Over the weekend, Governor Newsom signed California's first in the nation greenhouse gas (GHG) emissions disclosure and climate-related financial risk reporting legislation, which we have analyzed in previous Advisories discussing the core objectives of each bill and what to expect for implementation. In his signing messages, Governor Newsom revealed his concerns about the new laws and directed his administration to work with the legislature to seek amendments via new legislation in 2024. The following discusses the governor's concerns and what to expect as a result.
"Likely Infeasible" Timelines
Senate Bill 253 requires annual disclosure of Scope 1 and Scope 2 emissions to begin in 2026, and Scope 3 emissions to begin in 2027. Senate Bill 261 requires reporting to begin no later than January 1, 2026, and biennially thereafter. Governor Newsom describes the existing implementation deadlines required in both the emissions disclosure (SB 253) and climate-related financial risk reporting (SB 261) bills as "likely infeasible" and not providing the government "with sufficient time to adequately carry out the requirements" of the legislation.
Lack of Clarity in the Currently Described GHG Emissions Reporting Protocol
In his signing message regarding SB 253, Governor Newsom states "the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure." As context, the law requires emissions reporting "in conformance with" the widely used Greenhouse Gas Protocol, including the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. However, these broad standards and guidance documents are not prescriptive as to, for example, which Scope 3 emissions companies in particular sectors must report. Nor does the Greenhouse Gas Protocol mandate use of particular data sources (e.g., industry averages vs. secondary data) needed to ensure accurate reporting.
Accordingly, it appears the governor is concerned that significant rulemaking will be needed to add the specificity necessary to promulgate clear requirements for reporting entities. Absent that, even reporting entities in the same industrial sectors could inconsistently interpret the GHG Protocol's guidance, thereby undermining the law's goals to provide investors, consumers, and others transparent and consistent information on a company's climate impact.
Cleanup Legislation To Be Introduced for Consideration in 2024
Governor Newsom's signing messages for both SB 253 and SB 261 direct his administration "to work with the bill's author and the legislature next year to address" the concerns he raises. Given the governor's signing messages, we can expect the cleanup legislation introduced for the 2024 session will likely seek to extend the implementation deadlines for both bills as well as provide more clarity and direction on reporting requirements and expectations, particularly with regard to Scope 3 emissions.
As was the case for SB 253 and SB 261 in 2023, the new
legislation will almost certainly be subject to intense lobbying in
2024. It is important to note that engagement on the legislation is
likely to take place concurrently with stakeholder engagement with
the California Air Resources Board (CARB) on the agency's
rulemaking to implement SB 253 and SB 261. (For further discussion
of what to watch for in CARB's rulemaking, please see our
previous Advisory.)
Finally, Governor Newsom signed a complementary law requiring
voluntary carbon market disclosures, AB 1305. This law requires entities that market
and sell voluntary carbon offsets to make certain disclosures
regarding the offset's sourcing. Similarly, this law requires a
variety of disclosures for entities that (1) purchase or use
offsets in making claims regarding achievement of net zero
emissions status or (2) claim products are "carbon
neutral." Violations of the law subject parties to a civil
penalty of $2,500 per day, not to exceed $500,000.
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