With the rules for climate disclosures from the Securities and Exchange Commission (SEC) hanging in the balance, states including California are leading the way by implementing their own regulations on greenhouse gas and climate-related risks disclosures. This trend is likely to persist as states and regulators continue to establish and share guidance on such disclosures in the void left by a lack of final SEC rules. This underscores the urgency for companies to thoroughly evaluate how these state and SEC rules could potentially impact them and what disclosures they might be expected to make. Bloomberg Law reports on these developments in more detail.
In March, the SEC decided to delay the final rules it had accepted, a move motivated by pending significant litigation. Just six months earlier, in September, California became the first state in the U.S to impose climate-related disclosure expectations on large U.S corporations doing businesses there.
Introduced laws such as the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261) mandate affected companies to submit a biennial climate-related financial risk report to the California Air Resources Board and disclose three levels of greenhouse gas emissions. The Public Citizen think tank projected in 2023 that a minimum of 75% Fortune 1000 companies would be affected by SB 253 and 73% touched by both SB 253 and SB 261.
Such disclosure rules have far-reaching implications given California’s robust market presence and economic power. To ensure these disclosures are properly implemented, regulations setting forth the procedures for disclosures need to be adopted by the CARB by the start of 2025.
Elsewhere, Minnesota passed the 2023 Commerce Omnibus Finance Bill (SF 2744) forcing banks and credit unions holding over $1 billion in assets to submit an annual climate risk survey, commencing July 2023. New York also has several measures in place demanding climate related disclosures.
Similarly, Climate Corporate Data Accountability Act i.e., Senate Bill S897, mandates companies earning more than $1 billion in revenues annually to disclose three scores of greenhouse emissions and establish a climate accountability and emissions disclosure fund. Various other bills are being considered posing amendments to financial services laws and creating disclosure requirements for corporations authorized to operate within its state lines.
However, with laws still at committee stages in the state, the adoption of these measures is currently an open question. Successful implementation of bills mirroring California’s carbon disclosure laws may, however, propel New York to follow suit.
In conclusion, while the arena in which companies will make these disclosures remains in question, the inevitability of climate disclosures remains apparent. It would be prudent for companies to be decidedly proactive in anticipation of these disclosure laws and prepare for compliance ahead of time.
Written in cooperation with Maureen Gorsen, a partner at Sidley Austin and Evan Grosch, an associate at the law firm that focuses on environmental, social, and governance issues.