New California Law Should Prompt Corporate Climate Policy Review

Companies in California affected by a new state law amending requirements for greenhouse gas emissions reporting in 2026 should review their climate disclosure policies to ensure consistency with similar policies in Europe and the UK.

The new law, SB 219, provides an additional six-month delay for the publication of regulations for scope emissions disclosures, changes the timeline of Scope 3 emissions disclosure, provides the California Air Resources Board with greater permissive authority, and allows consolidated reporting at the parent level for scope emissions.

The first step corporate executives should take is to evaluate whether their company is in scope. California’s Climate Accountability Package is broad and applies to both public and private companies with global revenues exceeding $1 billion and $500 million, respectively, and who are “doing business” in California.

The definition of “doing business “ in California is very broad, and includes any company engaging in any transaction for the purpose of financial gain within California. It doesn’t matter where the company is headquartered or if the company has no offices or employees in California. If a company has sales exceeding $711,538, or property or payroll exceeding $71,154 (as of 2023), then it meets this threshold.

The applicability may change and become narrower once CARB develops its implementing regulations by July 1, 2025. For now, the statutory definition captures companies worldwide who previously may not have had any California regulatory obligations.

If a company is in scope, its officers should evaluate how the Climate Accountability Package may affect operations. While it pertains only to disclosure, it may affect corporate behaviors because companies may be encouraged or compelled to have monitoring, accounting, planning, and operational and governance practices in place to make the required disclosures.

Many of the disclosure requirements will create new challenges for companies that haven’t made similar disclosures in the past. There is considerable uncertainty, across all the various frameworks, regarding what the precise requirements will actually look like in California.

Europe, the Securities and Exchange Commission, and California will all be using the same words in their respective disclosure requirements, such as materiality, climate-related risks, and value chain, but assigning different meanings to those words. Even in Europe, there is a disconnect between the Corporate Sustainability Reporting Directive and the member states such as Spain, Germany, Belgium, and others.

These disclosures will be subject to regulatory scrutiny over statements or misstatements and bear the risk of significant legal penalties. Because of the novelty of these new disclosures, the process should begin sooner rather than later so that any pain points or difficulties in generating disclosure level-response and compliance can be resolved ahead of time.

Affected California companies also should consider cross-jurisdictional requirements holistically to ensure appropriate coherence and consistency.

Many US companies subject to the Climate Accountability Package fall in scope with the EU’s Corporate Sustainability Reporting Directive. The CSRD is broader than the Climate Accountability Package: It covers 10 distinct sustainability topics of which climate is just one and requires broader and more detailed disclosures of energy consumption, mix, and intensity; separate disclosure of emission reduction and net-zero targets; board expertise on climate change; and the relevance of climate considerations to board remuneration.

California companies should first do an applicability assessment for all reporting frameworks. Once that is determined, then they will need to determine how to best align reporting obligations within their corporate reporting structure, whether at the subsidiary or parent level. Then they should do a gap analysis across the frameworks, whether by topic or by regulatory framework.

Once these three preliminary steps are complete, the company can prepare the draft disclosures for each framework and ensure that the interconnectedness of the disclosures is captured, as disclosures in one jurisdiction will likely be read and may even be attachments to later disclosures in other jurisdictions.

The UK also has disclosure requirements on climate-related risks and opportunities for certain companies and limited liability partnerships with more than 500 employees and 500-million-pound turnover. These include how climate change is addressed in corporate governance, performance measures, and targets applied in managing climate change-related risks.

Companies should begin assessing whether they are subject to these requirements and, if so, planning compliance. Planning for these disclosures will be challenging due to the novelty, unknowns, and uncertainties. Disclosures are required now in Europe, but the regulations outlining the precise requirements in California have yet to be drafted.

These disclosures will be subject to regulatory scrutiny over statements or misstatements and bear the risk of significant legal penalties.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Maureen F. Gorsen is partner at Sidley Austin and a member of the firm’s environmental practice.

Heather M. Palmer is partner at Sidley Austin and serves as a co-leader of the firm’s ESG and climate change practices.

Caleb J. Bowers is a senior managing associate at Sidley Austin and focused on environmental matters.

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