What happens in California, doesn’t stay in California
On March 6, 2024, the U.S. Securities and Exchange Commission adopted rule changes requiring companies to disclose certain climate-related information, ranging from greenhouse gas emissions (Scope 1 and 2) to expected climate risks to transition plans.
As of February 11, 2025, the SEC’s acting Chairman Mark Uyeda said that the Commission will pause litigation of its climate disclosure rule in the 8th Circuit case, effectively ending, for now at least, the SEC’s pursuit of federal rules focusing on climate disclosure of Scope 1 and 2 greenhouse gases for reporting companies. Although many felt relieved as there was concern about how many companies would collect this data, it is important to note that several states have begun to create their own requirements around climate disclosure.
California
February 2024, SB 261, the Climate Related Financial Risk Act, requires US-based entities with more than $500 million in annual revenue doing business in California to biennially report any climate-related financial risks they have identified and any measures they have adopted to reduce and adapt to those risks. Noncompliance will result in fines of up to $50,000 per reporting period.
SB 253, the Climate Corporate Data Accountability Act, requires US-based entities with more than $1 billion in annual revenue doing business in California to annually report all direct GHG emissions (scope 1), indirect GHG emissions from consumed energy (scope 2) and indirect upstream and downstream GHG emissions (Scope 3). The first reporting year for Scope 1 & 2 is 2026 with Scope 3 reporting in 2027. Failure to report late filings or not meeting the reporting requirements will result in fines of up to $500,000 per reporting period. There are some provisions around Scope 3 in that if a company makes a good faith effort to report Scope 3 will not be fined for any inaccuracies for reporting years of 2027 to 2030.
The US Chamber of Commerce, the California Chamber of Commerce, and other business groups sued the State of California and CARB on January 31, 2024, alleging that SB 253 and SB 261 were unconstitutional because the laws: (1) violate the First Amendment by compelling speech; (2) violate the Supremacy Clause by regulating greenhouse gas emissions, which the federal government is responsible for and (3) violate the Dormant Commerce Clause by imposing burdens on interstate and foreign commerce. However as of February 3, 2025, the US District Court for the Central District of California dismissed these claims without prejudice. This means that the plaintiffs can refile as an amended complaint.
As we have learned with many innovative ideas and regulations, such as Smog requirements and computers, what happens in California doesn’t stay in California as three additional States have filed similar climate disclosure requirements.
New York
January 27, 2025, the New York State Senate in its Environmental Conservation Committee proposed Bill SB 3456 which is a companion bill to Assembly Bill A 4282. If enacted, New York will become the second state to require companies to disclose their greenhouse gas emissions under Scope 1, Scope 2 and Scope 3 beginning in 2027. The New York bills requirements are remarkably similar to California in that companies with over $1 billion in revenue with some business in New York will need to comply.
New Jersey
February 3, 2025, the New Jersey Senate introduced and referred S4117 to its Environment and Energy Committee proposed Bill S4117. If enacted, the New Jersey Climate Corporate Data Accountability Act would require all companies with over $1 Billion in annual revenue with entities with connections to New Jersey to report on their greenhouse gas emissions under Scope 1, Scope 2 and Scope 3 beginning 3 years from the effective date of the NJ Bill (which could be as soon as 2028).
Illinois
February 18, 2025, the Illinois House introduced and referred to HB 3673 to its Rules Committee. If passed it, Illinois will be the fourth state in the United States, requiring entities with connections to that their state to report on their greenhouse gas emissions under Scope 1, Scope 2 and Scope 3 beginning 3 years from the effective date of the Illinois Bill (which could be as soon as 2028). Like Colorado, New Jersey, California and New York, Illinois would make greenhouse gas reporting a requirement for companies with over $1 Billion in revenue to comply.
What does this mean?
When combining these states together they represent more than 30% of the US’s real GDP being subject to Scope 1, 2 and 3 reporting requirements for greenhouse gas emissions. Tools for tracking and calculating emissions will continue to be helpful for companies to track their emissions despite the change of position on emissions reporting at the federal level. Given how other states have modeled their requirements like California, what happens in California does not stay in California.
GreenT Climate Software provides a streamlined solution to help you stay current on compliance requirements and manage risk. For more information, please contact us.
