In September 2023, California passed legislation requiring large companies to file sustainability disclosures beginning in 2026. The move was part of a global trend of sustainability reporting and environmental, social and governance reporting focused on climate change and greenhouse gas emissions. Despite calls by Governor Gavin Newsom to delay implementation by two years, an bill amending requirements kept the 2026 timeline intact.
In March 2022, the SEC proposed the development of a Climate-Related Disclosure Rule. The final rule, adopted in March, 2024, required large publicly traded companies to disclose climate action, GHG emissions, and the financial impacts of severe weather events. The rule was initially set to go into effect in 2026, but has been delayed indefinitely as it is challenged in court.
In September 2023, California approved the Climate Accountability Package, a pair of bills aimed at creating sustainability reporting requirements. The bills require reporting standards far beyond the SEC standards.
Senate Bill 253 required companies who do business in California and have an excess of $1 billion in revenue, defined as “reporting entities”, to submit an annual report for Scope 1 and Scope 2 starting in 2026. Scope 3 reporting will begin in 2027.
Senate Bill 261 required companies who do business in California and an excess of $500 million in revenue, defined as “covered entities”, to submit a biennial climate-related financial risk report. The report is based on the work of the Task Force on Climate-Related Financial Disclosures, established by the Financial Stability Board.
The responsibility of drafting specific regulations and implementing the reporting standards was delegated to the California Air Resources Board. CARB was given until January 1, 2025 to draft the rules and processes.
When Governor Newsom signed the bills in October 2023, he expressed doubts of the ability of the state to draft the standards in time, stating “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.”
In July, Newsom proposed new legislation delay implementation until 2028. It also called for an extension of the timeline for CARB by six months to July 1. However, when Newsom signed SB 219 on September 27, the original 2026 implementation date stayed intact.
This gives CARB more time to draft the rules, but businesses less time to prepare. In the interim, businesses that meet California reporting requirements will have to use their best guess in preparing for reporting standards. Notably, there is another legislative opportunity to delay implementation before they go into effect in 2026.
Read the full article here
