California’s ambitious foray into mandatory corporate climate disclosures has encountered a series of legislative and logistical hurdles, resulting in a tempered approach to enforcement for the initial reporting cycle. The journey began in September 2023 with the passage of the Climate Accountability Package, comprising Senate Bills 253 and 261. SB 253 mandates annual reporting of Scope 1 and 2 greenhouse gas emissions, commencing in 2026, for companies operating in California with revenues exceeding $1 billion. Scope 3 reporting, encompassing emissions from a company’s value chain, is slated to begin in 2027. SB 261, targeting companies with revenues exceeding $500 million, requires biennial reporting of climate-related financial risks, aligning with the framework established by the Task Force on Climate-Related Financial Disclosures.
The California Air Resources Board (CARB) was tasked with developing the specific regulations and implementation protocols for these reporting requirements, initially with a January 1, 2025, deadline. However, even as he signed the bills into law in October 2023, Governor Gavin Newsom expressed concerns about the feasibility of meeting this timeline, citing potential inconsistencies in reporting across affected businesses. This premonition of logistical challenges proved prescient as the state grappled with the complexities of establishing a robust and standardized reporting framework.
The ensuing months witnessed a legislative tug-of-war regarding the implementation timeline. In July 2024, Newsom proposed legislation to postpone the reporting requirements until 2028, simultaneously advocating for a six-month extension for CARB’s rulemaking process. While the extension for CARB, pushing the deadline to July 1, 2025, was ultimately granted with the passage of SB 219 in September 2024, the original 2026 reporting commencement date remained unchanged. This created a predicament for companies mandated to begin collecting emissions data from January 1, 2025, without the benefit of finalized reporting guidelines.
The legislative timeline created a paradoxical situation: companies were obligated to begin collecting data for FY 2025 starting January 1, 2025, yet the official reporting guidelines wouldn’t be available until July 1, 2025. This meant companies would need to gather data for at least six months, and in some cases longer, without clear guidance on the specific metrics and methodologies required for compliance. Furthermore, the typical timeframe for implementing new accounting procedures within an organization is approximately three months, placing even companies with a July 1 fiscal year start date behind schedule.
Recognizing the practical challenges faced by businesses, CARB issued an enforcement notice on December 5, 2024, offering a measure of relief. The notice stipulated that for the initial 2026 report covering FY 2025, companies may submit Scope 1 and 2 emissions data based on information already possessed or collected as of December 5, 2024. This effectively provided a grace period, allowing companies to utilize existing emissions data collection processes without the need for hasty implementation of new systems in anticipation of the finalized reporting guidelines. CARB emphasized that enforcement discretion would be exercised during the first reporting cycle, contingent upon companies demonstrating good faith efforts toward compliance, including the retention of all relevant emissions data for FY 2025.
This pragmatic approach offers breathing room for companies grappling with the nascent reporting requirements. While a report is still due in 2026, the data included will reflect processes in place on December 5, 2024, eliminating the pressure to prematurely adopt new procedures. Prudent companies will now likely defer implementing new data collection processes until after CARB releases its comprehensive guidelines in July 2025. However, it is crucial for companies to meticulously document the policies and processes they had in place as of December 5, 2024, to demonstrate good faith compliance. Considering Governor Newsom’s earlier push for a 2028 implementation date and the current trajectory, a similar enforcement notice for the 2027 reporting cycle, covering Scope 3 emissions, appears plausible.
This initial phase of California’s climate disclosure mandate highlights the complexities inherent in translating ambitious legislative goals into practical implementation. Balancing the urgency of addressing climate change with the need for clear and achievable reporting standards requires a nuanced approach. The staged implementation, coupled with CARB’s enforcement discretion, acknowledges the challenges faced by businesses while maintaining the momentum towards greater corporate transparency and accountability in addressing climate change. This iterative process allows for adjustments and refinements based on initial experiences, paving the way for a more robust and effective reporting framework in the future. The California experience serves as a valuable case study for other jurisdictions considering similar climate disclosure mandates, underscoring the importance of phased implementation, flexible enforcement, and continuous stakeholder engagement to ensure successful program implementation.
