California

California Moves To Delay Corporate Climate Reporting Requirement Until 2028

Published

on


In September 2023, California passed legislation requiring large companies to file sustainability disclosures beginning in 2026. The move was part of a global trend of sustainability reporting and environmental, social and governance reporting focused on climate change and greenhouse gas emissions. However, a new proposal by Governor Gavin Newsom will delay implementation by two years.

As international focus on climate change increased in the wake of the Paris Agreement, there was a simultaneous increase in pressure on businesses to be more accountable for their climate and environmental policies. This translated into a rise in ESG reports and sustainability reports created by companies to attempt to showcase their green initiatives.

Advertisement

Around 2020, the production of these reports became standard practice by both publicly traded and privately held companies. However, there was no standardization of content. Regulators scrambled to create sustainability reporting standards. This was generally done at a national or international level.

In 2021, the International Sustainability Standards Board drafted the International Financial Reporting Standards Foundation’s Sustainability Disclosure Standards. The IFRS Standards were adopted in June 2023 as the global standard for sustainability and climate change reporting, including GHG emissions.

That same month, the European Union announced the adoption of the European Sustainability Reporting Standards. The ESRS incorporated the IFSR Standards for climate related disclosure

In March 2022, the SEC proposed the development of a Climate-Related Disclosure Rule. The final rule, adopted in March, 2024, required large publicly traded companies to disclose climate action, GHG emissions, and the financial impacts of severe weather events. The rule was initially set to go into effect in 2026.

Advertisement

In September 2023, California approved the Climate Accountability Package, a pair of bills aimed at creating sustainability reporting requirements. The bills require reporting standards far beyond the SEC standards.

Senate Bill 253 requires companies who do business in California and have an excess of $1 billion in revenue, defined as “reporting entities”, to submit an annual report for Scope 1 and Scope 2 starting in 2026. Scope 3 reporting will begin in 2027. The State Air Resources Board must create the details of the reporting requirement by January 1, 2025.

Senate Bill 261 requires companies who do business in California and an excess of $500 million in revenue, defined as “covered entities”, to submit a biennial climate-related financial risk report. The report is based on the work of the Task Force on Climate-Related Financial Disclosures, established by the Financial Stability Board.

Implementation of sustainability reporting standards has been bumpy at best. The drafting of the regulations was more complicated than lawmakers originally envisioned. The result has been delays in the implementation timelines as governments struggle to find a balance between the desire to require reporting and the complexities of a regulatory scheme. The EU has delayed parts of the ESRS to allow companies to adjust to the existing standards and to allow time for additional drafting.

This became even more problematic, especially in the U.S., as regulations were challenged in the courts. The SEC rule was delayed indefinitely as challenges work through the legal system.

Advertisement

The California requirements faced similar challenges. However, it was not the legal challenges that delayed implementation, but rather the inability to draft the details in time. This is not a new concern, and it is not surprising the Newsom is now pushing the delay.

Newsom signed the bill into law on October 7 but questioned the feasibility of implementation at the time. The Governor’s message with the bill singing, which becomes part of the official record, stated (in full).

“I am signing Senate Bill 253 which would require, among other things, the California Air resources Board (CARB), by January 1, 2025, to develop and adopt regulations requiring businesses with total annual revenues over $1 billion and operating in California to disclose their greenhouse gas emissions to an emissions reporting organization.

“This important policy, once again, demonstrates California’s continued leadership with bold responses to the climate crisis, turning information transparency into climate action. However, the implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure. I am directing my Administration to work with the bill’s author and the Legislature next year to address these issues.

“Additionally, I am concerned about the overall financial impact of this bill on businesses, so I am instructing CARB to closely monitor the cost impact as it implements this new bill and to make recommendations to streamline the program. I look forward to working with the Legislature on these modifications to ensure we achieve this bill’s goals of ‘full transparency and consistency’.”

Advertisement

The proposal will delay Scope 1 and Scope 2 reporting until 2028. Scope 3 will be delayed until 2029. It is unclear if the delays will be adopted. However, given the global trend of delays in implementation, it is not unreasonable to assume that California will follow the same path.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Trending

Exit mobile version