California Governor Newsom proposes two-year delay to climate reporting bills

While voluntary sustainability reporting, covering everything from greenhouse gas (GHG) emissions to waste management, climate risk and social impact, has become mainstay for larger corporations, much of the focus is shifting to emerging regulatory requirements to guide this reporting. Europe has led the way with the rollout of the Corporate Sustainability Reporting Directive (CSRD), with many more countries establishing similar reporting requirements or in the process of doing so. While occasionally described as onerous, regulation does provide clear guidance while increasing transparency and comparability of data.

The US is one of the major markets still lacking nation-wide regulation on corporate sustainability reporting, sometimes referred to as ESG reporting. With the Climate Disclosure Rule of the US Securities and Exchange Commission (SEC) indefinitely stuck in court and covering only publicly traded entities, the California Reporting Bills were driving the regulatory side of US corporate sustainability reporting.

Proposed amendment move deadlines to 2028

The Senate Bills, SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act), were approved in September 2023. Referred to as the Climate Accountability Package or the “California Climate Bills”, they covered reporting on greenhouse gas emissions for companies with a total net revenue over $1B (SB 253) and reporting on financially material climate risks for companies with revenue over $500M (SB 261) doing business in California. Governor Gavin Newsom signed them into law in October 2023 with the caveat that the timeline was likely too tight and should be under observation so as not to place undue burden on business.

Amendments now with the California State Senate seek to extend the deadlines set by SB 253 and SB 261

The recent amendment proposed by Governor Newsom will, if passed, buy companies two more years to prepare. The motivation for the delay is also to give the California Air Resources Board (CARB) time to finalize reporting requirement details, which reduces the risks for wide variances in reporting quality, methodology and scope. The amended deadlines would be 2028 for Scope 1 and Scope 2 GHG emissions reporting as well as reporting on climate related risks and governance, using the TCFD framework, and 2029 for Scope 3 GHG emissions reporting. 

It is worth noting that several California senators oppose the amendment. They are looking for a compromise that gives CARB and companies sufficient time to prepare while not delaying reporting that can lay the foundation for necessary improvements in company climate resilience and emissions.

Corporate sustainability reporting continues expanding

What this proposal should NOT do is let companies think they can wait two more years to get started. Corporate criticism of the short timeline has focused on the Scope 3 GHG accounting in particular. This covers the often-complex emissions from a company’s supply chain. SLR’s ESG Strategic Advisory practice works with companies and global corporations on GHG accounting and climate risk assessments every day. Setting up good structures to collect the data, improving those structures, and getting to a point where data is useful, assurable, and actionable takes time. When it comes to understanding climate risk, no company should run their corporate risk management without an understanding of the risks – and opportunities – posed by a changing climate and the transition to a low carbon economy. This insight can direct resources to the places where increasing resiliency will have the biggest impact.

The global direction of travel for corporate sustainability reporting is clear – it is here to stay, it is increasingly regulated, and the frameworks used are becoming standardized. Investors may be moving away from the use of politicized acronyms but are still going to ask for understanding of risk on topics related to climate, as a part of good due diligence. We will continue to keep our clients up to date on regulatory developments as they unfold, including the California Senate vote on this amendment on August 31. Regardless of the final timeline for the California climate bills, our advice is clear: don’t wait for it to be a compliance issue to prepare yourselves.