UPDATE: California Climate Accountability Package (SB-253 and SB-261) Receives Proposed Budget and Industry Lawsuit

On October 7th, 2023, California Governor Gavin Newsom signed the California Climate Accountability Package, comprising Senate Bill 253 (SB-253), the Climate Corporate Data Accountability Act, and Senate Bill 261 (SB-261), Greenhouse Gases: Climate-related Financial Risk, which aims to bring new reporting requirements to California businesses. Since the signing of the California Climate Accountability Package, there have been new updates, including industry lawsuit developments and proposed funding for the California Air Resources Board (CARB) to write rules for SB-253 and SB-261.

Goals of the Climate Accountability Package (SB-253 and SB-261)

As a refresher, the climate disclosure laws are comprised of:

• SB-253: Climate Corporate Data Accountability Act: This bill requires the disclosure of Scopes 1, 2, and 3 greenhouse gas emissions by companies, public or private, doing business in California with $1 billion or more in gross annual revenue.
• SB-261 Greenhouse Gases: Climate-related Financial Risk: This bill requires the disclosure of climate-change-associated financial risks by companies, public or private, doing business in California with $500 million or more in gross annual revenue. In addition to the financial risks climate change poses, businesses must also disclose how they plan to address them.

More information on the Climate Accountability Package can be found here.

Lawsuit Against the California Air Resources Board (CARB)

On January 30th, 2024, a lawsuit was filed against CARB in federal court by a number of plaintiffs, including the U.S. Chamber of Commerce, the California Chamber of Commerce, the American Farm Bureau Federation, Central Valley Business Federation, Los Angeles County Business Federation, and Western Growers Association. The lawsuit aims to block and overturn the implementation of SB-253 and SB-261. The lawsuit asks the court to declare 253 & 261 null, void and with no force or effect and asks that California be enjoined from implementing or enforcing the acts based on the following:

First Amendment: The lawsuit claims that SB-253 and SB-261 require companies to make public statements that are speculative, without any commercial purpose, and are politically aligned with California’s climate agenda, which allegedly violates the First Amendment to the U.S. Constitution.

Supremacy Clause: SB-253 and SB-261 cite required reporting for companies with “emissions produced in California or to companies’ expected climate change financial risks in California,” which potentially extends to companies worldwide. The lawsuit mentions that the laws are blocked by the Clean Air Act (CAA) due to the Supremacy Clause, which prevents California from regulating greenhouse gas emissions outside of state borders.

Extraterritorial Regulation/Burdens on Commerce: The lawsuit also alleges that the disclosure laws are invalid due to the U.S. Constitution’s limits on extraterritorial regulation, which prevents states from putting significant burdens on interstate and foreign commerce.

Lawsuit Status

On March 27^th, CARB filed a motion for dismissal of the Supremacy Clause and Extraterritorial Regulation/Burdens, claiming that the Board has not yet implemented any regulations for the climate disclosure laws, claiming that the plaintiffs “have not pled an injury-in-fact.” CARB also argues that the climate disclosure laws do not seek to regulate businesses out-of-state and only require companies to report their emissions.

As of May 1^st, an industry group opposition brief refutes CARB’s claims for the lawsuit dismissal. The groups cite that CARB did not contest the violation of the First Amendment and are seeking to “press their supremacy clause and extraterritoriality arguments because their members will suffer actual injury” from the climate disclosure laws, utilizing Article III standing to address the violations. Article III standing via the U.S. Constitution grants federal courts jurisdiction over cases under federal law; however, plaintiffs need to establish “standing,” meaning that the claim must be based on an existent or imminent injury. A hearing to discuss the industry group’s standing and opposition to the Board’s motion to dismiss is set for June 24^th, 2024.

Governor Newsom’s Proposed Budget for Climate Disclosure Laws

As of May 2024, Governor Newsom has released a revised state budget proposal for the 2024-2025 and 2025-2026 fiscal years. In this revised budget, Newsome plans to shift “$1.7 billion” from California’s General Fund to the Greenhouse Gas Reduction Fund (GGRF) “with a focus on equity programs, priorities to help meet climate goals and programs that support greenhouse gas reductions.” This budget shift will provide CARB with the necessary funding to write the rules and penalties associated with the climate disclosure laws. Additionally, Governor Newsom has called upon his administration to work with the authors of SB-253 and SB-261 to provide “cleanup” legislation. Newsom stated in his October 7^th signing message, “the implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure,” calling for the help of lawmakers to take into account the “financial impact” the climate disclosure laws may have on businesses. The deadline for adopting SB-253 and SB-261 climate disclosure rules is January 1^st, 2025.

ALL4 continues to track the progress of SB-253 and SB-261 as their developments relate to emissions and climate-related financial risk reporting for affected California businesses.

For questions on the legislation’s progress or how it will affect your business, for assistance in reporting Scope 1, 2, and 3 greenhouse gas emissions, or for verification of data, please reach out to Connie Prostko-Bell at cprostko-bell@all4inc.com or Lauren Coca at lcoca@all4inc.com for more information.