California Enacts Groundbreaking Climate Change Reporting Requirements

In 2023, California became the first U.S. state to mandate climate change disclosures for large corporations through the passage of the Climate Accountability Package. This legislation includes Senate Bill 253, which requires companies with annual revenues exceeding $1 billion to submit annual reports on their direct greenhouse gas emissions (Scope 1) and indirect emissions from purchased energy (Scope 2) starting August 10, 2026. Senate Bill 261 imposes a biennial requirement for companies with revenues over $500 million to disclose climate-related financial risks, with the first reports due in 2027.

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The California Air Resources Board (CARB) is tasked with drafting the specific regulations and implementing the reporting standards. Initially, CARB was given until January 1, 2025, to finalize these rules, but the complexity of the regulations necessitated an extension. The board faced legal challenges, including a temporary order from the U.S. Court of Appeals for the Ninth Circuit that paused the enactment of SB 261 but allowed SB 253 to proceed.

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Courtney Smith, a CARB staff member, emphasized that the recent vote to approve the staff proposal is a preliminary step towards a broader regulatory framework. The initial regulations will focus on establishing a fee structure, defining key terms, and setting reporting deadlines.

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The legislation aligns the definition of "Revenue" with California's existing definition of "Gross Receipts." Companies are considered to be "doing business in California" if they are organized in the state or if their sales exceed $735,019, as set by the Franchise Tax Board. Notably, parent companies can consolidate reports for their subsidiaries, simplifying compliance.

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The fee structure for climate reporting is designed to be revenue neutral, with an estimated annual charge of up to $7,000 per reporting entity. However, the exact fee will depend on the program's costs and the number of regulated entities.

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Despite the progress, the implementation of these regulations is not without controversy. Critics argue that the requirements may impose significant burdens on large companies, potentially leading to increased operational costs. Additionally, ongoing legal challenges could delay the implementation of SB 253, similar to the situation with SB 261.

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The enactment of these reporting requirements marks a significant step in corporate accountability regarding climate change. However, the debate surrounding the regulations is expected to continue as CARB works to finalize additional rules and definitions. Public engagement will remain a critical component as stakeholders navigate the complexities of climate-related reporting.

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• “She noted this is only a first step to a broader regulatory scheme to continue to enact SB 253, and possibly SB 261.” — Courtney Smith, CARB Staff Member

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• “He stated that the proposal is limited to three key elements: establishing a fee structure, defining key terms, and the first-year reporting deadlines for SB 253.” — John Chung, Lead Staff Member for the Regulation

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As California moves forward with these groundbreaking regulations, the implications for corporate sustainability practices and climate accountability will be closely monitored by both supporters and critics.

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