California’s Climate Rules Move Ahead, with Minor Amendments

On September 27, California Governor Gavin Newsom signed minor amendments (SB 219) to California’s landmark 2023 Climate Accountability Package, setting the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261) on track for implementation. California’s final budget likewise restored implementation funds for the laws, and though they are undergoing a court challenge, the laws have not been stayed like the SEC’s climate-related disclosures rule. The Governor's action puts to rest disagreements over the implementation timeline (see our prior update), and clears the way for the California Air Resources Board (CARB) to begin work on regulations to flesh out requirements under the laws. 

Many scoping details remain to be worked out in the regulations, but companies that do business in California and anticipate more than $1B or $500M (respectively) in revenue in the next fiscal year, should evaluate whether they are likely to be in scope for the laws and begin planning for compliance. 

Key changes in SB 219

• Delays by six months (until July 1, 2025) the deadline for CARB to adopt implementing regulation for the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261). Compliance is not delayed, and so this shortens the window companies will have to comply once the rules are published. 
• Provides flexibility for CARB to set a schedule, beginning in 2027, for reporting entities to disclose their Scope 3 emissions for the prior fiscal year.  This softens a previously rigid timeline for Schedule 3 reporting and may allow CARB to consider the availability of data and assurance as part of setting the timetable. 
• Reports may be consolidated at the parent company level.
• Gives CARB flexibility to receive reports directly or use a nonprofit entity to receive and analyze reports. 

Next steps

CARB has until July 1, 2025 to adopt the implementing regulations.  Given the extent of detail left to be clarified – including on scoping, timelines, fees and penalties – affected companies may want to consider participating in the rulemaking process once it is under way.

The first greenhouse gas emissions (GHG) and climate-related financial risk reports are due in 2026, at dates to be determined by CARB:

• Beginning 2026, annual GHG emissions reports must cover Scope 1 and Scope 2 emissions for the prior fiscal year, conform to the GHG Protocol and guidance, and receive limited assurance from a competent, independent third-party provider. 
• Beginning 2026, biennial climate-related financial risk and mitigations report must be published in line with the frameworks of the Task Force on Climate-related Financial Disclosures (TFCD) or the International Financial Reporting (IFRS) Standards Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB).
• Beginning 2027, GHG emissions reports must include Scope 3 (without assurance).
• Beginning 2030, GHG emissions reports will require reasonable assurance for Scope 1 and Scope 2 and limited assurance for Scope 3 emissions.

Compliance planning

Affected companies should consider their emissions data collection strategy and controls for the next fiscal year to ensure they can support required reporting and an assurance audit.  Given the likely increase in demand for assurance services, companies may be wise to look earlier for a competent and independent assurance auditor, along with any necessary consultants to assist with report preparation.  Additionally, companies with global operations or subsidiaries should evaluate how the new California reporting will interact with other mandatory climate reporting regimes coming online in jurisdictions in which they operate, including the EU and those adopting ISSB.  For a detailed comparison of California’s climate reporting laws with other incoming obligations – the EU CSRD, the SEC, and ISSB standards – see our prior client alert (not reflecting the latest California SB 219 amendments).  Companies that have not previously reported climate-related risks and mitigation measures using the TFCD or ISSB frameworks should familiarize themselves with the type of disclosures that will be involved and how they may relate to the company’s other risk management activities and disclosures.