California Air Resources Board Invites Comments on Climate Disclosure Laws

On December 16, 2024, the California Air Resources Board (“CARB”) released a notice soliciting comments on a number of specific questions to inform its implementation of the Climate Corporate Data Accountability Act (“CCDAA” or “SB 253”) and the Climate-Related Financial Risk Act (“CRFRA” or “SB 261”) (the “Notice”). These questions cover many of the key vague and ambiguous provisions of these laws, including how CARB should interpret “doing business” in California and reliance on certain protocols and standards (such as the Greenhouse Gas (“GHG”) Protocol), reporting periods and deadlines, among others.

In 2023, the California legislature enacted SB 253 and SB 261 as part of an effort to “improve transparency, standardize disclosures, align public investments with climate goals, and raise the bar on corporate action to address the climate crisis.” SB 253 requires public and private U.S. companies with annual revenues exceeding $1 billion and that “do business” in California to annually report on all Scope 1, 2, and 3 GHG emissions on a public-facing digital platform. SB 261 requires public and private companies, other than insurers, with annual revenues exceeding $500 million that “do business” in California to biennially disclose their climate-related financial risks publicly.

On September 27, 2024, Governor Gavin Newsom signed SB 219 into law, extending CARB’s deadline to adopt regulations implementing SB 253 and SB 261 to July 1, 2025, rather than the original January 1, 2025 deadline. However, SB 219 did not defer the reporting compliance deadlines (GHG emissions data and climate risk reports remain due in 2026) or provide guidance on important implementation questions, like what it means to “do business” in California. Then, on December 5, 2024, CARB released an Enforcement Notice providing reporting companies some reprieve, stating it would not initiate enforcement actions against companies subject to SB 253 for inaccurate or incomplete reporting of Scope 1 and 2 GHG emissions for the first reports due in 2026, subject to demonstrating good faith efforts made to comply and retention of records.

The Notice is just the latest step towards CARB’s implementation of the climate laws, but potentially provides concerned parties their best opportunity to shape CARB’s ultimate implementation of some of the more burdensome and/or ambiguous components of the laws that will pose particular difficulties for reporting companies.

CARB requests feedback on a number of topics, including what it means to “do business” in California and therefore be subject to SB 253 and SB 261. Under the laws, as drafted, the important question of whether a company is doing business in California is tied to a vague — and seemingly easy to meet — test that is premised on similar constructs under the California Franchise Tax Board’s definition of “do[ing] business” in California. This vague construct could ensnare many companies that have no more than an arguably de minimis nexus to the state. Other questions highlighted by CARB include: how to ensure that the implementing regulations address California’s needs and are not duplicative of other disclosure laws; the costs and logistics of data reporting; aspects of Scope 1, 2, and 3 GHG emissions reporting that could be standardized; standards and options for assurance requirements; appropriate timelines for data availability and reporting; and the interaction between these laws and other voluntary reporting regimes or climate financial risk disclosures. Comments are due by February 14, 2025. This limited comment window provides companies, particularly those with tenuous contacts with California, a valuable opportunity to inform CARB’s understanding of the challenges raised by the broad and ambiguous provisions of these state climate reporting laws.

Although the future of the final Securities and Exchange Commission climate rule looks grim, other states, such as New York and Illinois, are considering similar climate reporting requirements, and many companies may soon be subject to a patchwork of state and international reporting requirements, depending on where they operate and how broadly these laws may be deemed to apply. Vinson & Elkins has significant experience assisting companies in developing and submitting commentary on similar novel ESG-related laws and regulations. We are happy to assist companies with submitting responses to CARB’s questions.

We will continue monitoring developments regarding climate-related disclosure laws. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.