California’s ground-breaking climate disclosure bills have been signed. But what will they really require and what should companies be doing now?

On Saturday, California Governor Gavin Newsom signed into law three climate disclosure bills that will create reporting obligations for thousands of companies. The bills were among more than 100 bills covering a wide range of topics signed into law by the Governor.

Climate Corporate Data Accountability Act (Senate Bill 253) (See also our earlier post here.)

This Act requires public disclosure of Scope 1, 2 and 3 greenhouse gas emissions by U.S.-organized entities doing business in California with total annual revenues exceeding $1 billion in the prior fiscal year. Measurement and reporting are required to be aligned with the Greenhouse Gas Protocol.

Under the Act, the reporting obligation begins in 2026 for Scope 1 and 2 emissions (for the prior fiscal year). Scope 3 emissions reporting begins in 2027 (for the prior fiscal year). Disclosures are required annually.

Disclosures are required to be independently assured. Limited assurance initially is required for Scope 1 and 2. Beginning in 2030, this moves to a reasonable assurance standard. Limited assurance of Scope 3 disclosures is required starting in 2030. To minimize duplication of effort, reports prepared to meet other national and international reporting requirements can be submitted, if they also meet the requirements of the Act.

The California Air Resources Board (CARB) is tasked with developing and adopting implementing regulations no later than January 1, 2025.

In connection with his approval of this Act, Governor Newsom published a signing message that contains important caveats that may impact how the Act is implemented. In his signing message, the Governor notes that “the implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure. I am directing my Administration to work with the bill's author and the Legislature next year to address these issues.”

He also indicates in the signing message “I am concerned about the overall financial impact of this bill on businesses, so I am instructing CARB to closely monitor the cost impact as it implements this new bill and to make recommendations to streamline the program.”

Climate‐Related Financial Risk Act (Senate Bill 261) (See also our earlier post here.)

This Act requires disclosure of (1) climate-related financial risk in accordance with the recommended framework and disclosures published by the Task Force on Climate-related Financial Disclosures or an equivalent requirement and (2) the measures adopted to reduce and adapt to the disclosed climate-related financial risk.

Disclosures are required by U.S.-organized entities doing business in California with total annual revenues exceeding $500 million in the prior fiscal year. However, insurance businesses are excluded.

Initial reports are required to be published on company websites by January 1, 2026. Thereafter, disclosures are required biennially. Reporting may be consolidated at the parent company level.

Governor Newsom also released a signing message in connection with SB 261. In that message, he notes that “the implementation deadlines fall short in providing the California Air Resources Board (CARB) with sufficient time to adequately carry out the requirements in this bill. I am directing my Administration to work with the bill's author and the Legislature next year to address this issue.” As was the case with SB 253, he goes on to indicate that he also is “concerned about the overall financial impact of this bill on businesses, so I am instructing CARB to closely monitor the cost impacts as it implements this new bill and to make recommendations to streamline the program.”

Voluntary Carbon Market Disclosures Act (Assembly Bill 1305) (See also our earlier post here.)

This Act will require an entity that purchases or uses voluntary carbon offsets (VCOs) that makes claims (1) regarding the achievement of net zero emissions, (2) that the entity, a related entity or a product is “carbon neutral” or (3) implying the entity, a related entity or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or GHG emissions, to disclose the following on its website for each applicable project or program:

• The name of the entity selling the offset and the offset registry or program.
• The project identification number, if applicable.
• The project name as listed in the registry or program, if applicable.
• The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission or a combination of both, and the site location.
• The specific protocol used to estimate emissions reductions or removal benefits.
• Whether there is independent third-party verification of company data and claims listed.

In addition, an entity that makes claims (1) regarding the achievement of net zero emissions, (2) that the entity, a related or affiliated entity or a product is “carbon neutral” or (3) implying the entity, a related or affiliated entity or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or GHG emissions will be required to disclose on its website the following information pertaining to the GHG emissions associated with the claims:

• All information documenting how, if at all, a “carbon neutral,” “net zero emission” or other similar claim was determined to be accurate or actually accomplished and how interim progress toward that goal is being measured.

This information may include, but is not limited to, (1) disclosure of independent third-party verification of the entity’s GHG emissions, (2) identification of its science-based targets for its emissions reduction pathway and (3) disclosure of the relevant sector methodology and third-party verification used for the science-based targets and emissions reduction pathway.

• Whether there is independent third-party verification of the company data and claims listed.

Disclosures will be required to be updated at least annually. The disclosure requirements will not apply to an entity that does not operate within California, that does not purchase or use VCOs sold within the state and/or that does not make claims within the state.

The penalties for violating the Act can be significant. Disclosure violations are subject to a per-violation civil penalty of up to $2,500 per day that information is not available or is inaccurate on the subject entity’s website. The maximum penalty is capped at $500,000 per violation. Civil actions can be brought by the California Attorney General or by a California district attorney, county counsel or city attorney.

Note that another carbon offsets bill, SB 390, was vetoed by the Governor on Saturday. SB 390 would have made unlawful under California’s False Advertising Law specified actions by sellers, verifiers and selected other VCO market participants. In his veto message, the Governor noted that he supports “the author's intent to bring greater transparency to the verification, issuance, and sale of voluntary carbon offsets, and to address the problem of so-called ‘junk offsets.’ However, by imposing civil liability for even unintentional mistakes about offset quality, this bill could inadvertently capture well-intentioned sellers and verifiers of voluntary offsets, and risks creating significant turmoil in the market for carbon offsets, potentially even beyond California.”

Five action items and take-aways

• Determine whether your company will have a disclosure obligation under any of these pieces of legislation. It is estimated that thousands of companies will be picked up. Now is the time to do that assessment.
• The Voluntary Carbon Market Disclosures Act (AB 1305) in particular requires immediate attention, since it takes effect at the beginning of 2024. That Act has broad applicability. It has no turnover threshold or de minimis exceptions. It also is not limited to U.S.-organized entities. It therefore will apply to many companies that do not have to make California GHG emissions and climate risk disclosures. Among other things, purchasers and users of VCOs need to ensure they have adequate compliance processes and controls in place concerning their offsets disclosures (our earlier post includes additional recommendations). The civil penalties under the Act are not inconsequential and there may be attempts at vigorous enforcement in particular by some California city and county officials. Mandatory VCO disclosures also may increase the risk of class action lawsuits alleging greenwashing.
• The new California GHG emissions and climate risk disclosure laws are perhaps not what they seem on their face. The signing messages that accompanied SB 253 and SB 261 suggest that changes to both the phase-in periods and disclosure requirements may be coming. We may therefore wind up with a less onerous “low-CARB” set of requirements. The final SEC climate disclosure rules also may influence California’s disclosure requirements. Given these uncertainties, it is probably a prudent strategy for most subject companies to take a wait-and-see approach to building out compliance processes and controls specific to California GHG emissions and climate risk disclosures until there is more clarity.
• Companies that will be subject to multiple GHG emissions, climate risk and/or carbon offsets disclosure requirements will need to put in place processes and controls to ensure their disclosures are consistent across comparable requirements and otherwise aligned. For example, there is significant overlap in coverage across California, the SEC’s proposed climate risk disclosure rules (see our Alert) and the European Sustainability Reporting Standards, which specify the disclosures that will be required under the pending EU Corporate Sustainability Reporting Directive. (The adoption of the ESRS are discussed in this post and further discussed in this series.) Processes and controls will need to be flexible and scalable, to take into account evolving climate disclosure requirements across multiple jurisdictions, both to make compliance more efficient and to reduce risk.
• Business groups have indicated they may seek to challenge at least some of the new California disclosure requirements. The prevailing view of legal commentators seems to be that a challenge is likely to be unsuccessful, although those views will come into sharper focus if a suit is filed.

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