California revises greenhouse gas emission and financial risk reporting laws

pexels-marcin-jozwiak-199600-3796993 On September 27, 2024, California’s governor Gavin Newsom signed Senate Bill (SB) 219, amending greenhouse gas (GHG) emission reporting requirements for targeted organizations doing business in the state, enacted in 2023 (SB 253 (Wiener) (Climate Corporate Data Accountability Act) and SB 261 (Stern)) and initially scheduled to require compliance beginning January 1, 2025. (I wrote about them HERE) SB 219 revises and delays emissions reporting requirements. The revised requirements will still be administered by the California Air Resources Board (ARB), expanding its longstanding air quality and climate authority (GHG provisions center on the Global Warming Solutions Act of 2006 ((AB 32)). The remainder of this note discusses the revisions made by SB 219.

SB 219 adjusts GHG emissions report requirements

SB 219 addresses requirements for GHG emissions reports, initially enacted by SB 253. The following summarizes requirements enacted in 2023, and how SB 219 affects them.

What are “reporting entities” subject to these requirements?

SB 219 retains the definition of a “’Reporting entity’ means a partnership, corporation, limited liability company, or other business entity formed under the laws of [California, another state, or District of Columbia, or by an act of the US Congress] with total annual revenues exceeding $1 billion in its preceding fiscal year, and which does business in California.” In 2023, the data management company Crunchbase estimated that more than 5,000 US entities met these revenue thresholds.

What GHG emissions reports must be prepared?

SB 219 adjusts GHG emissions reporting requirements. SB 253 required ARB to contract with an “emissions reporting organization” to develop the GHG reporting program for use by reporting entities—SB 219 softens that mandatory “shall” to “may.” The definition of this term is unchanged, remaining “a nonprofit emissions reporting organization contracted by [ARB] that both: (A) Currently operates a greenhouse gas emission reporting organization for organizations operating in the United States [; and] (B) Has experience with greenhouse gas emissions disclosure by entities operating in California.”

ARB’s regulatory requirements must follow global Greenhouse Gas Protocol standards and guidance developed by the World Resources Institute and the World Business Council for Sustainable Development (WRI/WBCSD), including all of the following (compliance dates are below):

- scope 1 emissions (entity’s direct emissions)

- scope 2 emissions (emissions from entity’s energy use)

- scope 3 emissions (emissions from entity’s upstream supply chain and downstream value chain)

The emissions reporting organization must be familiar with these standards, and have experience applying them in California.

ARB’s regulations are to require each reporting entity to annually disclose the following, to ARB or the contracted emissions reporting organization:

- report all the entity’s scope 1, 2, and 3 GHG emissions,

- using assurance engagement performed by an independent third-party assurance provider

SB 219 delays the deadlines for regulations initial reports initially enacted by SB 253/261. As revised:

- 7/1/25 – deadline for ARB to reporting regulations (was 1/1/25)

- during 2026 (date to be set by ARB) - report scope 1 and 2 emissions (language unchanged, but may end up earlier since ARB must issues its regulations earlier)

- during 2026 – ARB is to review and evaluate trends in third-party assurance requirements for scope 3 emissions. By 1/1/27, ARB may establish an assurance requirement for third-party assurance engagements of scope 3 emissions. Assurance engagements for scope 3 emissions shall be performed at a limited assurance level beginning in 2030. (unchanged)

- during 2027 (date to be set by ARB) - report scope 3 emissions (was 180 days after initial scope 1/2 reporting date)

- by 7/1/27 – ARB is to contract with an appropriate academic institution to prepare a report on GHG emissions reports (unchanged), and post that report on the Internet

- during 2029 (complete by January 1, 2030), ARB is to review trends in scope 3 reporting and also qualifications for third-party assurance providers, and consider changes to state requirements and reporting deadlines (unchanged)

- beginning in 2033, ARB may review GHG reporting standards and make appropriate revisions to state requirements (unchanged)

Reports may be consolidated at the parent company level (provision unchanged). ARB is to assess fees to cover its costs.

SB 219 adjusts reporting of climate-related financial risk

SB 219 also adjusts requirements (from SB 261) that each “covered entity” prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk and the measures it adopts to reduce and adapt to climate-related financial risk. Reports must be made available to the public.

What are “covered entities” subject to these requirements?

The definition of a “covered entity” is unchanged, and continues to be a partnership, corporation, limited liability company, or other business entity formed under the US or state laws, with total annual revenues exceeding $500 million in its preceding fiscal year, and which does business in California. This definition is essentially the same as the one above for a “reporting entity”, but with half the revenue threshold.

What climate-related financial risk reports will be required?

Financial risk reporting requirements are unchanged. Beginning by January 1, 2026, each covered entity must prepare a biennial “climate-related financial risk report” disclosing both of the following:

The entity’s climate-related financial risk, following the recommended framework and disclosures contained from the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (convened by the Financial Stability Board) (June 2017 or any successor) (I wrote about the Task Force and its recommendations HERE), or pursuant to an acceptable equivalent (see below).

Its measures adopted to reduce and adapt to its disclosed climate-related financial risk.

The Task Force’s Recommendations provide detailed guidance (74 pages), organized to focus on Governance, Strategy, Risk Management, and Metrics and Targets. SB 261 allows an entity to substitute for this approach by using:

Disclosure of comparable information in compliance with disclosures required by any “regulated exchange, national government, or other governmental entity,” including the International Financial Reporting Standards Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). (I discussed the recent Securities and Exchange Commission (SEC) proposal for such disclosures HERE)

Voluntary disclosure that meets the Task Force or ISSB criteria.

Reports are due every two years beginning January 1, 2026, and must be posted on the entity’s Internet website for public access. Climate-related financial risk reports may be consolidated at the parent company level for subsidiaries and affiliated companies.

SB 261 required ARB to contract with a climate reporting organization to prepare a biennial public report on these required disclosures, but SB 219 changes that requirement to an option. The contents are unchanged, and continue to be the following:

A review of the climate-related financial risks disclosed in a subset of publicly available climate-related financial risk reports by industry.

Analysis of the systemic and sector-wide climate-related financial risks facing the state based on the contents of these reports, including potential impacts on economically vulnerable communities.

Identification of inadequate or insufficient reports.

ARB is to adopt and assess annual fees to fund its administration of these requirements. ARB is also to adopt administrative penalty provisions (not exceeding $50,000) for violations.

What happens now?

SB 219 provides limited delays for GHG emissions reporting requirements, and provides ARB greater flexibility when designing and administering emissions and financial risk reporting requirements. ARB needs to complete required rulemakings to facilitate entity compliance. Readers should note that the revenue thresholds for the two laws are very different, so many more companies will be required to prepare only the financial risk reports. In addition, other regulatory and informational entities (including the GHG Protocol, and the US SEC) are developing reporting methodologies, which may be available to substitute for specific provisions developed by ARB. Finally, of course, California hopes other states adopt its model – non-California readers should consider whether their organizations have GHG emission or risks comparable to those being addressed in this legislation.

Self-assessment checklist?

Does the organization do business in California?

If so, is its total annual revenue (not just in California) greater than $500 million?

If so, is its total annual revenue (not just in California) greater than $1 billion?

Do any of the organization’s activities involve GHG emissions?

If so, does the entity prepare GHG emission reports?

If so, do these reports distinguish among scope 1, 2 and 3 GHG emissions, consistent with GHG Protocol guidance?

Does the entity make its reports available to the public?

Has the entity evaluated whether any of its activities are susceptible to climate-related financial risk?

If so, has the entity evaluated such risks?

If so, has the entity applied the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures, or another methodology?

Does the entity make these evaluations available to the public?

If the organization has no qualifying operations in California, has it considered these issues?

Where can I go for more information?

About the Author

jon_f_elliott Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com

Audit, Compliance and Risk Blog