California, one of the world’s five largest economies, just enacted two groundbreaking laws that will impose environmental disclosure requirements on large corporations doing business in the state.
The Climate Corporate Data Accountability Act (SB-253) requires companies with annual revenues exceeding $1 billion to disclose their direct, indirect, and supply chain greenhouse gas (GHG) emissions data. The Climate-Related Financial Risk Act (SB-261) requires companies with over $500 million in annual revenue to disclose climate-related financial risks. Both were signed into law on October 7, 2023.
The laws aim to enhance transparency regarding how major businesses contribute to climate change. Introduced by California State Senators Scott Wiener and Henry Stern, the bills were additionally supported by environmental lobbyist groups including EnviroVoters, Ceres, and Carbon Accountable. By requiring public disclosure of emissions data, California seeks to encourage large companies to evaluate and potentially reduce their environmental footprints. The measures apply to public and privately held companies and would require reporting as early as January 2026.
Non-compliance creates legal risks for public and private entities and can result in steep civil penalties, determined by the California Air Resources Board (CARB). Failure to comply with SB-261 could result in penalties of up to $50,000, while the penalties under SB-253 can reach up to $500,000.
Many large businesses already engage in some of the reporting requirements, including the Scope 3 reporting under SB-253. Even these entities must be careful, as both of these laws make disclosures mandatory and create specific procedures that must be followed to avoid legal consequences.
Importantly, neither of the bills create a private right of action for citizens or groups to sue for noncompliance.
While advocates celebrate the new laws for their lofty environmental
goals, the laws face opposition from various quarters, including the California
Chamber of Commerce, agricultural groups, and oil companies. Critics argue that the laws impose unreasonable
reporting burdens on companies particularly given the challenges of reporting
indirect emissions. Environmental
advocates believe this law serves as a catalyst for private sector engagement
in addressing climate change.
Upon signing the bills, Gov. Gavin Newsom also stated his
concerns about the overall financial impact of the new laws on business, instructing
the CARB “to closely monitor the cost impacts as it implements this new bill
and to make recommendations to streamline the program.”
SB-253 and SB-261 impose significant disclosure obligations for large businesses operating in California. Covered businesses will need to adapt to these new reporting requirements, posing potential challenges for companies that lack the infrastructure for comprehensive emissions reporting.
Our legal team is prepared to help you navigate the implications of SB-253 and SB-261 to ensure compliance. If you have questions or need assistance in understanding how this legislation affects your business, please do not hesitate to contact us.
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