States Forge Ahead on Climate Disclosures as SEC’s Plan Drags on

California and other states are moving forward with mandating greenhouse gas and climate-related risks disclosures as the fate of the Securities and Exchange Commission’s final rules for climate disclosures remains in limbo.

In the absence of the SEC’s final rules, states and regulators likely will continue enacting legislation and issuing guidance about climate-related disclosures. Companies should start carefully assessing how both the SEC rules and states’ rules would affect them and what they would need to disclose.

The SEC’s decision last month to issue a stay of the final rules, adopted March 6, was a response to significant pending litigation. Six months earlier, in September 2023, California became the first state to impose disclosure obligations on large US public and private corporations doing business in California.

The Climate Corporate Data Accountability Act, SB 253, and the Climate-Related Financial Risk Act, SB 261, require affected companies in California to disclose three levels, or scopes, of greenhouse gas emissions and submit a biennial climate-related financial risk report to the California Air Resources Board.

Because California is a major economic force and crucial market for many large companies, these new disclosures have considerable reach.

Think tank Public Citizen estimated in October 2023 that at least 75% of Fortune 1000 companies are covered by SB 253, while 73% are covered by both SB 253 and SB 261. For the disclosures to take effect, the CARB will need to adopt regulations that set forth procedures for the disclosures on or before Jan. 1, 2025.

While funding for both SB 253 and SB 261 initially appeared uncertain when Gov. Gavin Newsom (D) proposed his 2024-2025 state budget, his recently revised budget proposal would include $22 million to fund the state’s corporate climate disclosure laws, including SB 253 and SB 261, respectively. It is likely that California intends to take a leading role in corporate climate disclosures as a result of the legal threats to the SEC’s final rules.

Pending Climate Measures

California isn’t the only state legislature considering or implementing climate-related disclosure laws in 2023. Minnesota threw its hat into the climate disclosure ring when it passed the 2023 Commerce Omnibus Finance Bill. The measure, SF 2744, requires banks and credit unions with more than $1 billion in assets submit an annual climate risk survey to the Commissioner of Revenue beginning July 30.

SF 2744 didn’t specify what information banks and credit unions must provide as part of these disclosures. Instead, it requires the commissioner to issue a reporting form setting forth such disclosure requirements. That form hasn’t been disclosed yet.

Companies would need to report by July 30 each year. Given how difficult it would be for companies to comply with the regulations at this late stage, it is unlikely we will see guidance released for this reporting year, but it is still technically possible guidance could come for this year.

In New York, lawmakers are considering several measures containing climate disclosure requirements.

The current version of Senate Bill S897 establishing the Climate Corporate Data Accountability Act would require business entities with total revenues exceeding $1 billion dollars to disclose three scores of greenhouse gas emissions every year and set up a climate accountability and emissions disclosure fund.

Senate Bill S5437 would target corporations authorized to operate in the state, subject to the Department of Financial Services’ supervision, and with annual gross revenues of at least $500 million dollars in the prior calendar year. It would amend the financial services law to require affected businesses to prepare a climate-related financial risk annual report. Senate Bills S7704 and S7705 are virtually identical to California’s SB 261 and SB 253, respectively.

The three New York climate bills are still in committee and therefore the respective futures of the bills remain highly uncertain. It is possible that a successful rollout and implementation of the sister bills in California could serve to accelerate the adoption of these New York climate bills.

Outlook

Varying state disclosure requirements could lead to more fragmented and convoluted disclosures, as companies would be required to disclose under multiple state climate-related disclosure regimes and subject themselves to varying degrees of liability at the state level. Despite uncertainties about the forum where companies will make these disclosures, one thing appears clear—climate disclosures are inevitable.

As a starting point, companies and their in-house legal teams should begin determining the applicability of the reporting obligations in light of their current corporate structure and operations. As part of this applicability analysis, companies should also take inventory of past climate-related statements, as these past statements will inform and impact future disclosures.

Once a company determines the applicability of the reporting obligations, the next step would be to conduct a comprehensive gap assessment that compares the requirements of the disclosure regime to that of the company’s current operations and ability to comply with the disclosure requirements.

It’s important to recognize that, in practice, these steps may take significant time, require establishing novel procedures and controls, and mandate entity-wide coordination to successfully implement. Therefore, we recommend companies be proactive in their preparedness strategy and begin preparing for compliance sooner rather than later.

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 Gorsen is partner and member of Sidley Austin’s environmental practice, focusing on enforcement defense and regulatory compliance.

Evan Grosch is an associate at Sidley Austin and focuses on environmental, social, and governance issues.

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