In a significant move demonstrating the increasing recognition of climate change’s financial implications, California has adopted new legislation that will require certain large companies to disclose specific climate change-related information. The relevant disclosure obligations are set out within two separate bills: S.B. 253, the Climate Corporate Data Accountability Act (CCDAA), and S.B. 261, the Climate-Related Financial Risk (CRFR). These bills were signed into law by California Governor Gavin Newsom on October 7, 2023.
According to the regulations, starting in 2026, large companies conducting business in California will have to abide by the new disclosure requirements. This rule signifies a concrete effort by the state to tackle issues related to climate change and provide clear transparency mechanisms for corporate compliance. The companies under this mandate will need to navigate significant changes to their existing operational and reporting practices to meet the demands of California’s complex legal landscape.
While these new structures present challenges, they also create opportunities. An increased awareness of a business’s climatic impact allows companies to more effectively manage risk and become better industry leaders in sustainable practices. Furthermore, by obliging corporations to report their climate-related risks and operational data, these regulations also provide increased transparency that could benefit investors, shareholders, and the general public.
The details of the requirements stipulated under S.B. 253 and S.B. 261 are outside the scope of this summary. However, more detailed information can be found in the discussion provided by Orrick, Herrington & Sutcliffe LLP. The full information is available here.
While this record-setting legislation is specific to California, it could serve as a potential model for other jurisdictions in the United States and around the world. Legal professionals across the globe, particularly those serving multinational corporations, must remain vigilant in monitoring changes in climate change-related financial risk disclosures as similar mandates may soon appear elsewhere.