freshfields, we are closely monitoring developments with the Climate Accountability Package enacted last year, which creates broad new emissions reporting and climate-related financial risk reporting obligations for businesses with substantial revenue that operate in California.  For details, see our prior comparison with SEC, ISSB and EU CSRD/ESRS disclosure requirements. 

In this post, we analyze Governor Newsom’s newly proposed changes and the implications for companies subject to these laws.  Note that enactment of the Governor’s amendments is far from certain – State Senator Scott Wiener, the author of California’s emissions reporting law (SB 253), has announced opposition to delaying implementation and chairs a key legislative committee.

Background:

In late 2023, California passed two groundbreaking bills as part of its Climate Accountability Package. First, Senate Bill 253 (SB 253) mandates annual public disclosure of Scope 1, 2, and 3 greenhouse gas (GHG) emissions for companies with annual revenues exceeding $1 billion. Second, Senate Bill 261 (SB 261) requires biennial reporting on climate-related financial risks and mitigation strategies for companies with annual revenues over $500 million. Jointly, these bills place California at the forefront of mandating climate-related disclosures. However, Governor Newsom has proposed several amendments as part of a “trailer bill” to California’s annual budget; trailer bills follow an expedited legislative path.  The amendments would delay reporting, provide further flexibility to the California Air Resources Board (CARB) to structure the reporting, and allow for consolidated parent-company reporting.  

Key Proposed Changes:

1. Two-year delay in compliance deadline

Gov. Newson’s amendments would delay compliance for both bills by two years:

• SB 253 (emissions reporting): CARB would have until January 1, 2027, to adopt new regulations.  Scope 1 and 2 emissions reporting would begin in 2028.  Scope 3 reporting would start in 2029.  Deadlines for audit assurance would be pushed back as well:  Scope 1 and 2 would be reported with limited assurance beginning in 2028 and switch to reasonable assurance in 2032, and Scope 3 would begin limited assurance in 2032 (unless CARB requires earlier).
• SB 261 (climate-related financial risk report): covered businesses would be required to start reporting by January 1, 2028. 
• To date, CARB has not formally commenced rulemakings for either act.

2. CARB to specify timing of Scope 3 emissions reporting

Amendments to SB 253 would direct CARB to specify the timing for Scope 3 emissions reporting beginning in 2029:

• The law currently mandates public disclosure of Scope 3 emissions no less than 180 days after reporting Scope 1 and Scope 2, which provides some flexibility for reporting entities to determine their own reporting timing within a strict limit.  The amendments would instead direct CARB to specify the schedule for Scope 3 disclosures through regulation.

3. Consolidated Reporting at Parent-Company Level

Consolidated emissions reporting at the parent company level would be allowed under both laws:

• SB 253 would be amended to allow consolidated reporting at parent level, even if a subsidiary would independently qualify as a “reporting entity” under the law.
• SB 261 already permits consolidated reporting at the parent level.
• This change would simplify reporting for companies with multiple entities operating in California.

4. Changes to Nonprofit Reporting Organization Requirement

Both SB 253 and SB 261 originally mandated the state to contract with nonprofit reporting organizations:

• For SB 253, the organization is to accept and publicize disclosures.
• For SB 261, the organization is to prepare biennial reports on climate-related financial risk disclosures.

The proposed amendments give CARB discretion on whether to contract with such organizations for both laws. 

Implications for Businesses:

If enacted, these proposed amendments have significant and mostly helpful implications for businesses subject to SB 253 and SB 261:

1. Extended preparation time: the two-year delay provides companies with additional time to develop robust reporting systems and controls.
2. Potential cost savings and reporting flexibility: consolidated reporting at the parent-company level could reduce compliance costs for companies with multiple subsidiaries operating in California, and may allow companies to better align their California reporting with their global reporting approach.
3. Regulator to determine Scope 3 disclosure timing:  CARB would determine timing of Scope 3 reporting by regulation.  The requirement in current law to publish Scope 3 within 180 days of Scope 1 and 2 offers some flexibility to reporting entities but within a strict limit.  The amendment might enable CARB to better take account of timing needs of reporting entities, including for availability of data and assurance for these complex disclosures, but it also introduces additional uncertainty as the timing would be dependent on CARB’s rulemaking.

Looking Ahead:

The Governor’s proposed implementation delays face opposition from the laws’ sponsors (Sen. Wiener and Sen. Stern), and August 31 is the last day for the California legislature to pass bills this year.  The Governor’s proposed amendments are in line with implementation concerns he previously noted in signing statements for both laws and so do not appear to signal a major shift in California’s approach to climate-related corporate disclosures.  The Governor’s final budget restored funding for CARB to undertake implementation of these laws, and so after resolution of the implementation timeline, we would expect the focus to shift to CARB for rulemaking and implementation.

Stay tuned.  We continue to closely monitor climate developments coming out of California and how they interact with the national and global obligations many of our clients face.  Freshfields is ready to guide you through the complexities of these evolving requirements, helping our clients stay ahead in planning for and managing climate-related disclosures and risks.