On September 27, 2024, Governor Gavin Newsom signed Senate Bill 219 (SB 219) into law, amending two sweeping climate disclosure acts passed just last year—the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). Together, these acts require a wide array of entities doing business in the state to calculate and publicly disclose their carbon footprint and climate risks. SB 219 combines these Acts (now collectively known as the Climate Corporate Data Accountability Act or CCDAA) and makes important updates regarding their implementation.
What Does the Climate Corporate Data Accountability Act (CCDAA) Require?
The CCDAA requires any US-based public or private entity that “does business” in California and has annual revenues exceeding $1 billion to calculate and disclose their Scope 1, Scope 2, and Scope 3 climate emissions on an annual basis for the prior fiscal year. Scope 1 emissions are those that stem directly from an entity’s activities; Scope 2 emissions are those produced indirectly by the entity’s energy consumption; and Scope 3 emissions include all indirect emissions produced by an entity’s entire supply chain, both upstream and downstream.
Annual emissions reporting obligations begin in 2026 for Scope 1 and Scope 2 emissions and in 2027 for Scope 3 emissions. Reporting entities must also obtain a third-party assurance for their emissions beginning in 2026 for Scopes 1 and 2 and, potentially, for Scope 3 emissions beginning in 2030.
In addition to the emissions disclosures, the CCDAA requires a US-based public or private entity that “does business” in California and has annual revenues exceeding $500 million to prepare and publish climate-related financial risk reports on its website. The reports must disclose the entity’s climate-related financial risk and the measures the entity has adopted to mitigate and adapt to that risk. The first such report must be prepared by January 1, 2026, with biennial updates thereafter.
The California Air Resources Board (CARB) is the agency charged with implementing and overseeing the above requirements.
What Does SB 219 Change?
SB 219 delays the requirement for CARB to adopt implementing regulations from January 1, 2025 to July 1, 2025. This gives CARB additional time to develop regulations and clarify uncertainties related to implementation.
SB 219 also gives CARB greater flexibility to contract with third-party emissions or climate reporting organizations and establish a schedule for Scope 3 emissions reporting, rather than requiring that the Scope 3 emissions be reported within 180 days of disclosing Scope 1 and 2 emissions.
Finally, SB 219 authorizes entities to consolidate emissions reports at the parent company level and removes the requirement that an entity pay the annual fee upon filing its annual emissions reporting disclosure.
Implications and Uncertainties for Companies Doing Business in California
The CCDAA will compel thousands of companies to disclose greenhouse gas emissions and climate-related financial risk information at an unprecedented scope and scale. In the first place, CARB will need to answer key implementation questions, such as what constitutes as “doing business in California.”
Compliance with the disclosure requirements will pose logistical challenges for covered entities. The law mandates that entities obtain third-party assurances for their Scope 1 and Scope 2 emissions. In addition, the enormous effort required to collect Scope 3 emission data, which includes emissions from third parties such as vendors, suppliers, and customers, will effectively require most entities to contract with emissions consulting firms as well.
The laws also create new legal risks for entities covered by the reporting requirements. The CCDAA authorizes CARB to bring civil actions against entities and seek civil penalties of up to $500,000 for violations of the act. Even for entities that comply fully with CCDAA’s requirements, biennial public disclosure of emissions data will expose entities to increased risk of suits from climate activists or other plaintiffs seeking to prevent emissions reduction backsliding. This will be particularly challenging as a successful company will likely experience increases in Scope 3 emissions over time as the total emissions from its upstream and downstream supply chain grow.
Finally, ongoing legal challenges to SB 253 and SB 261 may further delay or complicate implementation of the CCDAA. The Chamber of Commerce of the United States brought suit against CARB in January 2024 seeking declaratory and injunctive relief to bar the implementation of these laws. The Chamber argues that both laws violate the First Amendment of the U.S. Constitution by compelling controversial speech unrelated to any commercial purpose and that the laws fail to meet strict scrutiny standards. The lawsuit also alleges that the laws seek to unconstitutionally regulate an area that is beyond California’s jurisdiction and is subject to exclusive federal control under the Clean Air Act.
On October 16, attorneys for the defense filed a notice to the court of the SB 219 amendments to SB 253 and 261. The court’s ruling on the Chamber’s summary judgment motion and the California Attorney General’s motion to dismiss, both filed in May 2024, is expected in the coming weeks.
Final Thoughts
Forthcoming clarifications from CARB may resolve some uncertainties, and the outcome of the Chamber’s and U.S. AG’s pending dispositive motions could negate or limit the scope of SB 253 and SB 261. However, SB 219 does not delay the compliance deadlines set forth for covered entities, so businesses do not have the luxury to wait while these remaining questions are resolved. Businesses should begin preparations by consulting with technical and legal experts to determine whether these laws apply to their operations, understand the reporting and disclosure requirements, and plan for the substantial time and resources necessary to comply.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
