Last year, California adopted a trio of laws requiring certain public and private companies to provide climate-related disclosures. As a quick refresher:
- Climate Corporate Data Accountability Act (Senate Bill 253). For U.S. companies doing business in California with annual revenues over $1 billion, Senate Bill (“SB”) 253 requires them to report their greenhouse gas (“GHG”) emissions annually beginning in 2026 (for Scope 1 and 2 GHG emissions) and 2027 (for Scope 3 emissions).
- Greenhouse Gases: Climate-related Financial Risk (Senate Bill 261). For U.S. companies doing business in California with annual revenues over $500 million, SB 261 effectively requires them to begin biennial reporting in 2025 regarding their “climate-related financial risks” and adopted measures to reduce or adapt to them.
- Voluntary Carbon Market Disclosures (Assembly Bill 1305). For companies that make certain environmental claims, adopt particular environmental goals, or purchase, use, market, or sell voluntary carbon offsets in California, Assembly Bill (“AB”) 1305 requires annual website disclosure providing support for those claims, goals, or offsets.
More background SB 253 and 261 is detailed here, and AB 1305 is further discussed here.
The California Legislature and Governor Gavin Newsom proposed varied amendments to these laws in 2024, and certain largely administrative amendments have now been signed into law. Litigation challenging SB 253 and 261 is also ongoing (as described here), though the laws have not been stayed while the litigation proceeds. As a result, companies are now facing a mostly unchanged—though uncertain—reporting landscape in the state.
To help companies prepare for reporting under these laws (including SB 253 and SB 261, if they ultimately go into effect), we have summarized below our key takeaways and considerations from this year’s developments, including the trends from our review of nearly 100 companies’ public AB 1305 reports.
SB 253 & 261: Amendments Adopted (But Little Changed For Reporting Companies).
In June 2024, Governor Newsom proposed a trailer bill that would have delayed the initial reporting deadlines for SB 253 and 261 by two years, from 2026 to 2028, and provided the California Air Resources Board (“CARB”) more time to adopt implementing regulations (delaying the deadline from January 1, 2025 to January 1, 2027), among other changes. These proposals echoed the Governor’s previously expressed concerns over the bills’ financial impacts on covered companies and timing of the original reporting deadlines.
The California Legislature did not adopt the trailer bill and, rejecting any reporting delay for companies, instead proposed its own amendments (SB 219), which the Governor signed into law on September 27. SB 219 did not remove the SB 253 or 261 filing fee payments, but did remove the requirement that the payments be made at the time the reports are disclosed or submitted. It also makes clear that companies can report at the parent level on a consolidated basis for both reports (this was previously clear only for SB 261 reporting).
The remainder of SB 219’s changes impact CARB, including:
- For SB 253:
- extending CARB’s deadline to adopt implementing regulations by six months from January 1, 2025 to July 1, 2025;
- removing the requirement that CARB engage an “emissions reporting organization” to receive companies’ GHG emission reports and to develop a digital platform for receiving and disclosing emissions reports, among other responsibilities. Instead, CARB could opt to receive the disclosure directly and develop such a platform;
- granting CARB greater discretion to set a schedule for Scope 3 GHG emissions reporting, rather than requiring that the deadline be no later than 180 days after Scope 1 and 2 GHG emissions are disclosed;
- removing the requirement that CARB review and assess GHG accounting and reporting standards every five years after 2033; and
- extending CARB’s deadline to publish the emissions reports it receives from 30 days to 90 days.
- For SB 261:
- removing the requirement that CARB contract with a climate reporting organization for certain activities or publications on the climate-related risks that have been reported.
With Additional Guidance Almost A Year Away, What Can Reporting Companies Do Now. Although the fate of SB 253 and 261 is unclear given the pending litigation, companies can consider the following steps, as appropriate depending on their circumstances, as they prepare for potential SB 253 and 261 reporting:
- consulting with counsel to determine whether they would be required to report under SB 253 or 261. Where companies’ current revenue levels or activities do not meet the thresholds, but are very close, monitor acquisition activity and any anticipated increases in revenue that may push the company into scope in future years;
- if there is no current emissions reporting process, consulting with internal stakeholders and external advisors to estimate the time for developing such a process;
- if there is a current emissions reporting process, review the current process and controls to assess differences between the company’s current methodology and the Greenhouse Gas Protocol and what updates may need to be made;
- reviewing the time required to obtain limited assurance on Scope 1 and 2 GHG emissions data. If limited assurance is not currently being obtained, conduct a gap analysis to determine what additional work may be required to obtain it and identify potential third-party firms who could provide assurance;
- conducting a gap analysis of any current climate-related risk reporting against the reporting standards referenced in SB 261—the Task Force on Climate-related Financial Disclosure (“TCFD”) or International Sustainability Standards Board (“ISSB”) standards—including reports currently described as TCFD or ISSB reports. Such reports have historically been voluntary, and additional disclosure may be required now that the disclosures are being prepared for legal compliance purposes; and
- revisiting environmental policies and voluntary sustainability reporting. Companies may currently describe climate-related issues in different documents prepared by different teams for different purposes, such as committee charters, environmental policies, CDP questionnaire responses, and proxy statement or other public or regulatory reporting. In advance of potential mandatory reporting, consideration should be given to aligning these teams and internal controls.
AB 1305: No Pending Changes, But A Wealth of Examples.
AB 1305 does not specify the first reporting deadline for required disclosures: instead, it requires that the disclosures be updated no less than annually. The resulting uncertainty as to whether the first reporting deadline would be January 1, 2024—when the law first became effective—or January 1, 2025, resulted in some companies providing responsive disclosures late in 2023 and early 2024. To address this question, in January 2024, the author of AB 1305 published a statement of legislative intent reflecting his expectation that the first responsive disclosures be posted by January 1, 2025.
The California Legislature then progressed on a number of amendments to AB 1305 through AB 2331, including to push the first reporting deadline further (to July 1, 2025), carve out certain renewable energy credits (“RECs”) from the definition of voluntary carbon offsets, and substantively revise the information required under the law, particularly for the marketing or sale of voluntary carbon offsets. AB 2331 was not passed by the California Legislature prior to the close of the general session in August, leaving the original reporting requirements in place for now. However, the California Attorney General has issued a formal legal opinion concluding that RECs used by reporting companies outside of California’s regulatory programs would not be considered voluntary carbon offsets for purposes of AB 1305.
Early Filers Provide a Range of Reporting Approaches. AB 1305 does not contain specific formatting or presentation requirements. This is a notable contrast to other more prescriptive California website reporting requirements and has resulted in a variety of approaches to AB 1305-related reporting across the more than 90 reports that have been published as of early September 2024. Key takeaways from our review of these reports include:
- Most Filers are Public Companies. We identified at least 68 public company reports and 26 private company reports across a range of industries. As one public company subsequently took down their report, we have excluded it from the following statistics, for a total sample of 93 companies. Below, we have summarized the market capitalization for reporting public companies.
- Most Acknowledge a Sample or Category of Potentially In-Scope Claims. Most companies (70, or 75%) provided some reference to potential in-scope claims they had made, whether it was noting a specific achievement or corporate goal (e.g., achieving carbon neutral operations or adopting a net zero goal) or making a generic reference to its past reporting on targets and emissions reductions.
- Few Companies Provide an Explicit Tie to Each Requirement. Only 12 companies (13%) provided an index or heading identifying their claims or supporting information side by side with each reporting requirement.
- Most Do Not Summarize AB 1305’s Requirements. More than three-quarters of the companies surveyed (72, or 77%) did not include a description of AB 1305’s reporting requirements, while the remaining 21 companies (23%) provided a full or partial description.
- Most Do Not Include an “As Of” Date or Disclaimer. Less than half of companies (37, or 40%) included a clear “as of” date for the disclosure, which must be updated no less than annually. Twenty-seven companies (or 29%) included a general disclaimer regarding the report’s contents and/or a more extensive forward-looking-statement-type disclaimer.
- Most Disclosures Focus Only on Applicable Requirements. Only a quarter of companies (23, or 25%) included an affirmative statement that some portion of the law did not apply to them (e.g., that they did not purchase or use voluntary carbon offsets). Otherwise, companies typically were silent on this but addressed only the sections of the law that were applicable to them: in other words, if they only market or sell voluntary carbon offsets, they only addressed the disclosures required for that activity.
- Most Prefer a Standalone PDF Format. Over half of the companies (53, or 57%) provided their AB 1305 disclosure in a standalone PDF available on their website. A smaller portion (28, or 30%) provided the disclosure on their websites as a standalone webpage, while 11 companies (or 12%) addressed AB 1305 as a subset or reference on an existing page. In one instance, the disclosure was available only by clicking an “AB 1305” link on the website that downloaded an Excel file.
Considerations for Preparing (or Updating) AB 1305 Disclosures. In addition to the reporting trends noted above, reporting companies preparing or updating their AB 1305 disclosures should also consider:
- reviewing current website disclosure and corporate publications to identify relevant claims and conducting a gap analysis between AB 1305’s requirements and current public disclosure. The results of our survey only reflect those public disclosures that were clearly identified as being provided for purposes of AB 1305 and may not represent the full universe of disclosure approaches. For example, some companies may already provide the responsive disclosure in existing reports and determine a standalone report or heading is not necessary;
- building out internal controls and resources to collect relevant claims, activities, and corresponding support throughout the year;
- educating relevant stakeholders that will be important to support the identification of claims or activities, including the marketing, sales, product, procurement, and investor relations teams. For example, AB 1305 can apply to claims about the company’s products, and such claims can appear in locations that the legal or compliance teams are less involved with, such as advertisements, mailings, press releases, or product literature that can reach California consumers. The relevant internal controls may therefore run through the legal or compliance teams, but will likely rely in part on information from other areas of the business; and
- monitoring for future developments, because while changes proposed by AB 2331 were not ultimately adopted this year, similar changes may be sought in future legislative sessions.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Environmental, Social and Governance practice group.
We would like to thank Lauren Assaf-Holmes and Meghan Sherley in our Orange County office for their work on this post.