California Governor to sign climate disclosure bills requiring thousands of companies to report

September 18, 2023
2 minutes

Will he or won’t he?  That is the question clients were asking last week. That question has now been answered.  According to numerous media outlets (Politico appears to have been the first to break the news), Governor Newsom indicated yesterday that he will be signing California bills requiring greenhouse gas emissions and climate risk disclosure.  These bills were recently adopted by the California legislature.

Fast facts on the bills:

Climate Corporate Data Accountability Act

  • Will require public disclosure of Scope 1, 2 and 3 GHG emissions.
  • Applies to U.S.-organized entities doing business in California with total annual revenues exceeding $1 billion in the prior fiscal year.
  • Reporting obligation will begin in 2026 for Scope 1 and 2 (for the prior fiscal year); Scope 3 reporting will begin in 2027 (for the prior fiscal year). Disclosures required annually.
  • Measurement and reporting to be aligned with the Greenhouse Gas Protocol.
  • Disclosures will be required to be independently assured. Limited assurance initially for Scope 1 and 2, moving to reasonable assurance in 2030; limited assurance for Scope 3 starting in 2030.
  • To minimize duplication of effort, reports prepared to meet other national and international reporting requirements can be submitted, as long as they also meet the requirements of the California Act.

Climate‐Related Financial Risk Act

  • Will require disclosure of (1) climate-related financial risk in accordance with the recommended framework and disclosures published by the Task Force on Climate-related Financial Disclosures or an equivalent requirement and (2) the measures adopted to reduce and adapt to the disclosed climate-related financial risk.
  • Applies to U.S.-organized entities doing business in California with total annual revenues exceeding $500 million in the prior fiscal year. Insurance businesses are excluded.
  • Initial reports will need to be published by January 1, 2026. Disclosures required biennially.
  • Reporting may be consolidated at the parent company level.

The next big question in the United States pertaining to climate disclosure regulation is what will the Securities and Exchange Commission do?  The SEC's Reg Flex agenda contemplates adoption of its climate rules by October, although that is not a hard deadline and adoption already has been pushed back from the original target date. However, the answer to that question may not matter much with so many companies subject to California, EU Corporate Sustainability Reporting Directive and UK climate disclosure requirements (tens of thousands in total) and with the International Sustainability Standards Board S2 climate standard likely to become mandatory in some countries.

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