On October 7, 2023, California Governor Gavin Newsom signed new bills into law that may create more regulatory burden and litigation risks for large corporations existing and doing business in California. This significant development came to notice broadly as the U.S. Securities and Exchange Commission (SEC) is still in its deliberative process on a federal ESG (Environmental, Social, and Governance) disclosure rule.
Senate Bill 253, one of the key bills signed, may have a more substantial impact. The measure enforces climate-related disclosure requirements on companies with revenues over $1 billion annually that do business in California. It’s designed to create transparency into the climate impacts, risks and mitigation efforts of major corporations.
Besides SB 253, Governor Newsom also signed into law SB 261, known as the Climate-Related Financial Risk Act (CRFA), and AB 1305 which focuses on voluntary carbon market disclosures. These laws are aimed to enhance the refinement and credibility of carbon offset programs and to battle “greenwashing.” Greenwashing, a deceptive marketing approach, involves companies presenting their products or practices as environmentally friendly when they might not be. The new regulation is introduced to prevent this deceit.
The laws are seen as a measure forward in addressing and managing the impacts of climate change. Nevertheless, as companies grapple with existing disclosure obligations, these new requirements signal an increased burden. Furthermore, these bills could potentially raise litigation risk as it accumulates more liability for incorrect or insufficient disclosures.
As a note of caution for firms, these new laws will require extensive adjustments since the climate-related disclosures are anticipated to swaddle various aspects of operations, risk management, and financial planning. Legal teams within corporations will have a critical role in navigating this changing landscape and ensuring compliance. Companies that have already embraced certain ESG reporting principles may find the transition smoother than others.
For those following this progression internationally, this could serve as an intriguing case study on the effectiveness of climate-oriented policy and regulations. The new suite of laws is also likely to influence discussions regarding ESG requirements at a federal level.
To view the complete details of these new laws, you may refer to the following link.