In December, the California Air Resources Board (CARB) took noteworthy steps to implement California legislation requiring large companies that “do business in California” to report greenhouse gas (GHG) emissions and disclose climate-related financial risks.

Key Takeaways

CARB took two significant actions this month that all entities doing business in California should be aware of:

• On December 5, 2024, CARB issued an “Enforcement Notice” indicating that it will not take enforcement action against entities who make a good faith effort to comply with GHG disclosure requirements for the 2026 reporting period.
• On December 16, 2024, CARB issued an “Information Solicitation” for input from affected entities concerning the implementation of California climate disclosure laws SB 253 and 261. Responses are due on February 14, 2025, providing interested parties the first opportunity to help shape CARB’s rules implementing these laws.

Background and Discussion

First signed into law by Governor Newsom in October 2023, the Climate Corporate Data Accountability Act (SB 253) requires any U.S. partnership, corporation, limited liability company, or other business entity that “does business in California” and has total global annual revenues of more than $1 billion to report scope 1, 2 and 3 GHG emissions, with the first report due in 2026 (for the entity’s “prior fiscal year”). Companion legislation, SB 261, requires any entity with more than $500 million in annual global revenue that “does business in California” to disclose climate-related financial risks. We have previously analyzed these laws and subsequent amendments here.

In December 2024, CARB issued two notices with huge implications for the implementation and enforcement of these statutes.

First, on December 5, 2024, CARB issued an Enforcement Notice related to SB 253, advising it will “exercise its enforcement discretion” for the first reporting cycle, allowing companies to report scope 1 and 2 emissions for their prior fiscal year “that can be determined from information the reporting entity already possess or is already collecting at the time th[e] Notice was issued” as long as “entities demonstrate good faith efforts to comply with the requirements of the law.”

This Enforcement Notice prompted the authors of SB 253 and SB 261, Senators Wiener and Stern, to write CARB on December 11, 2024, “to express serious concern” about the Enforcement Notice and that they are “beyond frustrated at [CARB’s] lack of progress” in implementing the regulations, noting the Legislature had already provided CARB flexibility by passing SB 219 earlier in 2024, which extended CARB’s deadline to issue the regulations to July 1, 2025.

This may have prompted CARB to initiate the required rulemaking as on December 16, 2024, CARB issued an Information Solicitation seeking public input for the first time to inform the implementation of SB 253 and SB 261. We anticipate that responses to this Information Solicitation, due February 14, 2025, will play an important role in shaping CARB’s approach to developing the required regulations. CARB’s solicitation lists 13 topics for input covering four more general areas, including:

• Applicability: How “does business in California” should be interpreted and how foreign-owned entities and parent-subsidiary relationships should be considered;
• Standards in Regulations: How requirements related to standards and protocols established by external entities/NGOs specified in the statutes might be tailored;
• Data Reporting: How costs of regulations should be assessed and whether the State should require reporting to CARB or “contract out” to nonprofits or private companies that provide the service;
• SB 253: Whether aspects of scopes 1, 2, and 3 reporting should be standardized and how voluntary reporting should be considered in shaping CARB’s reporting requirements; and
• SB 261: How reporting timelines should be structured and how existing climate financial risk reporting approaches should be considered.

Legal challenges to these laws are underway. While a facial challenge to the laws was denied, the litigation is proceeding and likely will not be decided before the 2026 disclosure date. We recommend that companies keep a watchful eye on the status of the existing legal challenge and any future legal challenges and continue to prepare to comply with the bills.

Conclusion

California’s new climate disclosure laws create a significant new obligation for large companies doing business in the State. Those companies should be aware of CARB’s stance concerning enforcement related to the first set of disclosures due in 2026 and should make good faith efforts to comply and take advantage of CARB’s enforcement amnesty. In addition, companies should take advantage of the opportunity to shape CARB’s approach to implementing the GHG and climate-related financial disclosure laws by responding to the Information Solicitation by the February 14, 2025 deadline. If they have not already done so, companies should assess whether they are subject to these disclosure laws and develop the systems needed to collect and retain required data. We recommend that companies consider developing such systems by hiring consultants in conjunction with their in-house or external attorneys to ensure related internal deliberations and data collection remains subject to privilege. Finally, companies should ensure that any mandated disclosures are consistent with information presented in other contexts, including annual reports and advertising or other marketing materials.