California Climate Laws, CARB Opens Comment Period Seeking Industry Input by February

On December 16, 2024, the California Air Resources Board (CARB) called for public comment on key issues related to the implementation of California’s two major climate disclosure bills, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). CARB’s request for feedback will be open for 60 days and all submissions will be made public.

In 2023, California Governor Gavin Newsom signed the two bills into law as part of the California legislature’s broader Climate Accountability Package. These statutes, SB 253 and SB 261, mandate that companies doing business in California at $500K and $1M financial thresholds, respectively, provide public climate‑related disclosures. Under SB 253, covered companies must disclose greenhouse gas emissions (Scopes 1, 2, and 3) and under SB 261 must disclose biennially climate-related fiscal impacts to CARB. These disclosure requirements are currently set to go into effect beginning in 2026. By the governor’s own estimates, these requirements will have a financial impact on more than 10,000 businesses, which will be required to disclose both greenhouse gas emissions under SB 253 and climate-related risks and mitigations under SB 261. See our prior client alert for detailed discussion on the two laws.

As part of its rulemaking process, CARB now seeks stakeholder input on the following:

General Input

• Defining key terms in the statute, including what it means to “do business in California,” as required to come within the scope of the laws.
• Logistical support related to identifying reporting entities and their parent and subsidiaries.
• Efficiencies that can be identified between compliance with pre-existing standards and other GHG emissions requirements and CARB’s upcoming regulations.
• Guidance on the expected costs of voluntary reporting that can be relied upon when assessing the fiscal impact.
• Any additional information stakeholders feel is important.

Specific to SB 253: Climate Corporate Data Accountability Act

• Whether there are aspects of the scope 1, 2, or 3 reporting requirements that CARB should standardize (as opposed to allowing for reporting flexibility).
• Vendor options that exist for third-party verification, as required for scope 3 reporting.
• Guidance on the timing and logistical requirements CARB should implement for scope 1 and 2 reporting.

Specific to SB 261: Climate-Related Financial Risk Disclosure

• The appropriate timeframe for compiling data for and producing the required biennial report.
• Provisional requirements for entities that qualify as a reporting entity during an ongoing reporting year.
• Efficiency considerations, including other types of climate financial risk disclosures companies are making and whether these existing requirements differ from the previous disclosure guidance surrounding SB 261.

The comment period closes on February 14, 2025, and responses should be submitted through CARB’s public comment docket. MoFo’s environmental and climate attorneys are available to assist with comment development and submissions.

Recent Legislative and Enforcement Updates

In August, the legislature passed Senate Bill 219, which introduced technical amendments to the disclosure requirements outlined in the original legislation. The amendment also gave CARB an additional six months to implement necessary regulations for SB 253, now expected by July 1, 2025. The reporting deadlines in each law remain unchanged. On December 5, CARB issued an enforcement notice indicating it would exercise enforcement discretion related to SB 253 for a covered entities first report due in 2026. The notice acknowledges that entities likely need time to implement new data collection processes necessary to complete scope 1 and scope 2 emissions reporting. In the meantime, CARB will allow entities to calculate their emissions from the prior fiscal year, using information the entity already possesses or already is collecting. CARB will still require that companies demonstrate good-faith efforts to comply.

Status of the Court Challenge to the Constitutionality of SB 253 and SB 261

In January, several business and industry associations filed a lawsuit against CARB challenging the constitutionality of SB 253 and SB 261. The case, titles Chamber of Commerce of the United States of America et al. v. California Air Resources Board et al., 2:24-cv-00801-ODW-PVC (C.D. Cal 2024), raises significant constitutional questions, including alleged violations of the First Amendment, the Supremacy Clause, and the prohibition against extraterritorial regulation by states.

To expedite the court’s ruling on these positions, plaintiffs moved for early summary judgment on the First Amendment question of whether the regulations amounted to compelled speech. The government also simultaneously moved to dismiss various claims in the amended complaint for failure to state a claim, challenging the ripeness of the case and whether the plaintiffs have standing.

Plaintiffs’ key argument is that these laws are unconstitutional. They contend the statutes are subject to and cannot withstand strict scrutiny and unconstitutionally require costly political speech by public and private businesses that are “untethered to any commercial purpose or transaction.” They further contend no exception to strict scrutiny applies based on the facts.

The government argued that SB 253 and 261 involve commercial speech, which is subject to a lower level of scrutiny than political speech, and that precedent instructs that these disclosures are constitutional because they are “purely factual and uncontroversial,” that the disclosures are reasonably related to a substantial state interest, and that the laws would survive under strict scrutiny, in any event. The government also filed an additional Rule 56(d) motion requesting additional time to conduct discovery in order to support its opposition to plaintiffs’ motion.

On November 5, the court issued a decision denying the plaintiffs’ Motion for Summary Judgment as premature and granting defendants’ request for additional time to gather evidence in opposition. The court acknowledged that the First Amendment applies to SB 253 and SB 261 but noted that the plaintiffs’ challenge involves factual questions that extend beyond pure legal analysis. Short of establishing which standard of scrutiny applies, the court found that to determine whether the statute was subject to strict or intermediate scrutiny was a fact-driven task that required further discovery.

The court also stated it intended to rule separately on the government’s motion to dismiss. To date, no order has been issued. Until this litigation reaches finality, the scope and validity of these provisions remain open questions.

Next Steps

The impact of California’s disclosure rules on covered companies is likely to be substantial. Though the future of SB 253 and SB 261 is somewhat uncertain given the pending litigation, several states are considering similar legislation. We are seeing an overall trend toward climate-related risk and financial disclosures that companies should be mindful of and preparing for. CARB’s current call for public comment provides stakeholders with an opportunity to inform critical components of the laws’ implementation. MoFo’s environmental and climate teams continue to monitor developments and are prepared to assist companies wishing to submit stakeholder input during the comment period.