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California Senate Bill 261, Greenhouse gases, climate-related financial risk
{Cal. SB 261, 2023-2024 Reg. Sess.}
Overview Summary
SB 261 would require large US companies (potentially including large foreign companies with a significant US subsidiary) to annually prepare and publicly disclose a climate-related financial risk report in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations.
SB 261 does not require all elements from the TCFD Recommendations, but rather is specifically limited to disclosure of climate-related risk and measures taken to reduce those risks. Notably absent is the requirement to disclose GHG emissions, which is instead required by SB 261’s proposed companion bill, SB 253.
Compliance Timeline
SB 261 would require covered businesses to submit their first reports by December 31, 2024, and then annually thereafter. There are no phase-in periods based on business size.
Applicability
Although a California state law, SB 261 would apply to many businesses that operate outside of the state by virtue of its applicability triggers. Specifically, businesses are covered if they meet all of the following criteria:
Is the company (or subsidiary) formed under the laws of the US or a US state?
Does the US entity have total revenues above $500 MM regardless of location (including subsidiaries of the US entity)?
Does the entity “do business” in California?
“Doing business” in California will likely mean a clear threshold of activity within the state, as already defined under other California law (Cal. Rev. & Tax Code section 23101). Criteria include having more than $610,395 in sales into the state in a given year. It is through this “tether” that many out of state companies will be captured by the requirements.
Currently, these criteria are expected to capture approximately 10,000 US businesses, which is significantly more than the approximate 7,000 businesses that would be impacted by the US SEC Climate-Related Disclosures Rule.
Current Status and Road Ahead
SB 261 is currently making its way through the California legislative process, having passed the state Senate on May 30, 2023 (along with its companion bill, SB 253) and is now being processed through the California Assembly. Typically, bills are considered and reconciled through the summer, with many passed on or shortly before the end of the legislative session each September. From there, the bill would need to be signed by the Governor into law, who is empowered to veto legislation at their discretion.
In short, while much progress has been made, there are many hurdles left for SB 261 to overcome. Together with SB 253, however, SB 261 would function as an important back-up (with significant reach) to the SEC’s proposed Rule, should it not withstand legal scrutiny.
More Information
Official Legislative Proposal