United States: Will California's New Corporate Climate Disclosure Requirements Be Delayed Due To Budget Shortfalls?

California Governor Gavin Newsom released the state's proposed 2024-2025 budget on Wednesday. Due to an estimated 2024 budget shortfall of almost $38 billion, the Governor's budget proposes to pause funding to implement newly signed laws until there is additional clarity on the state's finances in May. The California Constitution requires that the Governor submit a balanced budget proposal to the legislature by January 10. California's Constitution requires that the legislature pass a budget bill by June 15 (the budget process is further discussed here).

The Climate Corporate Data Accountability Act (Senate Bill 253) and Climate‐Related Financial Risk Act (Senate Bill 261) were adopted in October 2023. These landmark Acts will require climate-related disclosures by thousands of companies. The Climate Corporate Data Accountability Act will require Scope 1, 2 and 3 greenhouse gas emissions disclosures. The Climate‐Related Financial Risk Act will require disclosures concerning climate-related financial risk. The Acts are discussed in more detail in our earlier post here. Both Acts require implementing action by the California Air Resources Board.

In response to the Governor's budget proposal, the sponsors of SB 253 and SB 261 – Senators Scott Wiener and Henry Stern – have put out a public statement encouraging the state to move forward with implementing these Acts.

"The global community is looking to California for a firm commitment to implementing our bold climate agenda, especially these world-leading climate action laws," said Senator Wiener. "It's critical that the May budget include funding to implement these laws so that businesses have the certainty they need to prepare to make these new disclosures. CARB can begin the implementation process with no impact on the General Fund by taking out an inter-governmental loan to cover the initial startup costs. I have every confidence in this Governor's commitment to climate action, and our coalition will continue to work with him to keep implementation of these laws on the timeline laid out in the law."

In their statement, the bill sponsors also focused on the fiscal impact of implementing these Acts relative to the total budget, noting that the impact is miniscule in a state budget that totaled $310 billion last year. According to the statement, CARB estimates needing $9 million to meet the phased implementation deadlines in the Acts. According to the statement, the laws are revenue neutral and allow CARB to recoup all funds spent on implementation — including in this early phase — through charging a fee to companies that file. Consistent with their quote in the paragraph above, the sponsors further noted that the Greenhouse Gas Reduction Fund could loan that amount, resulting in no impact on California's General Fund.

As noted in our earlier post, in connection with his approval of the Climate Corporate Data Accountability Act, Governor Newsom published a signing message in which he indicated that "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. I am directing my Administration to work with the bill's author and the Legislature next year to address these issues."

Similarly, his signing message for the Climate‐Related Financial Risk Act indicated that "the implementation deadlines fall short in providing the California Air Resources Board (CARB) with sufficient time to adequately carry out the requirements in this bill. I am directing my Administration to work with the bill's author and the Legislature next year to address this issue."

In addition, for both Acts, the Governor indicated in his signing messages that he is concerned about the overall financial impact of the legislation on businesses and that he is instructing CARB to closely monitor the cost impacts as they implement the Acts and to make recommendations to streamline the programs.

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