by Ronald C. Chen, Raaj S. Narayan, and Carmen X. W. Lu
Left to Right: Ronald C. Chen, Raaj S. Narayan and Carmen X. W. Lu (photos courtesy of Wachtell, Lipton, Rosen & Katz)
Recently, California Governor Gavin Newsom signed into law Senate Bill 219, which applies broadly to public and private companies “doing business” in California. The law will require companies that have total annual revenues of over $1 billion dollars to disclose and independently assure their scopes 1 and 2 emissions (direct and purchased emissions) beginning in 2026 and to disclose scope 3 emissions (value chain emissions) beginning in 2027. In addition, companies that have annual revenues of over $500 million dollars will be required to prepare a climate-related financial risk report in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures beginning on or before January 1, 2026. Emissions disclosures will need to be submitted to the California Air Resources Board (“CARB”), or a non-profit emissions reporting organization designated by CARB, while climate-related financial risk disclosures will need to be publicly posted on the company’s website.
Senate Bill 219 amends Senate Bill 253 and Senate Bill 261, which were signed into law by Governor Newsom last year and which remain the subject of a pending lawsuit filed by plaintiffs, including the U.S. Chamber of Commerce, the California Chamber of Commerce, and the American Farm Bureau Federation. The lawsuit alleges that the laws violate the First Amendment, the Supremacy Clause, and constitutional limitations on extraterritorial regulation, including the dormant Commerce Clause.
While Senate Bill 219 preserves the reporting deadlines under Senate Bills 253 and 261, the new law provides CARB until July 1, 2025 to adopt regulations on emissions reporting and discretion to specify when exactly in 2027 companies will be required to begin scope 3 emissions reporting (as opposed to 180 days after scopes 1 and 2 emissions are publicly disclosed). Senate Bill 219 also allows companies to consolidate emissions reporting at the parent level and eliminates fees payable upon the filing of disclosures, which had served to fund the cost of administering the new laws. CARB will also be responsible for imposing penalties for non-compliance, which will be capped at $500,000 per reporting year for emissions disclosures and $50,000 per reporting year for climate-related financial risk disclosures.
With the SEC’s climate disclosure rules stayed pending litigation, California’s latest law, along with international regulatory obligations, will require many companies to provide climate-related disclosures. While many larger public companies have already disclosed or are in the process of disclosing emissions data and climate-related financial risks, California’s new law may now require private and smaller and medium-sized businesses to make climate-related disclosures for the first time. Senate Bill 219 is also a reminder that states are willing to unilaterally address climate-related concerns and that companies should be vigilant of climate-related regulatory efforts at the state and local levels, particularly if federal initiatives are stalled.
Ronald C. Chen and Raaj S. Narayan are Partners, and Carmen X. W. Lu is Counsel at Wachtell, Lipton, Rosen & Katz. This post first appeared on the firm’s blog.
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