California Implements Strong Climate Disclosure Laws

Categories: California Business NewsCalifornia News

A collaborative discussion on California's climate disclosure regulations in a professional setting.

News Summary

California has enacted climate disclosure laws with strong public support, requiring businesses above $1 billion in revenue to report greenhouse gas emissions. As the California Air Resources Board prepares for implementation, companies will disclose climate-related risks by 2026. With significant penalties for noncompliance, these laws aim to enhance transparency and align with international standards, marking a pivotal step towards sustainability.

California is witnessing strong public support for its newly enacted climate disclosure laws, with a recent analysis revealing that 59% of commenters endorsed these measures, while only 9% expressed opposition. The California Air Resources Board (CARB) is currently preparing for the implementation of these laws, which are designed to enhance transparency around greenhouse gas (GHG) emissions and climate-related financial risks for companies operating within the state.

The climate disclosure laws, passed in 2023, require all businesses generating over $1 billion in revenue to report their GHG emissions and disclose potential financial risks associated with climate change. This legislation includes the California Climate Corporate Data Accountability Act (SB 253), which mandates annual public emissions disclosures starting in 2026 for qualifying companies, and the Climate-Related Financial Risk Act (SB 261), requiring biennial reporting of climate-related financial risks for firms with revenues over $500 million, also beginning in January 2026.

Findings from a sustainability nonprofit, Ceres, indicate that the majority of institutions surveyed—comprising investors, businesses, and advocacy groups—support these climate disclosure laws. Ceres analyzed a total of 245 unique submissions to CARB, with a clear call for alignment with international standards such as those set by the International Sustainability Standards Board (ISSB) and the European Union’s Corporate Sustainability Reporting Directive.

Stakeholders’ Concerns

Key areas of concern reiterated by commenters included:

Global Alignment: Commenters emphasized the importance of aligning California’s disclosure rules with international standards.
Defining “Doing Business in California”: There were requests for clearer definitions of criteria that determine what constitutes “doing business” in the state, with recommendations to reference California’s Revenue & Tax Code.
Reporting Rules for Corporate Groups: Suggestions were made for clearer guidelines for multinational corporations, including the need for consolidated reporting by parent companies that encompasses their subsidiaries.

Future Implementation and Expectations

As CARB gears up for these implementations, it must finalize the regulations defining “doing business in California” by July 1, 2025. Companies will be required to disclose Scope 1 and Scope 2 emissions starting in 2026, with Scope 3 disclosures expected in 2027. The penalties for noncompliance are significant, with fines for SB 253 potentially reaching up to $500,000 per reporting year, and up to $50,000 per year for violations of SB 261.

Despite facing legal challenges from business groups citing violations of the First Amendment and federal regulations, California’s climate disclosure framework is advancing, in contrast to the implementation obstacles faced by the SEC’s climate disclosure rules. The enactment of these laws has sparked interest in similar legislation in states such as New York, Illinois, Colorado, and New Jersey.

Industry Readiness and Moving Forward

Ceres underscores the urgent need for clear and predictable regulations to assist affected businesses in adjusting to these new requirements. Feedback from over 100 experts gathered through Ceres’ roundtables suggests a growing readiness among companies to comply with emerging climate disclosure mandates. Such acceptance reflects an increasing acknowledgment of the critical nature of climate risk transparency among investors, businesses, and stakeholders.

As California takes this critical step towards sustainability and accountability, the effective implementation of the climate disclosure laws could set a precedent not only for the state but for the nation as a whole.