California Implements New Climate Disclosure Laws

Categories: California Business NewsCalifornia ConstructionCalifornia ManufacturingCalifornia NewsCalifornia Real Estate

California’s new climate disclosure laws aim for greater corporate transparency in environmental impacts.

News Summary

California is moving forward with new climate disclosure laws, supported by a significant majority of public commenters. The legislation requires large companies to disclose greenhouse gas emissions and climate-related financial risks, enhancing corporate accountability in environmental reporting. CARB aims to finalize regulations by 2025, with potential penalties for noncompliance. This move could set a precedent for similar laws in other states, as companies prepare to adapt to these emerging requirements.

California is witnessing strong public support for its new climate disclosure laws as the California Air Resources Board (CARB) gears up for implementation. An analysis by sustainability nonprofit Ceres revealed that 59% of public commenters are in favor of the legislation, while only 9% expressed opposition. These laws, introduced in 2023, mandate that companies operating in California disclose greenhouse gas (GHG) emissions and climate-related financial risks.

The legislation, known as the California Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261), aims to increase transparency regarding corporate climate risk. SB 253 targets companies with revenues exceeding $1 billion that conduct business in California, requiring them to publicly disclose annual emissions starting in 2026. Meanwhile, SB 261 focuses on firms with revenues over $500 million, requiring biennial climate-related financial risk reports beginning January 2026. Both laws are expected to significantly impact large corporations and their environmental accountability.

Ceres’ analysis included a review of 245 unique submissions directed to CARB, with 199 responses coming from various institutions—ranging from investors to advocacy groups. A critical area of feedback highlighted the importance of aligning California’s rules with global standards, specifically referencing the International Sustainability Standards Board (ISSB) and the EU’s Corporate Sustainability Reporting Directive. Many commenters urged CARB to adopt principles that would harmonize local regulations with these international frameworks.

Another major concern among respondents was the definition of “doing business in California.” Many called for clearer criteria to determine which companies fall under the purview of the new laws, suggesting that California’s Revenue & Tax Code could serve as a relevant reference point. Additionally, clarity was sought for multinational corporations that operate across different markets, with suggestions made for parent companies to provide consolidated emissions reports that include their subsidiaries.

Ceres continues to advocate for enhanced transparency regarding corporate climate risks, asserting that the new regulations will lead to standardized and quality disclosures about companies’ climate-related financial risks. As outlined in SB 253, companies will be required to disclose data on Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased electricity), and Scope 3 emissions (indirect emissions in a company’s value chain). The rules stipulate that disclosures for Scopes 1 and 2 must begin in 2026, while Scope 3 disclosures will be required starting in 2027.

CARB has a deadline of July 1, 2025, to finalize regulations that will clarify what constitutes “doing business in California.” Noncompliance penalties are significant, with fines potentially reaching $500,000 per reporting year under SB 253 and up to $50,000 per year for violations of SB 261.

Despite facing legal challenges from business groups claiming the laws infringe upon the First Amendment and federal regulations, California’s climate disclosure framework remains secure. These legal impediments have not thwarted the progress of the legislation. Additionally, other states, including New York, Illinois, Colorado, and New Jersey, are exploring or implementing similar laws based on California’s example, indicating a growing trend toward climate accountability in the corporate sector.

Feedback from over 100 experts collected during roundtable discussions organized by Ceres suggests a general preparedness among businesses to adapt to these emerging climate disclosure requirements. Experts emphasized the urgency for clear and predictable regulations to help businesses work toward compliance with the new laws.

In summary, California’s climate disclosure laws, backed by substantial public support, represent a significant move toward enhancing corporate accountability in climate risk reporting. With the potential to serve as a model for other states, these regulations could reshape how companies manage and disclose their environmental impacts.