California Climate Disclosures – An Update on Proposed Amendments and Other Timing Considerations

In our last post, we wrote about California Assembly Bill 3234, which would require disclosure concerning the findings of voluntary social compliance audits relating to compliance with child labor laws (see here). In this post, we turn our attention to proposed amendments to California’s climate disclosure laws. 

To recap, the following laws were adopted by California in 2023:

• The Climate Corporate Data Accountability Act (Senate Bill 253) requires annual 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. The first disclosures are required in 2026.
• The Climate‐Related Financial Risk Act (Senate Bill 261) requires biennial disclosure of climate-related financial risks in accordance with the recommended framework and disclosures published by the Task Force on Climate-related Financial Disclosures or an equivalent requirement, as well as the measures adopted to reduce and adapt to the disclosed climate-related financial risks. The first disclosures are required in 2026.
• The Voluntary Carbon Market Disclosures Act (AB 1305) requires an entity that makes claims regarding the achievement of net zero emissions, carbon neutrality or significant emissions reductions to make specified website disclosures. More prescriptive disclosure requirements apply if claims are made and the entity purchases or uses voluntary carbon offsets (VCOs). In addition, entities that market or sell VCOs in California have specified disclosure obligations. The VCMDA is silent on when the first disclosures are required, although timing is further discussed below. 

These Acts are discussed in more detail in our earlier post here.

From the beginning, there have been concerns about the implementation timing of the Climate Corporate Data Accountability Act and the Climate‐Related Financial Risk Act. In his signing messages, California Governor Newsom indicated that the implementation deadlines are insufficient (see our earlier post here).

On June 29, Governor Newsom released a draft budget trailer bill that would push back by two years compliance with the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act. The draft trailer bill contemplates initial disclosures in 2028, rather than 2026 (with a commensurate two year pushback of other reporting and related assurance requirements), among other changes.

Last month, on August 13, Senators Weiner and Stern, the sponsors of SB 253 and 261, proposed amendments to the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, in Senate Bill 219. An amended Bill passed in the Assembly and Senate on August 31.  SB 219 provides for the following, among other changes:

Climate Corporate Data Accountability Act

• The California Air Resources Board (CARB) would have until July 1, 2025 to adopt implementing regulations, rather than January 1, 2025.
• Reporting entities would be required to publicly disclose their scope 3 emissions on a schedule to be specified by CARB, rather than within 180 days after their scope 1 emissions and scope 2 emissions are disclosed. Scope 3 emissions would continue to first be required to be disclosed in 2027. 
• Would clarify that reports would be permitted to be consolidated at the parent company level and that subsidiaries would be exempt from reporting.
• Payment of the annual fee would be delinked from the filing of disclosure. 

Climate-Related Financial Risk Act

• Payment of the annual fee would be delinked from the publication of disclosure.

SB 219 would not push back the reporting deadlines under the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act by two years as proposed by the Governor.

Voluntary Carbon Markets Disclosure Act

The broadly written VCMDA raised numerous interpretive questions, including the date by which the first responsive disclosures must be posted. Although the VCMDA took effect on January 1, 2024, the bill sponsor – Assemblymember Gabriel – weighed in on his intent in a November 30, 2023 letter to the Chief Clerk of the Assembly, indicating that he intended the first annual disclosures be made by January 1, 2025, to provide reporting entities with sufficient time to align their business practices with the stated objectives of the VCMDA prior to being subject to potential civil fines (see our earlier post here).

Assembly Bill 2331, initially proposed by Assemblymember Gabriel, would have made the following amendments to the VCMDA, among others:

• The first disclosures would be required by July 1, 2025. Disclosures would be required to be updated annually.
• The definition of VCO would be revised to mean a tradable instrument, rather than a product.
• The information that a business entity would be required to disclose relating to VCOs marketed or sold within California would be expanded, revised and clarified.
• The information that a business entity that makes claims regarding its carbon emissions (or those of related entities or products) needs to disclose would be revised.
• A business entity that markets and resells a VCO within California that it did not generate could satisfy the disclosure requirements of the VCMDA by publishing on its website sufficient information directing the buyer to disclosure made by the entity generating the VCO, by furnishing the information directly to the buyer by settlement when marketing or reselling VCOs directly to eligible contract participants or by publishing on its website sufficient information to direct the buyer to each applicable project-specific disclosure published on a registry.

AB 2331 was reported out of the Senate with further amendments on August 28. However, the bill was not brought up for a final vote in the Assembly before the legislative session ended on August 31. It therefore appears that it will not go to the Governor this term.

Next Steps

Governor Newsom has until September 30 to sign or veto SB 219. There also is still the matter of the nuts and bolts work that has to be done by CARB to implement the Climate Corporate Data Accountability Act. Even a July 1, 2025 extension to adopt implementing regulations still may be overly ambitious (ditto for other CARB requirements under the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act). 

On August 31, the Governor convened a special session of the legislature to act on a package of bills intended to address gasoline prices. That special session would have to conclude by November 30, when the current two year legislature term ends. However, it is not expected that AB 2331 will be considered as part of the special session since the State Constitution only empowers the legislature to address subjects specified in the special session proclamation. It therefore appears it will be up to the members to decide next term whether to re-propose some version of AB 2331. 

One More Wrinkle on Timing

In January, a lawsuit was filed challenging the Climate Corporate Data Accountability Act and the Climate‐Related Financial Risk Act (see our earlier post here). The litigation is ongoing. Oral arguments on motions for summary judgment are scheduled for next week. The outcome of this litigation will determine whether subject companies will be required to comply with the Climate Corporate Data Accountability Act and the Climate‐Related Financial Risk Act, as amended or otherwise.

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