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CALIFORNIA TAKES THE LEAD IN CLIMATE REPORTING California recently passed two landmark climate disclosure rules, SB 253 and SB 261, in September 2023, with Governor Newsom officially signing them into law on October 7, 2023. These two bills are part of the state's Climate Accountability Package. With the enactment of these new laws, California has demonstrated its preemptive first-mover effect by boldly taking the lead as the first state to push for corporate climate responsibility in the U.S. The bills ultimately require large companies, both public and private that do business in California, to report on scope 1, 2, and 3 emissions and disclose climate-related financial risk, making them the most extensive laws to date in America with potential impacts for thousands of companies. Reporting under SB 253 and SB 261 will not commence until 2026, or later depending on the status of the Governor's budget negotiations, potential statutory amendments, and the development of implementation regulations by CARB. REMAINING UNCERTAINTIES As California moves to implement the new rules — several roadblocks are already coming into view: Litigation: Lawsuits, are already challenging the two new California climate disclosure and financial reporting laws, Senate Bill (SB) 253 and SB 261, for unconstitutionally requiring disclosure by qualifying public and privately-held businesses of greenhouse gas (GHG) emissions and climate-related risks throughout their value chain. Plaintiffs, which include several businesses and industry associations, allege violations of the First Amendment, Supremacy Clause, and other constitutional limitations against the California Air Resources Board (CARB). Budget: In his initial fiscal 2024-25 budget proposal, Governor Newsom provided no money to implement the two climate disclosure rules, which would cost roughly $16 million in the first year compared to the state's total spending of $291.5 billion. The lack of money for the rules' implementation in his initial budget is raising concerns about whether a delay is forthcoming. Newsom will release a revised budget proposal in May, with the final spending plan expected in July. Pending rulemaking: The law doesn't set out a "materiality threshold" to guide companies in determining what information must be disclosed. Discretionary decisions for the rulemaking process could stretch into 2025. The emissions reporting law expressly tasks the board with getting input from a variety of groups, including investors, climate experts, and representatives from consumer and environmental advocacy groups. The California Air Resources Board (CARB) will also need to finalize the details of how California's laws will align with those of other countries and jurisdictions. Sustainability & Energy Management Simplified

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