The year 2023 marked a significant turning point in California’s efforts to combat climate change through corporate transparency, setting in motion a series of legislative actions and regulatory developments that continue to unfold. The state legislature passed a groundbreaking Climate Accountability Package, comprising two key bills: Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261). These bills mandated climate-related disclosures from large companies operating within California, aiming to hold businesses accountable for their environmental impact and provide investors with crucial information for assessing climate-related financial risks. SB 253 targeted larger corporations with over $1 billion in revenue, requiring annual reporting of Scope 1 and 2 greenhouse gas emissions starting in 2026, with Scope 3 emissions reporting following in 2027. SB 261, on the other hand, focused on companies with revenues exceeding $500 million, mandating biennial reports on climate-related financial risks. The California Air Resources Board (CARB) was tasked with the critical responsibility of developing the specific regulations and implementation guidelines for these reporting requirements.
The initial timeline stipulated that CARB deliver these guidelines by January 1, 2025. However, the path to implementation encountered a detour in 2024. Governor Gavin Newsom proposed legislation to postpone the commencement of reporting to 2028 and extend CARB’s deadline for drafting the regulations by six months, to July 1, 2025. While the extension for CARB was ultimately granted with the signing of SB 219 in September 2024, the original 2026 reporting start date remained unchanged. This created a compressed timeframe for companies to prepare for the new reporting obligations, adding a layer of complexity to the implementation process.
Recognizing the potential challenges posed by this shortened timeline, CARB issued an enforcement notice in December 2024. This notice clarified that while companies would still be required to file reports in 2026, the information provided for the fiscal year 2025 would be based on processes in place as of December 5, 2024. This pragmatic approach provided much-needed breathing room for businesses, allowing them to focus on compliance without the pressure of implementing new processes based on anticipated, but not yet finalized, reporting requirements. It signified a recognition of the practical realities facing businesses in adapting to these new regulations and demonstrated a willingness to facilitate a smoother transition.
Concurrently, CARB embarked on the crucial rulemaking process, initiating an “Information Solicitation to Inform Implementation of California Climate-Disclosure Legislation” in December 2024. This solicitation invited feedback from a broad range of stakeholders on various aspects of implementing SB 253 and SB 261. The solicitation sought input on key implementation challenges, including defining “reporting entities” and “covered entities,” a point of ambiguity that particularly affected companies operating in California but not headquartered there. This proactive engagement with stakeholders signaled CARB’s commitment to creating a robust and inclusive regulatory framework, informed by diverse perspectives and practical considerations. The solicitation underscored the importance of clarity and precision in defining the scope of the regulations to ensure effective and equitable implementation.
The ambiguity surrounding the definition of “reporting entities” and “covered entities” presented a significant challenge, particularly for companies with a presence in California but lacking clear headquarters within the state. The initial legislation did not provide explicit guidance on this matter, leaving room for interpretation and potential uncertainty for businesses. CARB’s information solicitation specifically addressed this issue, inviting input from stakeholders to help clarify these definitions and ensure a consistent and equitable application of the reporting requirements. This focus on definitional clarity reflected a commitment to addressing practical implementation challenges and providing businesses with the certainty needed to comply effectively. The deadline for submitting responses to the solicitation was set for February 14, 2025, providing ample opportunity for stakeholders to contribute to the development of a clear and comprehensive regulatory framework.
The evolving regulatory landscape surrounding California’s climate disclosure legislation highlights the complex interplay between legislative mandates, regulatory implementation, and stakeholder engagement. The initial legislation established ambitious goals for corporate transparency and accountability in addressing climate change. However, the subsequent adjustments to timelines and the ongoing rulemaking process, including CARB’s proactive solicitation of stakeholder feedback, reflect the practical challenges inherent in translating legislative intent into concrete regulations. The dynamic nature of this process underscores the importance of ongoing dialogue and collaboration between regulators, businesses, and other stakeholders to ensure that the final regulations are both effective in achieving their environmental objectives and feasible for businesses to implement. The California experience serves as a valuable case study for other jurisdictions considering similar climate disclosure mandates, highlighting the need for flexibility, clarity, and a commitment to ongoing engagement with the business community. The ultimate success of these initiatives will depend on the ability of regulators and businesses to work together to create a regulatory framework that fosters transparency, accountability, and meaningful progress towards a more sustainable future.
