SB 261: Greenhouse gases: climate-related financial risk.
- Session Year: 2023-2024
- House: Senate
- Latest Version Date: 2023-10-07
Current Status:
Passed
(2023-10-07: Chaptered by Secretary of State. Chapter 383, Statutes of 2023.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
What does this bill do?
The bill requires large companies that do business in California (those with more than $500 million in annual revenue, excluding insurers) to publish a public climate‑related financial risk report every two years describing material climate risks and the steps they are taking to reduce or adapt to them. Reports must follow the Task Force on Climate‑related Financial Disclosures framework or an equivalent standard, and subsidiaries may report through a parent company. The state board would hire a nonprofit to review and publish a public analysis of those disclosures, may fine firms up to $50,000 for missing or inadequate reports, and will collect fees from companies to cover program costs placed in a dedicated fund.
The summary is provided by generative AI which can make mistakes. For original language, please view the details in the table below.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before January 1, 2026, and biennially thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make a copy of the report available to the public on its own internet website.
The bill would require the state board to contract with a climate reporting organization, as defined, to biennially prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The bill would require covered entities to pay an annual fee for the state boards actual and reasonable costs to administer and implement the bill. The bill would create the Climate-Related Financial Risk Disclosure Fund, require the proceeds of the fees to be deposited in the fund, and continuously appropriate the moneys in the fund to the state board for purposes of the bill. By creating a continuously appropriated fund, the bill would make an appropriation.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before January 1, 2026, and biennially thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make a copy of the report available to the public on its own internet website.
The bill would require the state board to contract with a climate reporting organization, as defined, to biennially prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The bill would require covered entities to pay an annual fee for the state boards actual and reasonable costs to administer and implement the bill. The bill would create the Climate-Related Financial Risk Disclosure Fund, require the proceeds of the fees to be deposited in the fund, and continuously appropriate the moneys in the fund to the state board for purposes of the bill. By creating a continuously appropriated fund, the bill would make an appropriation.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before December 31, 2024, January 1, 2026, and annually biennially thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make a copy of the report available to the public on its own internet website.
The bill would require the state board to contract with a climate reporting organization, as defined, to annually biennially prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The bill would require covered entities to pay an annual fee for the state boards actual and reasonable costs to administer and implement the bill. The bill would create the Climate-Related Financial Risk Disclosure Fund, require the proceeds of the fees to be deposited in the fund, and continuously appropriate the moneys in the fund to the state board for purposes of the bill. By creating a continuously appropriated fund, the bill would make an appropriation.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make a copy of the report available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. website.
The bill would require the state board to contract with a climate reporting organization, as defined, to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The bill would require covered entities to pay an annual fee for the state boards actual and reasonable costs to administer and implement the bill. The bill would create the Climate-Related Financial Risk Disclosure Fund, require the proceeds of the fees to be deposited in the fund, and continuously appropriate the moneys in the fund to the state board for purposes of the bill. By creating a continuously appropriated fund, the bill would make an appropriation.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would require the state board to contract with a climate reporting organization, as defined, to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. The bill would require the covered entity to make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would require the state board to contract with a climate reporting organization, as defined, to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would authorize the Attorney General to bring a civil action against a covered entity for civil penalties in an amount up to $500,000 for each violation of these provisions. require the state board to adopt regulations that authorize it to seek administrative penalties from covered entities for failing to make the report publicly available on its internet website or publishing an inadequate or insufficient report, as specified.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk disclosed. risk. The bill would require the covered entity to submit to the state board, and make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would require the state board to contract with a climate reporting organization, as defined, to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would authorize the Attorney General to bring a civil action against a covered entity for civil penalties in an amount up to $500,000 for each violation of these provisions.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk disclosed. The bill would require the covered entity to submit to the state board, and make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would also set forth the duties of the Climate-Related Risk Disclosure Advisory Group, as specified, including the duty to collect and review climate-related financial risk reports received in the prior calendar year and the duty require the state board to contract with a climate reporting organization, as defined, to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would also require the Office of Planning and Research to serve as the administrative staff for the advisory group. By expanding the scope of crimes, this bill would impose a state-mandated local program. authorize the Attorney General to bring a civil action against a covered entity for civil penalties in an amount up to $500,000 for each violation of these provisions.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.This bill would provide that no reimbursement is required by this act for a specified reason.The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk disclosed. The bill would require the covered entity to submit to the state board, and make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would also set forth the duties of the Climate-Related Risk Disclosure Advisory Group, as specified, including the duty to collect and review climate-related financial risk reports received in the prior calendar year and the duty to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would also require the Office of Planning and Research to serve as the administrative staff for the advisory group. By expanding the scope of crimes, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Global Warming Solutions Act of 2006 requires the State Air Resources Board to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. The act requires the state board to make available, and update at least annually, on its internet website the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the state board, as provided. Under the act, a violation of a rule, regulation, order, emission limitation, emission reduction measure, or other measure adopted by the state board under the act is a crime.
This bill would require, on or before December 31, 2024, and annually thereafter, a covered entity, as defined, to prepare a climate-related financial risk report disclosing the entitys climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk disclosed. The bill would require the covered entity to submit to the state board, and make available to the public on its own internet website, a copy of the report and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk. The bill would also set forth the duties of the Climate-Related Risk Disclosure Advisory Group, as specified, including the duty to collect and review climate-related financial risk reports received in the prior calendar year and the duty to annually prepare a public report that contains specified information, including a review of the disclosure of climate-related financial risk contained in climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state. The bill would also require the Office of Planning and Research to serve as the administrative staff for the advisory group. By expanding the scope of crimes, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500,000,000) and that does business in California. Applicability shall be determined based on the business entitys revenue for the prior fiscal year. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)(A)On or before January 1, 2026, and biennially thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(i)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) published by the Task Force on Climate-related Financial Disclosures, or any successor thereto, or pursuant to an equivalent reporting requirement as described in paragraph (4).
(ii)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to clause (i).
(B)If a covered entity does not complete a report consistent with all required disclosures pursuant to clause (i) of subparagraph (A), the covered entity shall provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures.
(2)Climate-related financial risk reports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a covered entity pursuant to paragraph (4) of subdivision (a), the subsidiary is not required to prepare a separate climate-related financial risk report.
(3)The state board shall contract with a climate reporting organization to prepare a biennial public report on the climate-related financial risk disclosures required by this section.
(4)Notwithstanding paragraph (1), a covered entity satisfies the requirements of paragraph (1) if it prepares a publicly accessible biennial report that includes climate-related financial risk disclosure information by any of the following methods:
(A)Pursuant to a law, regulation, or listing requirement issued by any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government, incorporating disclosure requirements consistent with clause (i) of subparagraph (A) of paragraph (1), including the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(B)Voluntarily using a framework that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) or the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(5)To the extent a climate-related financial risk report contains a description of a covered entitys greenhouse gases or voluntary mitigation of greenhouse gases, the state board may consider covered entitys claims if those claims are verified by a third-party independent verifier.
(c)(1)On or before January 1, 2026, and biennially thereafter, a covered entity shall make available to the public, on its own internet website, a copy of the report required by this section.
(2)(A)On or before January 1, 2026, and annually thereafter, a covered entity shall pay a fee, upon filing its disclosure, to the state board for the administration and implementation of this section.
(B)(i)The state board shall set the fee described in subparagraph (A) at an amount adequate to cover the state boards full costs of administrating and implementing this section. The total amount of fees collected shall not exceed the state boards actual and reasonable costs to administer and implement this section.(ii)The state board may adjust the fee in any year to reflect changes in the California Consumer Price Index during the prior year.(C)The proceeds of the fees imposed pursuant to this paragraph shall be deposited in the Climate-Related Financial Risk Disclosure Fund, which is hereby created in the State Treasury. Notwithstanding Section 13340 of the Government Code, the money in the fund is continuously appropriated to the state board and shall be expended by the state board for the state boards activities pursuant to this section and to reimburse any outstanding loans made from other funds used to finance the initial costs of the state boards activities pursuant to this section. Money in the fund shall not be expended for any other purpose not described in this subparagraph.(d)The climate reporting organization shall be contracted to do all of the following:
(1)Biennially prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, standard-setting organizations, climate and corporate sustainability organizations, labor union representatives whose members work in impacted sectors, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) of subdivision (b).
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed fifty thousand dollars ($50,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500,000,000) and that does business in California. Applicability shall be determined based on the business entitys revenue for the prior fiscal year. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)(A)On or before January 1, 2026, and biennially thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(i)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) published by the Task Force on Climate-related Financial Disclosures, or any successor thereto, or pursuant to an equivalent reporting requirement as described in paragraph (4).
(ii)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to clause (i).
(B)If a covered entity does not complete a report consistent with all required disclosures pursuant to clause (i) of subparagraph (A), the covered entity shall provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures.
(2)Climate-related financial risk reports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a covered entity pursuant to paragraph (4) of subdivision (a), the subsidiary is not required to prepare a separate climate-related financial risk report.
(3)The state board shall contract with a climate reporting organization to prepare a biennial public report on the climate-related financial risk disclosures required by this section.
(4)Notwithstanding paragraph (1), a covered entity satisfies the requirements of paragraph (1) if it prepares a publicly accessible biennial report that includes climate-related financial risk disclosure information by any of the following methods:
(A)Pursuant to a law, regulation, or listing requirement issued by any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government, incorporating disclosure requirements consistent with clause (i) of subparagraph (A) of paragraph (1), including the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(B)Voluntarily using a framework that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) or the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(5)To the extent a climate-related financial risk report contains a description of a covered entitys greenhouse gases or voluntary mitigation of greenhouse gases, the state board may consider covered entitys claims if those claims are verified by a third-party independent verifier.
(c)(1)On or before January 1, 2026, and biennially thereafter, a covered entity shall make available to the public, on its own internet website, a copy of the report required by this section.
(2)(A)On or before January 1, 2026, and annually thereafter, a covered entity shall pay a fee, upon filing its disclosure, to the state board for the administration and implementation of this section.
(B)(i)The state board shall set the fee described in subparagraph (A) at an amount adequate to cover the state boards full costs of administrating and implementing this section. The total amount of fees collected shall not exceed the state boards actual and reasonable costs to administer and implement this section.(ii)The state board may adjust the fee in any year to reflect changes in the California Consumer Price Index during the prior year.(C)The proceeds of the fees imposed pursuant to this paragraph shall be deposited in the Climate-Related Financial Risk Disclosure Fund, which is hereby created in the State Treasury. Notwithstanding Section 13340 of the Government Code, the money in the fund is continuously appropriated to the state board and shall be expended by the state board for the state boards activities pursuant to this section and to reimburse any outstanding loans made from other funds used to finance the initial costs of the state boards activities pursuant to this section. Money in the fund shall not be expended for any other purpose not described in this subparagraph.(d)The climate reporting organization shall be contracted to do all of the following:
(1)Biennially prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, standard-setting organizations, climate and corporate sustainability organizations, labor union representatives whose members work in impacted sectors, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) of subdivision (b).
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed fifty thousand dollars ($50,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500,000,000) and that does business in California. Applicability shall be determined based on the business entitys revenue for the prior fiscal year. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)(A)On or before December 31, 2024, January 1, 2026, and annually biennially thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(i)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) published by the Task Force on Climate-related Financial Disclosures, or any successor thereto, or pursuant to an equivalent reporting requirement as described in paragraph (4).
(ii)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to clause (i).
(B)If a covered entity does not complete a report consistent with all required disclosures pursuant to clause (i) of subparagraph (A), the covered entity shall provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures by December 31, 2029. disclosures.
(2)Climate-related financial risk reports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a covered entity pursuant to paragraph (4) of subdivision (a), the subsidiary is not required to prepare a separate climate-related financial risk report.
(3)The state board shall contract with a climate reporting organization to prepare an annual a biennial public report on the climate-related financial risk disclosures required by this section.
(4)Notwithstanding paragraph (1), a covered entity satisfies the requirements of paragraph (1) if it prepares a publicly accessible annual biennial report that includes climate-related financial risk disclosure information by either any of the following methods:
(A)Pursuant to a law, regulation, or listing requirement issued by any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government, incorporating disclosure requirements consistent with clause (i) of subparagraph (A) of paragraph (1), including the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(B)Voluntarily using a framework that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) or the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(5)To the extent a climate-related financial risk report contains a description of a covered entitys greenhouse gases or voluntary mitigation of greenhouse gases, the state board may consider the voluntary mitigation if the covered entitys claims if those claims are verified by a third-party independent verifier.
(c)(1)On or before December 31, 2024, January 1, 2026, and annually biennially thereafter, a covered entity shall do both of the following:
(1)Make shall make available to the public public, on its own internet website, a copy of the report required by this section.
(2)(A)Pay an annual On or before January 1, 2026, and annually thereafter, a covered entity shall pay a fee, upon filing its disclosure, to the state board for the administration and implementation of this section.
(B)(i)The state board shall set the fee described in subparagraph (A) at an amount adequate to cover the state boards full costs of administrating and implementing this section. The total amount of fees collected shall not exceed the state boards actual and reasonable costs to administer and implement this section.(ii)The state board may adjust the fee in any year to reflect changes in the California Consumer Price Index during the prior year.(C)The proceeds of the fees imposed pursuant to this paragraph shall be deposited in the Climate-Related Financial Risk Disclosure Fund, which is hereby created in the State Treasury. Notwithstanding Section 13340 of the Government Code, the money in the fund is continuously appropriated to the state board and shall be expended by the state board for the state boards activities pursuant to this section and to reimburse any outstanding loans made from other funds used to finance the initial costs of the state boards activities pursuant to this section. Money in the fund shall not be expended for any other purpose not described in this subparagraph.(d)The climate reporting organization shall be contracted to do all of the following:
(1)Annually Biennially prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, standard-setting organizations, climate and corporate sustainability organizations, labor union representatives whose members work in impacted sectors, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) of subdivision (b).
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed five hundred fifty thousand dollars ($500,000) ($50,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500,000,000) and that does business in California. Applicability shall be determined based on the business entitys revenue for the prior fiscal year. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)(A)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(A)(i)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Climate-related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Climate-related Financial Disclosures, or any subsequent publication thereto. successor thereto, or pursuant to an equivalent reporting requirement as described in paragraph (4).
(B)(ii)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1). clause (i).
(B)If a covered entity does not complete a report consistent with all required disclosures pursuant to clause (i) of subparagraph (A), the covered entity shall provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures by December 31, 2029.
(2)Climate-related financial risk reports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a covered entity pursuant to paragraph (4) of subdivision (a), the subsidiary is not required to prepare a separate climate-related financial risk report.
(2)(3)The state board shall contract with a climate reporting organization to prepare an annual public report on the climate-risk climate-related financial risk disclosures required by this section and ensure the climate-risk disclosures remain consistent with evolving Task Force on Climate-Related Financial Disclosures guidance. section.
(3)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may attest to the Secretary of State that they have publicly disclosed the climate-risk disclosures to satisfy the requirements of paragraph (1) of subdivision (c).(4)Notwithstanding paragraph (1), a covered entity satisfies the requirements of paragraph (1) if it prepares a publicly accessible annual report that includes climate-related financial risk disclosure information by either of the following methods:
(A)Pursuant to a law, regulation, or listing requirement issued by any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government, incorporating disclosure requirements consistent with clause (i) of subparagraph (A) of paragraph (1), including the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(B)Voluntarily using a framework that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) or the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board.
(5)To the extent a climate-related financial risk report contains a description of a covered entitys voluntary mitigation of greenhouse gases, the state board may consider the voluntary mitigation if the covered entitys claims are verified by a third-party independent verifier.
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and published pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).(2)(A)Pay an annual fee, upon filing its disclosure, to the state board for the administration and implementation of this section.
(B)(i)The state board shall set the fee described in subparagraph (A) at an amount adequate to cover the state boards full costs of administrating and implementing this section. The total amount of fees collected shall not exceed the state boards actual and reasonable costs to administer and implement this section.
(ii)The state board may adjust the fee in any year to reflect changes in the California Consumer Price Index during the prior year.
(C)The proceeds of the fees imposed pursuant to this paragraph shall be deposited in the Climate-Related Financial Risk Disclosure Fund, which is hereby created in the State Treasury. Notwithstanding Section 13340 of the Government Code, the money in the fund is continuously appropriated to the state board and shall be expended by the state board for the state boards activities pursuant to this section and to reimburse any outstanding loans made from other funds used to finance the initial costs of the state boards activities pursuant to this section. Money in the fund shall not be expended for any other purpose not described in this subparagraph.
(d)The climate reporting organization shall be contracted to do all of the following:
(1)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, standard-setting organizations, labor union representatives whose members work in impacted sectors, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports. reports that meets the requirements of clause (i) of subparagraph (A) of paragraph (1) of subdivision (b).
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed five hundred thousand dollars ($500,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500,000,000) and that does business in California. Applicability shall be determined based on the business entitys revenue for the prior fiscal year. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(A)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(B)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(2)The state board shall contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required by this section and ensure the climate-risk disclosures remain consistent with current best practices. evolving Task Force on Climate-Related Financial Disclosures guidance.
(3)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may attest to the Secretary of State that they have publicly disclosed the climate-risk disclosures to satisfy the requirements of paragraph (1) of subdivision (c).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and published pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The climate reporting organization shall be contracted to do all of the following:
(1)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports.
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed five hundred thousand dollars ($500,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that both:
(A)Currently operates a climate reporting organization for organizations operating in the United States.
(B)Has experience with climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(A)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(B)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(2)The state board shall contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required by this section and ensure the climate-risk disclosures remain consistent with current best practices.
(3)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may attest to the Secretary of State that they have publicly disclosed the climate-risk disclosures to satisfy the requirements of paragraph (1) of subdivision (c).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and published pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The climate reporting organization shall be contracted to do all of the following:
(1)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports.
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)If the Attorney General finds that a covered entity has violated or is violating this section, or upon a complaint received from the state board, a covered entity shall be liable for a civil penalty not to exceed five hundred thousand dollars ($500,000) per violation, which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General in a court of competent jurisdiction.(2)The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed five hundred thousand dollars ($500,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A)The violators past and present compliance with this section.
(B)Whether the violator took good faith measures to comply with this section and when those measures were taken.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that: that both:
(A)Currently operates a voluntary climate reporting organization for organizations operating in the United States.
(B)Has experience with voluntary climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(b)(1)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(A)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(B)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(2)The state board shall contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required by this section and ensure the climate-risk disclosures remain consistent with current best practices.
(3)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may submit a copy of that report to the state board attest to the Secretary of State that they have publicly disclosed the climate-risk disclosures to satisfy the requirements of paragraph (1) of subdivision (c).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Submit to the state board, and make Make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed published pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The climate reporting organization shall be contracted to do all of the following:
(1)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports submitted to the state board. by industry.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports.
(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)(1)Section 38580 does not apply to a violation of this section.
(2)If the Attorney General finds that a covered entity has violated or is violating this section, or upon a complaint received from the state board, a covered entity shall be liable for a civil penalty not to exceed five hundred thousand dollars ($500,000) per violation, which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General in a court of competent jurisdiction.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Advisory group means the Climate-Related Risk Disclosure Advisory Group established in accordance with Executive Order No. N-19-19.(1)Climate reporting organization means a nonprofit climate reporting organization contracted by the state board pursuant to paragraph (2) of subdivision (b) that:
(A)Currently operates a voluntary climate reporting organization for organizations operating in the United States.
(B)Has experience with voluntary climate-related financial risk disclosure by entities operating in California.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(5)Office means the Office of Planning and Research.(b)(1)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(A)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(B)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(2)The state board shall contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required by this section and ensure the climate-risk disclosures remain consistent with current best practices.
(2)(3)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may submit a copy of that report to the state board to satisfy the requirements of paragraph (1) of subdivision (c).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Submit to the state board, and make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The advisory group shall climate reporting organization shall be contracted to do all of the following:
(1)Collect and review climate-related financial risk reports received in the prior calendar year.(2)(1)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in climate-related financial risk reports. reports submitted to the state board.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(D)Proposals for regulatory actions, policies, or reforms needed to mitigate climate-related financial risks, including, but not limited to, legislative recommendations in order to implement current best practices regarding the disclosure of financial risks resulting from climate change.(3)(2)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, and the framework or disclosure standard of climate-related financial risk reports, and the membership of the advisory group. reports.
(4)(3)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)The office shall serve as the administrative staff for the advisory group.(e)(1)Section 38580 does not apply to a violation of this section.
(2)If the Attorney General finds that a covered entity has violated or is violating this section, or upon a complaint received from the state board, a covered entity shall be liable for a civil penalty not to exceed five hundred thousand dollars ($500,000) per violation, which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General in a court of competent jurisdiction.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Security Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Advisory group means the Climate-Related Risk Disclosure Advisory Group established in accordance with Executive Order No. N-19-19.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(5)Office means the Office of Planning and Research.
(b)(1)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(1)(A)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(2)(B)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(2)If a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in paragraph (1), a report prepared pursuant to that federal requirement satisfies the requirements of paragraph (1) and the covered entity may submit a copy of that report to the state board to satisfy the requirements of paragraph (1) of subdivision (c).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Submit to the state board, and make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The advisory group shall do all of the following:
(1)Collect and review climate-related financial risk reports received in the prior calendar year.
(2)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in climate-related financial risk reports.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(D)Proposals for regulatory actions, policies, or reforms needed to mitigate climate-related financial risks, including, but not limited to, legislative recommendations in order to implement current best practices regarding the disclosure of financial risks resulting from climate change.
(3)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, the framework or disclosure standard of climate-related financial risk reports, and the membership of the advisory group.
(4)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)The office shall serve as the administrative staff for the advisory group.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
The Legislature finds and declares all of the following:
(a)Climate change is affecting Californias communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy.
(b)Global economic and climate policy leaders have conclusively established that the long-term strength of global and local economies will depend on their ability to withstand climate-related risks, including physical impacts, economic transitions, and policy and legal responses.
(c)Failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and to the economy will result in significant harm to California, residents, and investors, in particular to financially vulnerable Californians who are employed by, live in communities reliant on, or have invested in or obtained financing from these institutions.
(d)California is a global leader in addressing climate risk through state policy, as demonstrated by the requirement for state public pension funds to analyze and report material climate-related financial risks, as required by Section 7510.5 of the Government Code, and the state climate investment framework directed by, and Climate-Related Risk Disclosure Advisory Group established in accordance with, Executive Order No. N-19-19.
(e)Leading voluntary initiatives have begun to develop frameworks for disclosure of climate change- and sustainability-related information. Thousands of companies already disclose their climate-related financial risks.
(f)Other jurisdictions have begun to require certain entities to develop and disclose sustainability policies, including public entities, as required by the State of Illinois Sustainable Investing Act (PA 101-473), and both public and private entities, as required by Frances Energy Transition Law, as set forth in Article 173-VI for institutional investors and Article 173-IV for companies.
(g)On May 20, 2021, President Joseph Biden signed Executive Order 14030, Climate-Related Financial Risk, which directs federal agencies to develop a comprehensive, governmentwide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations.
(h)On March 21, 2022, the United States Security and Exchange Commission (SEC) proposed a rule that would require publicly traded United States companies to include climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrants greenhouse gas emissions, which have become a commonly used metric to assess a registrants exposure to those risks.
(i)On April 8, 2022, the National Association of Insurance Commissioners, which includes Californias Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with the internationally recognized Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public better understand the climate-related risks to the United States insurance market, which is the largest in the world.
(j)Though a precedent has been set to address climate risk to businesses, corporations, and financial institutions nationwide, current disclosure standards are voluntary, and thus inadequate, for meeting rapidly accelerating climate risks. In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state.
SEC. 2.Section 38533 is added to the Health and Safety Code, to read:38533.(a)For purposes of this section, the following definitions apply:
(1)Advisory group means the Climate-Related Risk Disclosure Advisory Group established in accordance with Executive Order No. N-19-19.
(2)Climate-related financial risk means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
(3)Climate-related financial risk report means a report required by subdivision (b).
(4)Covered entity means a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California. Covered entity does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
(5)Office means the Office of Planning and Research.
(b)On or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
(1)Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
(2)Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to paragraph (1).
(c)On or before December 31, 2024, and annually thereafter, a covered entity shall do both of the following:
(1)Submit to the state board, and make available to the public on its own internet website, a copy of the report required by this section.
(2)Submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to this section discloses climate-related financial risk in accordance with paragraph (1) of subdivision (b).
(d)The advisory group shall do all of the following:
(1)Collect and review climate-related financial risk reports received in the prior calendar year.
(2)Annually prepare a public report that contains all of the following elements:
(A)A review of the disclosure of climate-related financial risk contained in climate-related financial risk reports.
(B)Analysis of the systemic and sectorwide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities.
(C)Identification of inadequate or insufficient reports.
(D)Proposals for regulatory actions, policies, or reforms needed to mitigate climate-related financial risks, including, but not limited to, legislative recommendations in order to implement current best practices regarding the disclosure of financial risks resulting from climate change.
(3)Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of climate-related financial risk, the framework or disclosure standard of climate-related financial risk reports, and the membership of the advisory group.
(4)Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
(e)The office shall serve as the administrative staff for the advisory group.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
|
Date
|
Status
|
|---|---|
| Oct 7, 2023 | Chaptered by Secretary of State. Chapter 383, Statutes of 2023. |
| Oct 7, 2023 | Approved by the Governor. |
| Sep 20, 2023 | Enrolled and presented to the Governor at 4:30 p.m. |
| Sep 13, 2023 | Assembly amendments concurred in. (Ayes 28. Noes 8. Page 2744.) Ordered to engrossing and enrolling. |
| Sep 12, 2023 | In Senate. Concurrence in Assembly amendments pending. |
| Sep 12, 2023 | Read third time. Passed. (Ayes 47. Noes 17. Page 3315.) Ordered to the Senate. |
| Sep 8, 2023 | Assembly Rule 69 suspended. |
| Sep 8, 2023 | Ordered to third reading. |
| Sep 8, 2023 | Read third time and amended. |
| Sep 5, 2023 | Read second time. Ordered to third reading. |
| Sep 1, 2023 | Read second time and amended. Ordered to second reading. |
| Sep 1, 2023 | From committee: Do pass as amended. (Ayes 11. Noes 4.) (September 1). |
| Aug 16, 2023 | August 16 set for first hearing. Placed on suspense file. |
| Jul 12, 2023 | Read second time and amended. Re-referred to Com. on APPR. |
| Jul 11, 2023 | From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 8. Noes 3.) (July 10). |
| Jun 22, 2023 | June 26 set for first hearing canceled at the request of author. |
| Jun 19, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on NAT. RES. |
| Jun 8, 2023 | Referred to Coms. on NAT. RES. and JUD. |
| May 31, 2023 | In Assembly. Read first time. Held at Desk. |
| May 30, 2023 | Read third time. Passed. (Ayes 27. Noes 8. Page 1361.) Ordered to the Assembly. |
| May 22, 2023 | Read second time. Ordered to third reading. |
| May 18, 2023 | Read second time and amended. Ordered to second reading. |
| May 18, 2023 | From committee: Do pass as amended. (Ayes 4. Noes 2. Page 1162.) (May 18). |
| May 12, 2023 | Set for hearing May 18. |
| May 8, 2023 | May 8 hearing: Placed on APPR suspense file. |
| May 1, 2023 | Set for hearing May 8. |
| Apr 26, 2023 | May 1 hearing postponed by committee. |
| Apr 21, 2023 | Set for hearing May 1. |
| Apr 19, 2023 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 9. Noes 1. Page 798.) (April 18). Re-referred to Com. on APPR. |
| Apr 10, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on JUD. |
| Mar 30, 2023 | Set for hearing April 18. |
| Mar 27, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on JUD. |
| Mar 15, 2023 | From committee: Do pass and re-refer to Com. on JUD. (Ayes 4. Noes 2. Page 353.) (March 15). Re-referred to Com. on JUD. |
| Feb 10, 2023 | Set for hearing March 15. |
| Feb 9, 2023 | Referred to Coms. on E.Q. and JUD. |
| Jan 31, 2023 | From printer. May be acted upon on or after March 2. |
| Jan 30, 2023 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Sep 13, 2023 | Unfinished Business SB261 Stern et al. Concurrence | Senate Floor |
Passed |
|
| Sep 12, 2023 | SB 261 Stern Senate Third Reading By Ting | Assembly Floor |
Passed |
|
| Sep 1, 2023 | Do pass as amended. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jul 10, 2023 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Natural Resources |
Passed |
|
| May 30, 2023 | Senate 3rd Reading SB261 Stern et al. | Senate Floor |
Passed |
|
| May 18, 2023 | Do pass as amended | Senate Standing Committee on Appropriations |
Passed |
|
| May 8, 2023 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Apr 18, 2023 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Judiciary |
Passed |
|
| Mar 15, 2023 | Do pass, but first be re-referred to the Committee on [Judiciary] | Senate Standing Committee on Environmental Quality |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| 1000 Grandmothers for Future Generations | ** Support | |
| 350 Bay Area Action | ** Support | |
| 350 Conejo - San Fernando Valley | ** Support | |
| 350 Humboldt | ** Support | |
| 350 Juneau | ** Support | |
| 350 Marin | ** Support | |
| 350 Sacramento | ** Support | |
| 350 South Bay LA | ** Support | |
| 350 Southland Legislative Alliance | ** Support | |
| 350 Ventura County Climate Hub | ** Support | |
| Active San Gabriel Valley | ** Support | |
| Advanced Medical Technology Association | ** Against | |
| African American Farmers of California | ** Against | |
| Agricultural Energy Consumers Association | ** Against | |
| Alter Eco | ** Support | |
| American Beverage Association | ** Against | |
| American Composites Manufacturers Association | ** Against | |
| American Pistachio Growers | ** Against | |
| Americans for Financial Reform | ** Support | |
| Antelope Valley Chambers of Commerce | ** Against | |
| Auto Care Association | ** Against | |
| Avocado Green | ** Support | |
| Avocado Green Brands | ** Support | |
| Ban SUP | ** Support | |
| Building Owners and Managers Association | ** Against | |
| CA Cotton Ginners & Growers Association | ** Against | |
| California Advanced Biofuels Alliance | ** Against | |
| California Apartment Association | ** Against | |
| California Apple Commission | ** Against | |
| California Asphalt Pavement Association | ** Against | |
| California Bankers Association | * Against Unless Amend | Jul 10, 2023 |
| California Blueberry Association | ** Against | |
| California Blueberry Commission | ** Against | |
| California Builders Alliance | ** Against | |
| California Building Industry Association | ** Against | |
| California Business Properties Association | ** Against | |
| California Chamber Of Commerce | ** Against | |
| CALIFORNIA CONSTRUCTION & INDUSTRIAL MATERIALS ASSOCIATION | ** Against | |
| California Cotton Ginners & Growers Association | ** Against | |
| California Credit Union League | ** Against | |
| California Date Commission | ** Against | |
| California Environmental Voters | ** Support | |
| California Fresh Fruit Association | ** Against | |
| California Fuels And Convenience Alliance | ** Against | |
| California Hispanic Chamber Of Commerce | ** Against | |
| California Independent Petroleum Association | ** Against | |
| California Life Sciences | ** Against | |
| California Manufacturers & Technology Association | ** Against | |
| California Poultry Federation | ** Against | |
| California Retailers Association | ** Against | |
| california state teachers' retirement system | ** Support | |
| California Walnut Commission | ** Against | |
| CALPIRG | ** Support | |
| Can Manufacturers Institute | ** Against | |
| Carlsbad Chamber of Commerce | ** Against | |
| CatholicNetwork US | ** Support | |
| CAWA | ** Against | |
| Center For Biological Diversity | ** Support | |
| Ceres | ** Support | |
| Chino Valley Chamber of Commerce | ** Against | |
| Citizens Climate Lobby Sacramento / Roseville Chapter | ** Support | |
| Citrus Heights Chamber | ** Against | |
| Citrus Heights Chamber of Commerce | ** Against | |
| City & County of San Francisco | * Support | Jul 10, 2023 |
| Climate 911 | ** Support | |
| Climate Action California | ** Support | |
| Climate Hawks Vote | ** Support | |
| Climate Reality Project, San Fernando Valley | ** Support | |
| Coalition For Clean Air | ** Support | |
| Coastside Jewish Community | ** Support | |
| Colorado Businesses for a Livable Climate | ** Support | |
| Community for Sustainable Energy | ** Support | |
| Conejo Climate Coalition | ** Support | |
| Cool Planet Group of First Presbyterian Church, Palo Alto | ** Support | |
| Costa Mesa Chamber of Commerce | ** Against | |
| Culver City Democratic Club | ** Support | |
| Danville Area Chamber of Commerce | ** Against | |
| Divest Oregon | ** Support | |
| Dsm North America | ** Support | |
| E2 | ** Support | |
| East Valley Indivisibles | ** Support | |
| Elders Climate Action, Norcal and Socal Chapters | ** Support | |
| Environment California | ** Support | |
| Environmental Defense Fund | ** Support | |
| Everlane | ** Support | |
| Extinction Rebellion San Francisco Bay Area | ** Support | |
| Far West Equipment Dealers Association | ** Against | |
| Fossil Free California | ** Support | |
| Friends Committee On Legislation Of California | ** Support | |
| Friends Of The Earth | ** Support | |
| Giniw Collective | ** Support | |
| Glendale Environmental Coalition | ** Support | |
| Greater High Desert Chamber of Commerce | ** Against | |
| Greater New Orleans Housing Alliance | ** Support | |
| Grove Collaborative | ** Support | |
| Honor the Earth | ** Support | |
| Humboldt Unitarian Universalist Fellowship's Climate Action Campaign | ** Support | |
| Indivisible Alta Pasadena | ** Support | |
| Indivisible California Green Team | ** Support | |
| Indivisible California StateStrong | ** Support | |
| LA Canada Flintridge Chamber of Commerce | ** Against | |
| Leading Change Consulting and Coaching | ** Support | |
| Littleton Business Alliance | ** Support | |
| Long Beach Area Chamber of Commerce | ** Against | |
| Los Angeles Area Chamber Of Commerce | ** Against | |
| Mental Health & Inclusion Ministries | ** Support | |
| Microsoft Corporation | ** Support | |
| Mind Eye World | ** Support | |
| Mothers Out Front California | ** Support | |
| Naiop California | ** Against | |
| Natural Resources Defense Council | ** Support | |
| NextGen California | ** Support | |
| Nisei Farmers League | ** Against | |
| North Range Concerned Citizens | ** Support | |
| North San Diego Business Chamber | ** Against | |
| North San Diego Chamber of Commerce | ** Against | |
| NRDC | ** Support | |
| Oceanside Chamber of Commerce | ** Against | |
| Oil & Gas Action Network | ** Support | |
| Olive Growers Council of California | ** Against | |
| Orange County Business Council | ** Against | |
| Palos Verdes Peninsula Chamber Of Commerce | ** Against | |
| Patagonia | ** Support | |
| Pci West-chapter of The Precast/prestressed Concrete Institute | ** Against | |
| peninsula interfaith climate action | ** Support | |
| Public Citizen, Inc | ** Support | |
| Rancho Cordova Chamber of Commerce | ** Against | |
| Rapidshift Network | ** Support | |
| REI | ** Support | |
| Sacramento Area Congregations Together | ** Support | |
| Sacramento Regional Builders Exchange | ** Against | |
| San Francisco Bay Physicians for Social Responsibility | ** Support | |
| SanDiego350 | ** Support | |
| Santa Barbara South Coast Chamber of Commerce | ** Against | |
| Santa Cruz Climate Action Network | ** Support | |
| Save EPA | ** Support | |
| Securities Industry And Financial Markets Association | ** Against | |
| Seventh Generation | ** Support | |
| Sierra Club California | ** Support | |
| Sierra Nevada Brewing Company | ** Support | |
| Silicon Valley Youth Climate Action | ** Support | |
| SoCal 350 Climate Action | ** Support | |
| Solano County Democratic Central Committee | ** Support | |
| Solidarityinfoservice | ** Support | |
| Southern California Leadership Council | ** Against | |
| Southwest Organization for Sustainability | ** Support | |
| Specialty Equipment Market Association | ** Against | |
| Spirit of the Sun, Inc. | ** Support | |
| Stand.earth | ** Support | |
| State Building And Construction Trades Council Of Ca | ** Against | |
| Sustainable Rossmoor | ** Support | |
| System Change Not Climate Change | ** Support | |
| The Climate Center | ** Support | |
| The Phoenix Group | ** Support | |
| The Vessel Project of Louisiana | ** Support | |
| Third ACT | ** Support | |
| Torrance Area Chamber of Commerce | ** Against | |
| Transformative Wealth Management, LLC | ** Support | |
| Trinity Respecting Earth and Environment | ** Support | |
| Union Of Concerned Scientists | ** Support | |
| Urban Ecology Project | ** Support | |
| VF Corporation | ** Support | |
| Walnut Creek Chamber of Commerce | ** Against | |
| West Precast Prestressed Concrete Institute | ** Against | |
| West Ventura County Business Alliance | ** Against | |
| Western Agricultural Processors Association | ** Against | |
| Western Growers Association | ** Against | |
| Western Plant Health Association | ** Against | |
| Western States Petroleum Association | ** Against | |
| Wine Institute | ** Against | |
| Working for Racial Equity | ** Support |
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 261 |
UNFINISHED BUSINESS
Bill No: SB 261
Author: Stern (D), Becker (D), Gonzalez (D) and Wiener (D), et al.
Amended: 9/8/23
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE: 4-2, 3/15/23
AYES: Allen, Gonzalez, Menjivar, Skinner
NOES: Dahle, Nguyen
NO VOTE RECORDED: Hurtado
SENATE JUDICIARY COMMITTEE: 9-1, 4/18/23
AYES: Umberg, Wilk, Allen, Ashby, Durazo, Laird, McGuire, Min, Wiener
NOES: Niello
NO VOTE RECORDED: Caballero
SENATE APPROPRIATIONS COMMITTEE: 4-2, 5/18/23
AYES: Portantino, Ashby, Wahab, Wiener
NOES: Jones, Seyarto
NO VOTE RECORDED: Bradford
SENATE FLOOR: 27-8, 5/30/23
AYES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Cortese, Durazo, Eggman, Glazer, Gonzalez, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener
NOES: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto
NO VOTE RECORDED: Caballero, Dodd, Hurtado, Roth, Wilk
ASSEMBLY FLOOR: 47-17, 9/12/23 - See last page for vote
SUBJECT: Greenhouse gases: climate-related financial risk
SOURCE: Ceres
DIGEST:
This bill requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the California Air Resources Board (CARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
Assembly Amendments
delay implementation and make reporting biennial, provide for alternative methods of compliance, add the requirement for a filing fee, and direct how CARB may use civil penalties to enforce the bill.
ANALYSIS:
Existing law:
- Establishes the Governor’s Office of Planning and Research (OPR) as the State of California’s comprehensive planning agency, and tasks it with studying future research and planning needs, fostering goal-driven collaboration, and delivering guidance to state partners and local communities, with a focus on land use and community development, climate risk and resilience, and high road economic development.
- Provides processes and requirements related to forming business entities, such as corporations, partnerships, and limited liability companies, and requires that specified documents and instruments related to business entities be filed with the Secretary of State. (Corporations Code § 100 et seq)
- Requires, under SB 964 (Allen, Chapter 731, Statutes of 2017), California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) to issue financial disclosures utilizing the Taskforce on Climate-Related Financial Disclosure (TCFD) recommendations.
This bill:
- Makes findings and declarations regarding, among other things, the importance of climate risk in effective decision-making.
- Defines terms for the purposes of this bill, including but not limited to:
- “Climate-related financial risk,” to mean material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health;
- “Climate reporting organization,” to mean a nonprofit climate reporting organization that currently operates a voluntary climate reporting organization for organizations operating in the United States and that has experience with voluntary climate-related financial risk disclosure in California; and
- “Covered entity” to mean a corporation, partnership, limited liability company, or other U.S business entity with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California—excluding any business entity that is subject to regulation by the California Department of Insurance or in the business of insurance in any other state.
- Requires, on or before January 1, 2026, and biennially thereafter, a covered entity to prepare a climate-related financial risk report disclosing its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and its measures adopted to reduce and adapt to the disclosed climate-related financial risk.
- Requires, if a covered entity does not complete a report consistent with all required disclosures, the covered entity to provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosure.
- Authorizes climate-related financial risk reports to be consolidated at the parent company level.
- Requires CARB to contract with a climate reporting organization to biennially prepare a public report on the climate-risk disclosures required
- Provides that a covered entity satisfies the disclosure requirements if it prepares a publicly accessible biennial report that includes climate-related financial risk disclosure information by one of the specified methods.
- Requires, beginning January 1, 2026, and annually thereafter, a covered entity to pay an annual fee, upon filing its disclosure, to CARB for administration and implementation costs.
- Establishes the Climate-Related Financial Risk Disclosure Fund into which all fees are to be deposited.
- Requires CARB to adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report publicly available on its internet website or publishes an inadequate or insufficient report. Requires the administrative penalties to be imposed and recovered by CARB in administrative hearings. Prohibits the administrative penalties imposed on a reporting entity from exceeding $50,000 in a reporting year.
Background
- Financial risks & disclosures. When investing money into a given asset, an investor lends money with the expectation of earning an additional return sometime in the future. Typically, the expected rate of return is a function of the risk associated with the investment; low-risk investments yield low returns, and greater risk brings greater potential returns. Managing portfolios of assets to yield predictable returns requires an accurate assessment of the risk associated with those assets and appropriate pricing of them. Especially when the scale of assets is so large (for example, BlackRock, the world’s largest asset management company, has roughly $10 trillion in assets under management; nearly 10% of the gross world product), accurate risk management is essential. If companies and investors do not have access to sufficient information, they may misprice climate-related assets and create financial instability.
- Task Force on Climate-Related Financial Disclosures (TCFD). In 2015, after the G20 summit concluded there was insufficient information for the financial sector surrounding climate risk, the Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD sought to develop recommendations for voluntary climate-related financial disclosures that were consistent, comparable, reliable, clear, efficient, and provide decision-useful information. This report was published in 2017 in order to enable investors and other stakeholders to accurately assess companies’ climate-related financial risk.
The disclosure recommendations are structured around four pillars of how organizations operate: governance, strategy, risk management, and metrics and targets. In late 2020, the UK became the first country in the world to mandate economy wide disclosures in line with the TCFD recommendations. The process began in 2021 with the largest pension schemes and financial institutions, and it will gradually expand to include smaller firms and broader entities over the next two years.
Comments
- Purpose of Bill. According to the author, “It is abundantly clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catastrophic wildfires, and extreme weather events. These impacts not only affect our environment but they also affect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identified, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decision making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.”
- Who has to report? Generally, this bill applies to companies who do business in California and whose gross revenues exceed $500,000,000 annually. The one notable exemption—insurance companies—is because on April 8, 2022, the National Association of Insurance Commissioners, which includes California’s Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with TCFD. Thus, the author has excluded business entities that are subject to regulation by the Department of Insurance in this state, or that are in the business of insurance in any other state from the definition of covered entity.
At the federal level, the Securities & Exchange Commission (SEC) has proposed its own climate disclosure rules for publicly listed companies. That proposal has yet to be adopted and excludes privately held companies. Among the over 10,000 companies who do business in California and exceed the $500,000,000 revenue threshold, only 20% of them are publicly traded. Thus, there are clear advantages in the completeness and scope of the data that could be gathered by California in enacting SB 261, regardless of the progress of the SEC proposal. However, moving forward the author should take care to ensure that SB 261 does not create an undue reporting burden when taken alongside the SEC proposal.
Ultimately, the reporting requirements contemplated under SB 261 will indeed create additional work for covered entities. However, the reports will also bring benefits, insofar as it allows those businesses and their investors to accurately price the associated risks and have a more complete picture of how their future operations may affect—and be affected by—global climate change.
FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No
According to the Assembly Appropriations Committee:
- Staffing and contracting costs of approximately $5 million in fiscal year (FY) 2023-24, $7 million in FY 2024-25, and $6.7 million in FY 2025-26 and ongoing (Climate-Related Financial Risk Disclosure Fund) to, among other tasks, identify covered entities, develop and implement regulations, develop and maintain a tool to support collection of covered entities' reports, develop and maintain a verification program, and contract with a climate reporting organization. This bill requires each reporting entity subject to the bill's requirements to pay CARB an annual fee and requires CARB to set the fee at an amount sufficient to cover its full costs of administering and implementing this bill, including reimbursing any loans made from other funds to finance CARB's startup costs.
- To the extent CARB successfully seeks and recovers administrative penalties from a covered entity in violation of this bill, this bill could result in a potential increase in General Fund revenue of an unknown amount.
SUPPORT: (Verified 9/12/23)
Ceres (source)
1000 Grandmothers for Future Generations
350 Bay Area Action
350 Conejo / San Fernando Valley
350 Humboldt
350 Juneau
350 Marin
350 Sacramento
350 South Bay LA
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Alter Eco
Americans for Financial Reform
Avocado Green Brands
Ban Sup (single Use Plastic)
California Environmental Voters
California Environmental Voters
California State Teachers' Retirement System
CalPIRG
Citizens Climate Lobby Sacramento / Roseville Chapter
Climate 911
Climate Action California
Climate Hawks Vote
Climate Reality Project, San Fernando Valley
Coalition for Clean Air
Coastside Jewish Community
Conejo Climate Coalition
Cool Planet Group of First Presbyterian Church, Palo Alto
Divest Oregon
Dsm North America
E2
East Valley Indivisibles
Elders Climate Action, Norcal and Socal Chapters
Environment California
Environmental Defense Fund
Extinction Rebellion San Francisco Bay Area
Fossil Free California
Friends Committee on Legislation of California
Friends of The Earth
Giniw Collective
Glendale Environmental Coalition
Grove Collaborative
Honor the Earth
Humboldt Unitarian Universalist Fellowship's Climate Action Campaign
Indivisible Alta Pasadena
Indivisible California Green Team
Indivisible California Statestrong
Leading Change Consulting and Coaching
Mothers Out Front California
Natural Resources Defense Council
Nrdc
Oil & Gas Action Network
Peninsula Interfaith Climate Action
Public Citizen, INC
Rapidshift Network
San Francisco Bay Physicians for Social Responsibility
Santa Cruz Climate Action Network
Sierra Club California
Sierra Nevada Brewing Company
Socal 350 Climate Action
Solidarityinfoservice
Stand.Earth
The Climate Center
The Phoenix Group
The Vessel Project of Louisiana
Third ACT
Transformative Wealth Management LLC
Trinity Respecting Earth and Environment
Union of Concerned Scientists
Urban Ecology Project
Working for Racial Equity
OPPOSITION: (Verified 9/12/2023)
African American Farmers of California
Agricultural Energy Consumers Association
American Composites Manufacturers Association
American Pistachio Growers
Antelope Valley Chambers of Commerce
Building Owners and Managers Association
California Advanced Biofuels Alliance
California Apartment Association
California Apple Commission
California Asphalt Pavement Association
California Blueberry Association
California Blueberry Commission
California Business Properties Association
California Chamber of Commerce
California Construction & Industrial Materials Association
California Cotton Ginners & Growers Association
California Credit Union League
California Date Commission
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Independent Petroleum Association
California Manufacturers & Technology Association
California Poultry Federation
California Retailers Association
California Walnut Commission
Can Manufacturers Institute
Carlsbad Chamber of Commerce
Chino Valley Chamber of Commerce
Citrus Heights Chamber of Commerce
Costa Mesa Chamber of Commerce
Danville Area Chamber of Commerce
Far West Equipment Dealers Association
Greater High Desert Chamber of Commerce
LA Canada Flintridge Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
NAIOP California
Nisei Farmers League
North San Diego Business Chamber
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
PCI West-chapter of The Precast/prestressed Concrete Institute
Rancho Cordova Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Securities Industry and Financial Markets Association
Southern California Leadership Council
Specialty Equipment Market Association
Torrance Area Chamber of Commerce
Walnut Creek Chamber of Commerce
West Ventura County Business Alliance
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute
ARGUMENTS IN SUPPORT: According to a coalition of groups in support, “The transition to a low-carbon economy, occurring as we grapple with environmental and social harms that can’t be mitigated, challenges practically every sector of the economy. Without accurate information about climate-related financial risk and a robust discussion of how to manage that risk, governments, money managers, and companies can only guess at strategies that will carry them through the changes that are already underway. SB 261 requires risk reporting and public disclosure of the steps financial institutions and businesses are taking to mitigate and adapt to global climate change, and mandates ongoing consideration and study of best policy practices.”
ARGUMENTS IN OPPOSITION: According to a coalition of groups in opposition, “The measure is premature given the amount of activity happening at the federal and international levels. Both the executive and legislative branches have served notice that changes will be happening soon in this area. The Securities and Exchange Commission is already reviewing their guidance documents on the topic and expects to provide an update shortly. There is a very real risk that compliance with SB 261 will not align with federal or the Task Force’s own recommendations. The recommendations also assert that any national level requirements should preempt those at state or local levels, noting that “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not be seen as superseding national disclosure requirements”. The measure not only lacks compliance acknowledgement for entities subject to a federal level requirement, but it also jumps the gun by superseding national disclosure requirements that are imminent.”
ASSEMBLY FLOOR: 47-17, 9/12/23
AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Wendy Carrillo, Connolly, Flora, Mike Fong, Friedman, Gabriel, Garcia, Haney, Hart, Holden, Irwin, Jones-Sawyer, Kalra, Lee, Low, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Rendon, Reyes, Luz Rivas, Santiago, Ting, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas
NOES: Alanis, Chen, Megan Dahle, Davies, Dixon, Essayli, Vince Fong, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Ta, Waldron, Wallis
NO VOTE RECORDED: Bains, Juan Carrillo, Cervantes, Gipson, Grayson, Jackson, Lowenthal, Maienschein, Stephanie Nguyen, Ramos, Rodriguez, Blanca Rubio, Schiavo, Soria, Valencia, Villapudua
Prepared by: Eric Walters / E.Q. / (916) 651-4108
9/12/23 19:10:59
SENATE THIRD READING
STR Bill Id:SB 261
Author:(Stern, et al.)
As Amended Ver:September 8, 2023
Majority vote
SUMMARY
Requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
Major Provisions
- Requires, on or before January 1, 2026, and biennially thereafter, a covered entity to prepare a climate-related financial risk report disclosing its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and its measures adopted to reduce and adapt to the disclosed climate-related financial risk.
- Requires, if a covered entity does not complete a report consistent with all required disclosures, the covered entity to provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosure.
- Authorizes climate-related financial risk reports to be consolidated at the parent company level.
- Requires ARB to contract with a climate reporting organization to biennially prepare a public report on the climate-risk disclosures required
- Provides that a covered entity satisfies the disclosure requirements if it prepares a publicly accessible biennial report that includes climate-related financial risk disclosure information by one of the specified methods.
- Requires, beginning January 1, 2026, and annually thereafter, a covered entity to pay an annual fee, upon filing its disclosure, to ARB for administration and implementation costs.
- Establishes the Climate-Related Financial Risk Disclosure Fund into which all fees are to be deposited.
- Requires ARB to adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report publicly available on its internet website or publishes an inadequate or insufficient report. Requires the administrative penalties to be imposed and recovered by ARB in administrative hearings. Prohibits the administrative penalties imposed on a reporting entity from exceeding $50,000 in a reporting year
COMMENTS
Climate-related financial disclosure refers to the disclosure by companies, insurers, asset owners, and managers of (1) the risks and opportunities that climate change present to a company's financial position today and in the future, and (2) the management strategies, including governance and processes, pursued to account for and respond to those risks and opportunities. Disclosure is more transparency, not setting reduction targets.
The Financial Stability Board, an international entity that monitors and makes recommendations about the global financial system, created TCFD in 2015, and the TCFD issued a report containing climate-related financial disclosure recommendations in 2017. TCFD is recognized as the primary organizational structure for climate-related risk disclosure nationally and internationally.
It has been reported that companies continue to invest more time, resources, and leadership effort into sustainability; however, there is still a significant disconnect between the expectations and goals of companies and their investors when it comes to corporate and sustainability reporting — in particular, the environmental, social & governance (ESG) disclosures that can help companies and their stakeholders to communicate and assess performance against strategic risks and opportunities in multiple dimensions. They find that this disconnect could potentially undermine the smooth running of capital markets, the collective battle against threats such as climate change, and the trust that is necessary between a company and its stakeholders, including customers, employees and communities.
SB 261 would require more than 10,000 companies with annual revenues exceeding $500 million to detail how climate change poses financial risks to their operations, not just in California, but around the world.
Under the provisions of the bill, a company would be required to annually report on its climate-related financial risk, consistent with the TCFD framework, and post the disclosure report on its website and pay a fee to ARB. Then ARB, through a contracted climate reporting organization, would generate an annual public report of climate related financial risk based on a subset of companies' reports.
According to the Author
It is clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catstrophic wildfires, and extreme weather events. These impacts not only effect our environment but they also effect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identifed, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decisoin making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.
Arguments in Support
CalSTRS writes in support that using the TCFD framework as the basis for requiring corporate issuers to provide more comparable disclosures would facilitate CalSTRS' ongoing efforts to more easily compare companies' approach to climate risk management in a timelier fashion, through a common channel and format, and with the same degree of detail. Consistent and complete disclosures about companies' climate-related financial risks would support CalSTRS' work to meet its pledge to achieve a net zero portfolio by 2050 or sooner.
Arguments in Opposition
CalChamber, the California Bankers Association, and many others have expressed concern about the $500 million revenue threshold in the bill, stating that reporting on emissions profile and risk mitigation efforts require fairly advanced analysis and could be quite challenging for smaller companies.
FISCAL COMMENTS
According to the Assembly Appropriations Committee, this bill will result in:
- Staffing and contracting costs of approximately $5 million in fiscal year (FY) 2023-24, $7 million in FY 2024-25, and $6.7 million in FY 2025-26 and ongoing (Climate-Related Financial Risk Disclosure Fund) to, among other tasks, identify covered entities, develop and implement regulations, develop and maintain a tool to support collection of covered entities' reports, develop and maintain a verification program, and contract with a climate reporting organization. This bill requires each reporting entity subject to the bill's requirements to pay ARB an annual fee and requires ARB to set the fee at an amount sufficient to cover its full costs of administering and implementing this bill, including reimbursing any loans made from other funds to finance ARB's startup costs.
- To the extent ARB successfully seeks and recovers administrative penalties from a covered entity in violation of this bill, this bill could result in a potential increase in General Fund revenue of an unknown amount.
VOTES
SENATE FLOOR: 27-8-5
YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Cortese, Durazo, Eggman, Glazer, Gonzalez, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener
NO: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto
ABS, ABST OR NV: Caballero, Dodd, Hurtado, Roth, Wilk
ASM NATURAL RESOURCES: 8-3-0
YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur
NO: Flora, Hoover, Mathis
ASM APPROPRIATIONS: 11-4-1
YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Wilson
NO: Megan Dahle, Dixon, Mathis, Sanchez
ABS, ABST OR NV: Soria
UPDATED
VERSION: September 8, 2023
CONSULTANT: Paige Brokaw / NAT. RES. / (916) 319-2092 FN: 0002178
STR Bill Id:SB 261
Author:(Stern, et al.)
As Amended Ver:September 1, 2023
Majority vote
SUMMARY
Requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
Major Provisions
- Requires, on or before December 31, 2024, and annually thereafter, a covered entity to prepare a climate-related financial risk report disclosing its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and its measures adopted to reduce and adapt to the disclosed climate-related financial risk.
- Requires, if a covered entity does not complete a report consistent with all required disclosures, the covered entity to provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures by December 31, 2029.
- Authorizes climate-related financial risk reports to be consolidated at the parent company level.
- Requires ARB to contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required
- Provides that a covered entity satisfies the disclosure requirements if it prepares a publicly accessible annual report that includes climate-related financial risk disclosure information by one of the specified methods.
- Requires, on or before December 31, 2024, and annually thereafter, a covered entity to pay an annual fee, upon filing its disclosure, to ARB for administration and implementation costs.
- Establishes the Climate-Related Financial Risk Disclosure Fund into which all fees are to be deposited.
- Requires ARB to adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report publicly available on its internet website or publishes an inadequate or insufficient report. Requires the administrative penalties to be imposed and recovered by ARB in administrative hearings. Prohibits the administrative penalties imposed on a reporting entity from exceeding $500,000 in a reporting year.
COMMENTS
Climate-related financial disclosure refers to the disclosure by companies, insurers, asset owners, and managers of 1) the risks and opportunities that climate change present to a company's financial position today and in the future, and 2) the management strategies, including governance and processes, pursued to account for and respond to those risks and opportunities. Disclosure is more transparency, not setting reduction targets.
The Financial Stability Board, an international entity that monitors and makes recommendations about the global financial system, created TCFD in 2015, and the TCFD issued a report containing climate-related financial disclosure recommendations in 2017. TCFD is recognized as the primary organizational structure for climate-related risk disclosure nationally and internationally.
It has been reported that companies continue to invest more time, resources, and leadership effort into sustainability; however, there is still a significant disconnect between the expectations and goals of companies and their investors when it comes to corporate and sustainability reporting — in particular, the environmental, social & governance (ESG) disclosures that can help companies and their stakeholders to communicate and assess performance against strategic risks and opportunities in multiple dimensions. They find that this disconnect could potentially undermine the smooth running of capital markets, the collective battle against threats such as climate change, and the trust that is necessary between a company and its stakeholders, including customers, employees and communities.
SB 261 would require more than 10,000 companies with annual revenues exceeding $500 million to detail how climate change poses financial risks to their operations, not just in California, but around the world.
Under the provisions of the bill, a company would be required to annually report on its climate-related financial risk, consistent with the TCFD framework, and post the disclosure report on its website and pay a fee to ARB. Then ARB, through a contracted climate reporting organization, would generate an annual public report of climate related financial risk based on a subset of companies' reports.
According to the Author
It is clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catstrophic wildfires, and extreme weather events. These impacts not only effect our environment but they also effect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identifed, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decisoin making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.
Arguments in Support
CalSTRS writes in support that using the TCFD framework as the basis for requiring corporate issuers to provide more comparable disclosures would facilitate CalSTRS' ongoing efforts to more easily compare companies' approach to climate risk management in a timelier fashion, through a common channel and format, and with the same degree of detail. Consistent and complete disclosures about companies' climate-related financial risks would support CalSTRS' work to meet its pledge to achieve a net zero portfolio by 2050 or sooner.
Arguments in Opposition
CalChamber, the California Bankers Association, and many others have expressed concern about the $500 million revenue threshold in the bill, stating that reporting on emissions profile and risk mitigation efforts require fairly advanced analysis and could be quite challenging for smaller companies.
FISCAL COMMENTS
According to the Assembly Appropriations Committee, this bill will result in:
- Staffing and contracting costs of approximately $5 million in fiscal year (FY) 2023-24, $7 million in FY 2024-25, and $6.7 million in FY 2025-26 and ongoing (Climate-Related Financial Risk Disclosure Fund) to, among other tasks, identify covered entities, develop and implement regulations, develop and maintain a tool to support collection of covered entities' reports, develop and maintain a verification program, and contract with a climate reporting organization. This bill requires each reporting entity subject to the bill's requirements to pay ARB an annual fee and requires ARB to set the fee at an amount sufficient to cover its full costs of administering and implementing this bill, including reimbursing any loans made from other funds to finance ARB's startup costs.
- To the extent ARB successfully seeks and recovers administrative penalties from a covered entity in violation of this bill, this bill could result in a potential increase in General Fund revenue of an unknown amount.
VOTES
SENATE FLOOR: 27-8-5
YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Cortese, Durazo, Eggman, Glazer, Gonzalez, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener
NO: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto
ABS, ABST OR NV: Caballero, Dodd, Hurtado, Roth, Wilk
ASM NATURAL RESOURCES: 8-3-0
YES: Luz Rivas, Addis, Friedman, Muratsuchi, Pellerin, Ward, Wood, Zbur
NO: Flora, Hoover, Mathis
ASM APPROPRIATIONS: 11-4-1
YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Wilson
NO: Megan Dahle, Dixon, Mathis, Sanchez
ABS, ABST OR NV: Soria
UPDATED
VERSION: September 1, 2023
CONSULTANT: Paige Brokaw / NAT. RES. / (916) 319-2092 FN: 0001518
Date of Hearing: August 16, 2023
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Chris Holden, Chair
SBPCA Bill Id:SB 261
Author:(Stern) – As Amended Ver:July 12, 2023
Policy Committee: | Natural Resources | Vote: | 8 - 3 |
|
| ||
|
|
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports.
Specifically, this bill, among other things:
- Requires a covered entity, by December 31, 2024, and annually thereafter, to prepare a climate-related financial risk report disclosing its climate-related financial risk, as specified, and its measures adopted to reduce and adapt to the disclosed climate-related financial risk.
- Requires ARB to contract with a climate reporting organization, as defined, to prepare an annual public report on the required climate-risk disclosures and ensure the disclosures remain consistent with specified guidance.
- Provides that if a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in this bill, a report prepared pursuant to that federal requirement satisfies the requirements of this bill. The bill authorizes the covered entity to attest to the Secretary of State (SOS) that it has publicly disclosed the climate-risk disclosures to satisfy the requirements of this bill.
- Requires a covered entity, on or before December 31, 2024, and annually thereafter, to make a copy of the report available on its website and submit to the SOS a statement affirming, not under penalty of perjury, that the report discloses climate-related financial risk in accordance with the requirements of this bill.
- Specifies numerous requirements for the climate reporting organization, including annually preparing a specified report on climate-related financial risks and disclosures, convening stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, and monitoring federal regulatory actions.
- Provides that ARB’s enforcement of compliance with AB 32 (Núñez), Chapter 488, Statutes of 2006, does not apply to a violation of this bill.
- Requires ARB to adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report publicly available on its website or that publishes an inadequate or insufficient report; requires the administrative penalties to be imposed and recovered by ARB in administrative hearings; and prohibits the administrative penalties from exceeding $500,000 in a reporting year.
FISCAL EFFECT:
1) ARB estimates staffing and contracting costs of approximately $5 million in fiscal year (FY) 2023-24, $7 million in FY 2024-25, and $6.7 million in FY 2025-26 and ongoing (General Fund) to, among other tasks, identify covered entities, develop and implement regulations, develop and maintain a tool to support collection of covered entities’ reports, develop and maintain a verification program, and contract with a climate reporting organization.
2) SOS estimates one-time costs of about $17.8 million to undertake an information technology project necessary to implement this bill. In addition, SOS estimates ongoing costs of about $5.4 million in the first year and approximately $5 million annually thereafter (General Fund) for 23 positions as well as infrastructure costs, including technology infrastructure, software, security monitoring tools, and digital storage costs. SOS notes the statement covered entities must submit to it and related requirements drastically exceed the scope of information existing law tasks SOS with collecting for corporations, partnerships, limited liability companies, or other business entities.
3) To the extent ARB successfully seeks and recovers administrative penalties from a covered entity in violation of this bill, this bill could result in a potential increase in General Fund revenue of an unknown amount. This bill provides that administrative penalties imposed on a reporting entity shall not exceed $500,000 in a reporting year and that in imposing penalties, ARB shall consider relevant circumstances, such as the violator’s past and present compliance with this bill and whether the violator took good faith measures to comply with this bill and when the violator took those measures.
COMMENTS:
1) Purpose. According to the author:
Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identifed, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decisoin making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.
2) Background. Climate-related financial disclosure generally refers to the disclosure by companies, insurers, asset owners, and managers of (a) the risks and opportunities that climate change present to a company’s financial position today and in the future, and (b) the management strategies, including governance and processes, pursued to account for and respond to those risks and opportunities.
The Financial Stability Board, an international entity that monitors and makes recommendations about the global financial system, created the Task Force on Climate-Related Financial Disclosures (TCFD) in 2015. The TCFD issued a report containing climate-related financial disclosure recommendations in 2017. TCFD is recognized as the primary organizational structure for climate-related risk disclosure nationally and internationally. As of 2022, more than 1,000 organizations representing a market capitalization of over $12 trillion have signed on as supporters of the TCFD. A group of more than 450 investors with more than $40 trillion in assets under management known as Climate Action 100+ has committed to getting the world’s largest corporate greenhouse gas emitters to implement TCFD guidance.
Many different reporting standards for climate impacts have been established over the years; according to the Principles for Responsible Investment, there are roughly 400 reporting frameworks related to climate. In 2020, pursuant to Governor Newsom’s Executive Order N-19-19, the Office of Planning and Research launched the California Climate-Related Risk Disclosure Advisory Group to address and mitigate the impacts of climate change with a focus on identifying best practices regarding climate-related financial risk disclosures. The advisory group released the report, “Developing Climate Risk Disclosure Practices for the State of California,” which builds upon the framework of the TCFD Task Force and translates the TCFD guidance into a set of recommendations along two pathways: direct expenditures (public works and procurement), and financial asset ownership. For a more detailed overview of other existing and proposed state, federal, and international laws and standards related to climate-related disclosures, please see the Assembly Natural Resources Committee analysis of this bill.
This bill requires more than 10,000 companies with annual revenues exceeding $500 million to detail how climate change poses financial risks to their operations. Under the provisions of the bill, a company must annually report on its climate-related financial risk, consistent with the TCFD framework, and post the disclosure report on its website and submit the report to SOS. Then ARB, through a contracted climate reporting organization, would generate an annual public report of climate related financial risk based on a subset of the companies’ reports.
Insurance companies are exempted from the bill because, on April 8, 2022, the National Association of Insurance Commissioners, which includes California’s Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with TCFD. Therefore, the author has excluded from the bill’s definition of “covered entity” business entities that are subject to regulation by the Department of Insurance in this state, or that are in the business of insurance in any other state.
3) Support and Opposition. A large group of environmental organizations writes in support:
Disclosure of the significant financial risks from global climate change is essential for effective financial planning in the 21st century. Financial institutions, investors, and companies have a responsibility to understand and anticipate the risks and opportunities ahead of us…Without accurate information about climate-related financial risk and a robust discussion of how to manage that risk, governments, money managers, and companies can only guess at strategies that will carry them through the changes that are already underway.
A large coalition of business groups and other organizations writing in opposition to the bill contend that this bill is premature and may lead to duplicative reporting requirements given the amount of similar activity taking place at the federal level. They also object to requiring reporting entities to disclose their climate-related financial risk in accordance with the recommendations put forth by the TCFD, because there a number of other reporting standards that are likely to supplant the TCFD’s reporting requirements as the international standard. Finally, the coalition argues that this bill will create significant implementation and reporting challenges:
By mandating an annual report in accordance with the Final Recommendations of the Task Force on Climate-Related Financial Disclosures, SB 261 is itself in conflict with the recommendations. The recommendations are designed to be voluntary and to maintain the standard of materiality, the report notes that “any disclosure recommendations by the Task Force would need to be voluntary, would need to incorporate the principle of materiality and would need to weigh the balance of costs and benefits”. The recommendations also assert the need for flexibility.
4) Related Legislation. SB 253 (Wiener) requires any U.S.-based business with annual revenues in excess of $1 billion and that does business in California to annually report the full range of GHG emissions attributable to the business, and specifies procedures for implementation and enforcement by ARB. SB 253 is pending in this committee.
5) Previous Legislation. SB 260 (Wiener), of the 2021-2022 Legislative Session, was substantially similar to SB 253. SB 260 failed passage on the Assembly Floor.
SB 449 (Stern), of the 2021-2022 Legislative Session, was substantially similar to this bill. SB 449 was held on the Senate Appropriations Committee’s suspense file.
Analysis Prepared by: Nikita Koraddi / APPR. / (916) 319-2081
Date of Hearing: July 10, 2023
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Luz Rivas, Chair
SBPCA Bill Id:SB 261
Author:(Stern) – As Amended Ver:June 19, 2023
SENATE VOTE: 27-8
SUBJECT: Greenhouse gases: climate-related financial risk
SUMMARY: Requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
EXISTING LAW:
- Requires ARB, pursuant to California Global Warming Solutions Act of 2006 [AB 32 (Núñez), Chapter 488, Statutes of 2006], to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020, and (Health & Safety (HSC) Code 38500 et seq):
- Requires the reduction of GHGs to 40% below 1990 levels by 2030 and to 85% below 1990 levels by 2045, and:
- Authorizes ARB to adopt a regulation that establishes a system of market-based declining annual aggregate emission limits for sources or categories of sources that emit GHG emissions, applicable until December 31, 2030. Under this authority, ARB adopted a cap and trade regulation that applies to large industrial facilities and electricity generators emitting more than 25,000 metric tons of carbon dioxide equivalent per year, as well as distributors of fuels, including gasoline, diesel, and natural gas.
- Requires the monitoring and annual reporting of GHG emissions from GHG emission sources beginning with the sources or categories of sources that contribute the most to statewide emissions, and dictates that for the cap-and-trade program established pursuant to AB 32, entities that voluntarily participated in the California Climate Action Registry prior to December 31, 2006, and had developed a GHG emission reporting program, they would not be required to significantly alter their reporting or verification program except as necessary for compliance.
- Requires, by January 1, 2020, and every three years thereafter, the California State Teachers’ Retirement System (CalSTRS) and California Public Employees' Retirement System (CalPERS) to publicly report on their analysis of the climate-related financial risk of its public market portfolio, including the alignment of the fund with the Paris climate agreement and California climate policy goals and the exposure of the fund to long-term risks. (Government Code 7510.5 (c))
- Defines “climate-related financial risk” as risk that may include material financial risk posed by the effects of the changing climate, such as intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries. (Government Code 7510.5 (a)(2))
- Declares, pursuant to SCR 53 (McGuire), Res. Chapter 119, Statutes of 2022, that a climate emergency threatens the state, the nation, the planet, the natural world, and all of humanity.
- Requires corporations in California to report specified operating information to the Secretary of State (SOS). (California Corporations Code 100 et seq.)
THIS BILL:
- Defines the following terms:
- “Climate reporting organization” as a nonprofit climate reporting organization contracted by ARB that both:
- Currently operates a climate reporting organization for organizations operating in the United States; and,
- Has experience with climate-related financial risk disclosure by entities operating in California.
- “Climate-related financial risk” as material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
- “Covered entity” as a corporation, partnership, limited liability company, or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess $500 million and that does business in California. Excludes a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
- “Climate reporting organization” as a nonprofit climate reporting organization contracted by ARB that both:
- Requires, on or before December 31, 2024, and annually thereafter, a covered entity shall prepare a climate-related financial risk report disclosing both of the following:
- Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) (June 2017) published by TCFD, or any subsequent publication thereto; and,
- Its measures adopted to reduce and adapt to the disclosed climate-related financial risk.
- Requires ARB to contract with a climate reporting organization to prepare an annual public report on the climate-risk disclosures required and ensure the climate-risk disclosures remain consistent with current best practices.
- Provides that if a federal law or regulation enacted or promulgated on or after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in this bill, a report prepared pursuant to that federal requirement satisfies the requirements of this bill and authorizes the covered entity to attest to the SOS that they have publicly disclosed the climate-risk disclosures to satisfy the requirements of this bill.
- Requires, on or before December 31, 2024, and annually thereafter, a covered entity to do both of the following:
- Make available to the public on its own internet website, a copy of the report; and,
- Submit to the SOS a statement affirming, not under penalty of perjury, that the report prepared and published discloses climate-related financial risk in accordance with the requirements of this bill.
- Requires the climate reporting organization to be contracted to do all of the following:
- Annually prepare a public report that contains all of the following elements:
- A review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports by industry;
- Analysis of the systemic and sector-wide climate-related financial risks facing the state based on the contents of climate-related financial risk reports, including, but not limited to, potential impacts on economically vulnerable communities; and,
- Identification of inadequate or insufficient reports.
- Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of “climate-related financial risk,” and the framework or disclosure standard of “climate-related financial risk reports;” and,
- Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
- Provides that ARB’s enforcement of AB 32 compliance does not apply to a violation of this bill.
- Requires ARB to adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report publicly available on its internet website or publishes an inadequate or insufficient report. Requires the administrative penalties to be imposed and recovered by ARB in administrative hearings. Prohibits the administrative penalties imposed on a reporting entity from exceeding $500,000 in a reporting year. Requires ARB, in imposing penalties, to consider all relevant circumstances, including both of the following:
- The violator’s past and present compliance with this bill; and,
- Whether the violator took good faith measures to comply and when those measures were taken.
FISCAL EFFECT: Unknown
COMMENTS:
- Author’s statement:
It is clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catstrophic wildfires, and extreme weather events. These impacts not only effect our environment but they also effect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identifed, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decisoin making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.
- Climate-related financial disclosure. Climate-related financial disclosure refers to the disclosure by companies, insurers, asset owners, and managers of (1) the risks and opportunities that climate change present to a company’s financial position today and in the future, and (2) the management strategies, including governance and processes, pursued to account for and respond to those risks and opportunities. Disclosure is more transparency, not setting reduction targets.
The Financial Stability Board, an international entity that monitors and makes recommendations about the global financial system, created the Task Force on Climate-Related Financial Disclosures (TCFD) in 2015, and the TCFD issued a report containing climate-related financial disclosure recommendations in 2017. TCFD is recognized as the primary organizational structure for climate-related risk disclosure nationally and internationally.
As of 2022, more than 1,000 organizations representing a market capitalization of over $12 trillion have signed on as supporters of the TCFD. A group of more than 450 investors with more than $40 trillion in assets under management known as Climate Action 100+ has committed to getting the world’s largest corporate GHG emitters to implement TCFD guidance.
Many different reporting standards for climate impacts have been established over the years; according to the Principles for Responsible Investment, there are roughly 400 reporting frameworks that are related to climate. Most of these focus on a company’s impact on the climate through their emissions. By recommending companies evaluate what their operations and supply chain look like under a world with 2 degrees of warming (or other scenarios), TCFD encourages companies to think seriously about how the changing climate will affect them as well. What sets TCFD apart is that covers various reporting requirements, therefore minimizes reporting burdens on companies tasked with making financial disclosures related to climate risk, and it provides value to investors seeking to make strategic investments.
- Current reporting requirements. There are several existing, but contextually distinct laws requiring climate-related disclosures.
Under AB 32, the Mandatory Reporting of Greenhouse Gas Emissions regulation (MRR) requires electricity generators, industrial facilities, fuel suppliers, and electricity importers to report GHGs from those major sources to ARB. A summary of reported GHG emissions data reported under MRR are made public each year. ARB implements and oversees a third-party verification program to support the mandatory GHG reporting. All GHG reports subject to the Cap-and-Trade Program must be independently verified by ARB-accredited verification bodies and verifiers.
Under provisions of SB 964 (Allen), Chapter 731, Statutes of 2018, CalSTRS and CalPERS are required to report to the Legislature every three years on their efforts to measure and manage climate-related financial risk in their public market investment portfolios. The most recent report, Addressing Climate-Related Financial Risk Report (2022) confirmed, based on the retirement systems’ studies, that global economies were accelerating the movement toward reducing and eliminating carbon emissions with many governments, subnational actors, companies, and investors committing to net zero emissions.
In 2020, pursuant to Governor Newsom’s Executive Order N-19-19, the California Climate-Related Risk Disclosure Advisory Group (Advisory Group) was created to address and mitigate the impacts of climate change with a focus on identifying the best practices regarding climate-related financial risk disclosures. That group released the report Developing Climate Risk Disclosure Practices for the State of California report, which builds upon the framework of the TCFD Task Force and translates the TCFD guidance into a set of recommendations along two pathways: direct expenditures (public works and procurement), and financial asset ownership.
Last March, the U.S. Securities and Exchange Commission (SEC) announced plans to enhance and standardize climate-related disclosures for investors, as part of a growing awareness of the importance of environmental, social & governance (ESG) issues among public companies. The new disclosure rules would require listed companies to not only disclose risks that are “reasonably likely to have a material impact on their business, results of operations, or financial condition,” but also “to disclose information about its direct GHG emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2),” as well as certain types of GHG emissions “from upstream and downstream activities in its value chain (Scope 3).”
Furthermore, there are layers of international standards that impact many of the companies that would be covered under this bill. The International Sustainability Standards Board (ISSB), an independent, private-sector body, developed the IFRS Sustainability Standards that are topic-specific and require an entity to disclose certain information in respects to climate-related risks and opportunities and will result in a comprehensive global baseline of sustainability disclosures. These were developed in response to a strong desire to address a fragmented landscape of voluntary, sustainability-related standards and requirements that add cost, complexity and risk to both companies and investors. The United Kingdom already requires companies to report their emissions and the European Union will begin requiring companies to track emissions next year and report them in 2025. Further, there is an “alphabet soup” of other climate-related financial disclosure requirements across Europe.
- This bill. It has been reported that companies continue to invest more time, resources, and leadership effort into sustainability; however, there is still a significant disconnect between the expectations and goals of companies and their investors when it comes to corporate and sustainability reporting — in particular, the ESG disclosures that can help companies and their stakeholders to communicate and assess performance against strategic risks and opportunities in multiple dimensions. They find that this disconnect could potentially undermine the smooth running of capital markets, the collective battle against threats such as climate change, and the trust that is necessary between a company and its stakeholders, including customers, employees and communities.
SB 261 would require more than 10,000 companies with annual revenues exceeding $500 million to detail how climate change poses financial risks to their operations, not just in California, but around the world.
Under the provisions of the bill, a company would be required to annually report on its climate-related financial risk, consistent with the TCFD framework, and post the disclosure report on its website and submit the report to the SOS. Then ARB, through a contracted climate reporting organization, would generate an annual public report of climate related financial risk based on a subset of companies’ reports.
CalSTRS writes in support that using the TCFD framework as the basis for requiring corporate issuers to provide more comparable disclosures would facilitate CalSTRS’ ongoing efforts to more easily compare companies’ approach to climate risk management in a timelier fashion, through a common channel and format, and with the same degree of detail. Consistent and complete disclosures about companies’ climate-related financial risks would support CalSTRS’ work to meet its pledge to achieve a net zero portfolio by 2050 or sooner.
In light of the growing number of disclosure requirements, the Governor’s Advisory Group recommended that the state should establish a continuing internal process that coordinates disclosure efforts across state organizations and incorporates disclosure in other state processes and policies. To that end, to avoid duplicative reporting, the bill provides that if a covered entity has to prepare an annual report disclosing information materially similar to the information described in this bill pursuant to a federal requirement, that entity meets the requirements of this bill.
While TCFD is the basis for many of the current reporting standards seen around the world, the author may wish to consider supplementing the language in the bill to recognize, in addition to federal regulations, other national and international reporting requirements that provide the data the bill currently covers.
- Is stronger oversight needed? The bill would authorize ARB to impose administrative penalties on a covered entity for failing make a report publicly available on its internet website or for publishing an inadequate or insufficient report.
The climate reporting organization, when preparing the public report reviewing a subset of industry reports, is required to “identify inadequate or insufficient reports.” While the climate reporting organization may be well-equipped to make that identification, the bill leaves ARB in the precarious position of leaning on a third-party to essentially provide that regulatory oversight -- especially when a company could face up to $500,000 in a reporting year for that third party’s assessment. Furthermore, the climate reporting organization is only required to review a “subset” of covered entity’s reports (and subset is not quantifiably or qualitatively defined) meaning administrative penalties could be unevenly applied since oversight of compliance will not be comprehensive.
The author may wish to consider working with ARB to strengthen its oversight role in the bill.
- Clarifying who’s responsible for the reporting. The bill is silent on the role of parent companies and their subsidiaries, making it unclear if a subsidiary that meets the revenue threshold under the bill would have to report, or if only the parent company has to report.
For instance, Kraft Heinz owns Jell-O, which earned $688 million in 2022 and would be a covered entity. Under TCFD, there is no guidance for distinguishing parent companies from their subsidiaries because the standards were initially written for financial institutions.
The author may wish to consider whether clarification is needed to decipher who is responsible for TCFD disclosure, and the penalties, under this bill.
- Value of disclosure. Disclosure itself creates transparency that can have myriad benefits, including:
- Enable more informed government investment – including by CalPERS and CalSTRS, who are under state mandates to consider climate-related financial risk.
- Reputation enhancement– disclosure builds trust by responding to rising environmental concerns amongst the public.
- Competitive advantage – disclosure can give a company a performance edge on the stock market and access to capital (California’s Greenhouse Gas Reduction Fund resulting from AB 32 has billions in annual investments to make)
- Uncover risks and opportunities —a company can’t change what it doesn’t measure.
- Opposition concerns. CalChamber, the California Bankers Association, and many others have expressed concern about the $500 million revenue threshold in the bill, stating that reporting on emissions profile and risk mitigation efforts require fairly advanced analysis and could be quite challenging for smaller companies.
The TCFD recommends reporting for organizations “that have more than $1 billion U.S. dollar equivalent in annual revenue.” The author and sponsors argue that the $500,000 threshold covers an additional 5,000 mid-level companies that do not currently disclose assessments of climate-related risk, and requiring them to do so benefits the companies themselves as well as investors and policy makers.
- Committee amendments. The Committee may wish to consider further clarifying several things in the bill, including:
- The applicability of the covered entity’s revenue threshold in the bill as being defined by U.S. dollars and based on revenue in the prior fiscal year.
- Requiring a climate reporting entity’s preparation of an annual public report to be done consistent with evolving Task Force on Climate-Related Financial Disclosures guidance.
- Related legislation.
- SB 253 (Wiener) requires all large corporations that do business in California to publicly disclose their GHGs in line with the Greenhouse Gas Protocol. That bill will be heard in the Assembly Natural Resources Committee on July 10.
- SB 260 (Weiner, 2022) was nearly identical to SB 253. It failed on the Assembly Floor.
- SB 449 (Stern) was nearly identical to SB 261. It was held in the Senate Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
1000 Grandmothers for Future Generations
350 Bay Area Action
350 Conejo / San Fernando Valley
350 Humboldt
350 Marin
350 Sacramento
350 South Bay LA
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Active San Gabriel Valley
Alter Eco
Americans for Financial Reform
Avocado Green Brands
Ban Sup (single Use Plastic)
California Environmental Voters
California State Teachers' Retirement System
CALPIRG
Center for Biological Diversity
Ceres
Citizens Climate Lobby Sacramento / Roseville Chapter
Climate 911
Climate Action California
Climate Hawks Vote
Climate Reality Project, Los Angeles Chapter
Climate Reality Project, San Fernando Valley
Climate Reality San Fernando Valley, CA Chapter
Coalition for Clean Air
Coastside Jewish Community
Conejo Climate Coalition
Cool Planet Group of First Presbyterian Church, Palo Alto
Culver City Democratic Club
Divest Oregon
DSM North America
East Valley Indivisibles
Elders Climate Action, Norcal and Socal Chapters
Environment California
Everlane
Extinction Rebellion San Francisco Bay Area
Fossil Free California
Friends Committee on Legislation of California
Friends of The Earth
Giniw Collective
Glendale Environmental Coalition
Grove Collaborative
Honor the Earth
Humboldt Unitarian Universalist Fellowship's Climate Action Campaign
Indivisible Alta Pasadena
Indivisible CA Statestrong
Indivisible California Green Team
Leading Change Consulting and Coaching
Microsoft Corporation
Mothers Out Front California
Natural Resources Defense Council
Nextgen California
Oil & Gas Action Network
Patagonia
Peninsula Interfaith Climate Action
Public Citizen
REI
Sacramento Area Congregations Together
San Francisco Bay Physicians for Social Responsibility
Sandiego350
Santa Cruz Climate Action Network
Seventh Generation
Sierra Club California
Sierra Nevada Brewing Company
Socal350 Climate Action
Solano County Democratic Central Committee
SolidarityInfoService
Stand.earth
Sustainable Rossmoor
The Climate Center
The Phoenix Group
Third ACT
Transformative Wealth Management LLC
Trinity Respecting Earth and Environment
Union of Concerned Scientists
Urban Ecology Project
VF Corporation
Opposition
Advanced Medical Technology Association
African American Farmers of California
Agricultural Energy Consumer Association
American Beverage Association
American Composites Manufacturers Association
American Pistachio Growers
Antelope Valley Chambers of Commerce
Auto Care Association
Building Owners and Managers Association
CA Cotton Ginners & Growers Association
California Advanced Biofuels Alliance
California Apartment Association
California Apple Commission
California Asphalt Pavement Association
California Bankers Association
California Blueberry Association
California Blueberry Commission
California Builders Alliance
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Construction and Industrial Materials Association
California Credit Union League
California Date Commission
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Hispanic Chamber of Commerce
California Independent Petroleum Association
California Life Sciences
California Manufacturers & Technology Association
California Poultry Federation
California Retailers Association
California Walnut Commission
Can Manufacturers Institute
Carlsbad Chamber of Commerce
CAWA
Chino Valley Chamber of Commerce
Citrus Heights Chamber of Commerce
Costa Mesa Chamber of Commerce
Danville Area Chamber of Commerce
Far West Equipment Dealers Association
Greater High Desert Chamber of Commerce
LA Cañada Flintridge Chamber of Commerce and Community Association
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Naiop California
Nisei Farmers League
North San Diego Business Chamber
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
PCI West-chapter of The Precast/Prestressed Concrete Institute
Rancho Cordova Chamber of Commerce
Sacramento Regional Builders Exchange
Santa Barbara South Coast Chamber of Commerce
Securities Industry and Financial Markets Association
Southern California Leadership Council
Specialty Equipment Market Association
State Building and Construction Trades Council of CA
Torrance Area Chamber of Commerce
Walnut Creek Chamber of Commerce
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute
Analysis Prepared by: Paige Brokaw / NAT. RES. /
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 261 |
THIRD READING
Bill No: SB 261
Author: Stern (D), Becker (D), Gonzalez (D) and Wiener (D), et al.
Amended: 5/18/23
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE: 4-2, 3/15/23
AYES: Allen, Gonzalez, Menjivar, Skinner
NOES: Dahle, Nguyen
NO VOTE RECORDED: Hurtado
SENATE JUDICIARY COMMITTEE: 9-1, 4/18/23
AYES: Umberg, Wilk, Allen, Ashby, Durazo, Laird, McGuire, Min, Wiener
NOES: Niello
NO VOTE RECORDED: Caballero
SENATE APPROPRIATIONS COMMITTEE: 4-2, 5/18/23
AYES: Portantino, Ashby, Wahab, Wiener
NOES: Jones, Seyarto
NO VOTE RECORDED: Bradford
SUBJECT: Greenhouse gases: climate-related financial risk
SOURCE: Ceres
DIGEST:
This bill requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and requires the California Air Resources Board (CARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
ANALYSIS:
Existing law:
- Establishes the Governor’s Office of Planning and Research (OPR) as the State of California’s comprehensive planning agency, and tasks it with studying future research and planning needs, fostering goal-driven collaboration, and delivering guidance to state partners and local communities, with a focus on land use and community development, climate risk and resilience, and high road economic development.
- Provides processes and requirements related to forming business entities, such as corporations, partnerships, and limited liability companies, and requires that specified documents and instruments related to business entities be filed with the Secretary of State. (Corporations Code § 100 et seq)
- Requires, under SB 964 (Allen, Chapter 731, Statutes of 2017), California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) to issue financial disclosures utilizing the Taskforce on Climate-Related Financial Disclosure (TCFD) recommendations.
This bill:
- Makes findings and declarations regarding, among other things, the importance of climate risk in effective decision-making.
- Defines terms for the purposes of this bill, including but not limited to:
- “Climate-related financial risk,” to mean material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health;
- “Climate reporting organization,” to mean a nonprofit climate reporting organization that currently operates a voluntary climate reporting organization for organizations operating in the United States and that has experience with voluntary climate-related financial risk disclosure in California; and
- “Covered entity” to mean a corporation, partnership, limited liability company, or other U.S business entity with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California—excluding any business entity that is subject to regulation by the California Department of Insurance or in the business of insurance in any other state.
- Requires, on or before December 31, 2024, and annually thereafter, covered entities to prepare and post on their website a climate-related financial risk report, as defined, disclosing its climate-related financial risk and its measures adopted to reduce and adapt to that risk.
- Requires CARB to contract with a climate reporting organization to prepare an annual public report on a subset of the climate-risk disclosures submitted pursuant to this act.
- States that if a federal law or regulation enacted or promulgated on or after this act requires a covered entity to prepare an annual report disclosing information materially similar to this act, then the report thereby required can be considered sufficient for complying with this act.
Background
- Financial risks & disclosures. When investing money into a given asset, an investor lends money with the expectation of earning an additional return sometime in the future. Typically, the expected rate of return is a function of the risk associated with the investment; low-risk investments yield low returns, and greater risk brings greater potential returns. Managing portfolios of assets to yield predictable returns requires an accurate assessment of the risk associated with those assets and appropriate pricing of them. Especially when the scale of assets is so large (for example, BlackRock, the world’s largest asset management company, has roughly $10 trillion in assets under management; nearly 10% of the gross world product), accurate risk management is essential. If companies and investors do not have access to sufficient information, they may misprice climate-related assets and create financial instability.
- Task Force on Climate-Related Financial Disclosures (TCFD). In 2015, after the G20 summit concluded there was insufficient information for the financial sector surrounding climate risk, the Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD sought to develop recommendations for voluntary climate-related financial disclosures that were consistent, comparable, reliable, clear, efficient, and provide decision-useful information. This report was published in 2017 in order to enable investors and other stakeholders to accurately assess companies’ climate-related financial risk.
The disclosure recommendations are structured around four pillars of how organizations operate: governance, strategy, risk management, and metrics and targets. In late 2020, the UK became the first country in the world to mandate economy wide disclosures in line with the TCFD recommendations. The process began in 2021 with the largest pension schemes and financial institutions, and it will gradually expand to include smaller firms and broader entities over the next two years.
Comments
- Purpose of Bill. According to the author, “It is abundantly clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catastrophic wildfires, and extreme weather events. These impacts not only affect our environment but they also affect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identified, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decision making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.”
- Who has to report? Generally, this bill applies to companies who do business in California and whose gross revenues exceed $500,000,000 annually. The one notable exemption—insurance companies—is because on April 8, 2022, the National Association of Insurance Commissioners, which includes California’s Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with TCFD. Thus, the author has excluded business entities that are subject to regulation by the Department of Insurance in this state, or that are in the business of insurance in any other state from the definition of covered entity.
At the federal level, the Securities & Exchange Commission (SEC) has proposed its own climate disclosure rules for publicly listed companies. That proposal has yet to be adopted and excludes privately held companies. Among the over 10,000 companies who do business in California and exceed the $500,000,000 revenue threshold, only 20% of them are publicly traded. Thus, there are clear advantages in the completeness and scope of the data that could be gathered by California in enacting SB 261, regardless of the progress of the SEC proposal. However, moving forward the author should take care to ensure that SB 261 does not create an undue reporting burden when taken alongside the SEC proposal.
Ultimately, the reporting requirements contemplated under SB 261 will indeed create additional work for covered entities. However, the reports will also bring benefits, insofar as it allows those businesses and their investors to accurately price the associated risks and have a more complete picture of how their future operations may affect—and be affected by—global climate change.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
According to the Senate Appropriations Committee:
- Unknown, potentially significant ongoing costs for the Secretary of State and ARB (General Fund) to implement the provisions of this bill.
- Unknown, potentially significant ongoing costs (General Fund) for the Department of Justice to enforce violations of this bill under the Attorney General’s independent authority.
- To the extent the Attorney General successfully brings civil action against reporting entities in violation of the provisions of this bill, potential increases in state revenues of an unknown amount due to the collection of civil penalties (General Fund or special fund).
- Unknown, potentially significant cost pressures to the state-funded trial courts due to additional workload (Trial Court Trust Fund, General Fund).
SUPPORT: (Verified 5/18/23)
Ceres (source)
1000 Grandmothers for Future Generations
350 Bay Area Action
350 Conejo / San Fernando Valley
350 Humboldt
350 Juneau
350 Marin
350 Sacramento
350 South Bay LA
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Alter Eco
Americans for Financial Reform
Avocado Green Brands
Ban SUP
California Environmental Voters
California State Teachers' Retirement System
CALPIRG
Citizens Climate Lobby Sacramento / Roseville Chapter
Climate 911
Climate Action California
Climate Hawks Vote
Climate Reality Project, San Fernando Valley
Coalition for Clean Air
Coastside Jewish Community
Conejo Climate Coalition
Cool Planet Group of First Presbyterian Church, Palo Alto
Divest Oregon
Dsm North America
E2
East Valley Indivisibles
Elders Climate Action, NorCal and SoCal Chapters
Environment California
Environmental Defense Fund
Extinction Rebellion San Francisco Bay Area
Fossil Free California
Friends Committee on Legislation of California
Friends of the Earth
Giniw Collective
Glendale Environmental Coalition
Grove Collaborative
Honor the Earth
Humboldt Unitarian Universalist Fellowship's Climate Action Campaign
Indivisible Alta Pasadena
Indivisible California Green Team
Indivisible California StateStrong
Leading Change Consulting and Coaching
Mothers Out Front California
Natural Resources Defense Council
Oil & Gas Action Network
Peninsula Interfaith Climate Action
Public Citizen, INC
Rapidshift Network
San Francisco Bay Physicians for Social Responsibility
Santa Cruz Climate Action Network
Sierra Club California
Sierra Nevada Brewing Company
SoCal 350 Climate Action
SolidarityINFOService
Stand.earth
The Climate Center
The Phoenix Group
The Vessel Project of Louisiana
Third ACT
Transformative Wealth Management LLC
Trinity Respecting Earth and Environment
Union of Concerned Scientists
Urban Ecology Project
Working for Racial Equity
OPPOSITION: (Verified 5/18/23)
African American Farmers of California
Agricultural Energy Consumers Association
American Composites Manufacturers Association
American Pistachio Growers
Antelope Valley Chambers of Commerce
Building Owners and Managers Association
California Advanced Biofuels Alliance
California Apartment Association
California Apple Commission
California Asphalt Pavement Association
California Blueberry Association
California Blueberry Commission
California Business Properties Association
California Chamber of Commerce
California Construction & Industrial Materials Association
California Cotton Ginners and Growers Association
California Credit Union League
California Date Commission
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Independent Petroleum Association
California Manufacturers & Technology Association
California Poultry Federation
California Retailers Associaiton
California Walnut Commission
Can Manufacturers Institute
Carlsbad Chamber of Commerce
Chino Valley Chamber of Commerce
Citrus Heights Chamber of Commerce
Costa Mesa Chamber of Commerce
Danville Area Chamber of Commerce
Far West Equipment Dealers Association
Greater High Desert Chamber of Commerce
LA Canada Flintridge Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
NAIOP California
Nisei Farmers League
North San Diego Business Chamber
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
PCI West-Chapter of the Precast/Prestressed Concrete Institute
Rancho Cordova Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Securities Industry and Financial Markets Association
Southern California Leadership Council
Specialty Equipment Market Association
Torrance Area Chamber of Commerce
Walnut Creek Chamber of Commerce
West Ventura County Business Alliance
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute
ARGUMENTS IN SUPPORT: According to a coalition of groups in support, “The transition to a low-carbon economy, occurring as we grapple with environmental and social harms that can’t be mitigated, challenges practically every sector of the economy. Without accurate information about climate-related financial risk and a robust discussion of how to manage that risk, governments, money managers, and companies can only guess at strategies that will carry them through the changes that are already underway. SB 261 requires risk reporting and public disclosure of the steps financial institutions and businesses are taking to mitigate and adapt to global climate change, and mandates ongoing consideration and study of best policy practices.”
ARGUMENTS IN OPPOSITION: According to a coalition of groups in opposition, “The measure is premature given the amount of activity happening at the federal and international levels. Both the executive and legislative branches have served notice that changes will be happening soon in this area. The Securities and Exchange Commission is already reviewing their guidance documents on the topic and expects to provide an update shortly. There is a very real risk that compliance with SB 261 will not align with federal or the Task Force’s own recommendations. The recommendations also assert that any national level requirements should preempt those at state or local levels, noting that “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not be seen as superseding national disclosure requirements”. The measure not only lacks compliance acknowledgement for entities subject to a federal level requirement, but it also jumps the gun by superseding national disclosure requirements that are imminent.”
Prepared by: Eric Walters / E.Q. / (916) 651-4108
5/23/23 13:28:04
**** END ****
SENATE COMMITTEE ON
Senator Anthony Portantino, Chair
2023 - 2024 Regular Session
SB 261 (Stern) - Greenhouse gases: climate-related financial risk
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
This bill would require companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and require the California Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********
The following information is revised to reflect amendments
adopted by the committee on May 18, 2023
Fiscal Impact:
- Unknown, potentially significant ongoing costs for the Secretary of State (SOS) and ARB (General Fund) to implement the provisions of this bill.
- Unknown, potentially significant ongoing costs (General Fund) for the Department of Justice to enforce violations of this bill under the Attorney General’s independent authority.
- To the extent the Attorney General successfully brings civil action against reporting entities in violation of the provisions of this bill, potential increases in state revenues of an unknown amount due to the collection of civil penalties (General Fund or special fund).
- Unknown, potentially significant cost pressures to the state-funded trial courts due to additional workload (Trial Court Trust Fund, General Fund).
Author Amendments:
These amendments would narrow the requirements on ARB and the SOS. Specifically, they would:
- Require covered entities to make the report available to the public on its own internet website and attest to the SOS that they have publicly disclosed the report online, rather than require entities to submit copies of the reports to the SOS and ARB.
- Require only a subset of the publicly available reports be reviewed by ARB and SOS.
-- END --
SENATE COMMITTEE ON
Senator Anthony Portantino, Chair
2023 - 2024 Regular Session
SB 261 (Stern) - Greenhouse gases: climate-related financial risk
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
This bill would require companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and require the California Air Resources Board (ARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
Fiscal Impact:
- The Secretary of State (SOS) estimates one-time costs of about $18 million (General Fund) for an information technology project. In addition, SOS estimates ongoing costs of about $5.4 million in the first year and approximately $5 million annually thereafter (General Fund) for 23 positions as well as infrastructure costs, including technology infrastructure, software, security monitoring tools, and digital storage costs. SOS notes that proposed statement and related requirements drastically exceed the scope of information that the SOS is currently tasked with collecting for corporations, partnerships, limited liability companies, or other business entities.
- ARB estimates ongoing costs of about $5 million and 18 positions in 2023-24, $6.8 million and 25 positions in 2024-25, and $6.5 million and 25 positions annually thereafter (General Fund) to identify covered entities, develop and implement regulations, develop and maintain a tool to support collection of covered entities reports, develop and maintain a verification program, and contract with a climate reporting organization to annually prepare a public report that contains a review of the disclosure of climate-related financial risk contained in climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state, among other things.
- Unknown, potentially significant ongoing costs (General Fund) for the Department of Justice to enforce violations of this bill under the Attorney General’s independent authority.
- To the extent the Attorney General successfully brings civil action against reporting entities in violation of the provisions of this bill, potential increases in state revenues of an unknown amount due to the collection of civil penalties (General Fund or special fund).
- Unknown, potentially significant cost pressures to the state-funded trial courts due to additional workload (Trial Court Trust Fund, General Fund).
Background:
Financial risks & disclosures. When investing money into a given asset, an investor lends money with the expectation of earning an additional return sometime in the future. Typically, the expected rate of return is a function of the risk associated with the investment; low-risk investments yield low returns, and greater risk brings greater potential returns. Managing portfolios of assets to yield predictable returns requires an accurate assessment of the risk associated with those assets and appropriate pricing of them. Especially when the scale of assets is so large (for example, BlackRock, the world’s largest asset management company, has roughly $10 trillion in assets under management; nearly 10% of the gross world product), accurate risk management is essential. If companies and investors do not have access to sufficient information, they may misprice climate-related assets and create financial instability.
Task Force on Climate-Related Financial Disclosures (TCFD). In 2015, after the G20 summit concluded there was insufficient information for the financial sector surrounding climate risk, the Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD sought to develop recommendations for voluntary climate-related financial disclosures that were consistent, comparable, reliable, clear, efficient, and provide decision-useful information. This report was published in 2017 in order to enable investors and other stakeholders to accurately assess companies’ climate-related financial risk.
The disclosure recommendations are structured around four pillars of how organizations operate: governance, strategy, risk management, and metrics and targets. In late 2020, the UK became the first country in the world to mandate economy wide disclosures in line with the TCFD recommendations. The process began in 2021 with the largest pension schemes and financial institutions, and it will gradually expand to include smaller firms and broader entities over the next two years.
The California Climate-Related Risk Disclosure Advisory Group. Called to serve by Governor Newsom as a follow-up to Executive Order N-19-19, the California Climate Risk Disclosure Advisory Group is composed of 20 global leaders with deep expertise in state and local government, infrastructure, economics, finance, accounting, banking, business, insurance, and investment portfolio management. The 20 members of the Advisory Group were selected by the Governor with no input or direction from the Legislature. Since its establishment in April of 2021, the Advisory Group has produced one report, released in September of 2021, Developing Climate Risk Disclosure Practices for the State of California.
The report delivered more than 45 infrastructure and financial disclosure recommendations focused on the state’s $262 billion operating budget and the combined $1 trillion in assets under management across the state’s three biggest pension funds. The advisory group recommended, in part, “A continuing internal process should be established that coordinates state climate-related financial risk disclosure and incorporates disclosures into new state processes and policies,” and that, “The state should invest in additional personnel, staff capabilities, and technical assistance resources.”
Specifically, the Advisory Group called for the establishment of a “Climate Risk Coordination Committee” (CRCC). The report suggested that the CRCC should be a forum for constitutional office and other state entities to (1) continue developing climate-related risk disclosure standards, (2) track and integrate the evolution of climate-related risk methodologies and frameworks, (3) guide state entities to use climate-related information disclosed to better inform processes and decisions, (4) incorporate learnings from disclosure efforts into other California climate policies and regulations, (5) assess resource needs to incorporate climate-related risk considerations into state processes, and (6) share internal best practices and foster expertise.
Proposed Law:
This bill would require companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, and require ARB to contract with a qualified climate reporting organization to review and publish an analysis of those reports. Specifically, this bill would:
- Make findings and declarations regarding, among other things, the importance of climate risk in effective decision-making.
- Define terms.
- Require a covered entity, on or before December 31, 2024, and annually thereafter, to prepare a climate-related financial risk report disclosing both of the following:
- Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
- Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to 3)(a).
- Require a covered entity, on or before December 31, 2024, and annually thereafter, to submit to the ARB, and make available to the public on its own website, a copy of the report required by 3); and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to 3) discloses climate-related financial risk in accordance with the TCFD framework, as required.
- Provide that, if a federal law or regulation enacted or promulgated after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in 3), a report prepared pursuant to the federal requirement satisfies the requirements of 3) and a covered entity may satisfy its obligations under 4) by submitting the federal report to the ARB.
- Require the ARB to contract with a climate reporting organization to prepare an annual public report on the climate risk disclosures required under 3) and ensure the required climate risk disclosures remain consistent with current practices.
- Require the climate reporting organization contracted under 6) to do all of the following:
- Annually prepare a report that contains: (1) a review of the disclosure of climate-related financial risk contained in the reports submitted to the ARB; (2) an analysis of the systematic and sector-wide climate-related financial risks facing the state based on the contents of the reports, including, but not limited to, potential impacts one economically vulnerable communities; and (3) identification of inadequate or insufficient reports.
- Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of “climate-related financial risk,” and the framework or disclosure standard of “climate-related financial risk reports.”
- Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
- Provide that if the Attorney General finds that a reporting entity has violated the requirements above of 3) or 4), or upon a report received from the ARB, the entity shall be liable for a civil penalty not to exceed $500,000 per violation, which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General in a court of competent jurisdiction.
Related Legislation:
SB 449 (Stern, 2021) was substantially similar to this bill in requiring TCFD-aligned disclosures. SB 449 was held on the Suspense File in this committee.
SB 253 (Wiener, 2023) would require any partnership, corporation, limited liability company, or other U.S. business entity with total annual revenues in excess of one billion dollars and that does business in California to publicly report their annual full-scope GHG emissions. SB 253 is currently before this committee.
SB 262 (Gonzalez, 2023) would prohibit the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from making new investments or renewing existing investments of public employee retirement funds in a fossil fuel company, as defined, and would require the boards to liquidate investments in a fossil fuel company on or before July 1, 2030. SB 252 is currently before this committee.
Staff Comments:
SOS costs. As noted above, the SOS states that the proposed statement and related requirements drastically exceed the scope of information that it is currently tasked with collecting for corporations, partnerships, limited liability companies, or other business entities. Therefore, the SOS expects that this bill would require an information technology project. The costs of such a project would likely exceed delegated authority for the SOS and require California Department of Technology oversight throughout the project. As a non-delegated project, additional resources, both SOS and external project management support, will be necessary for the life of the project, including resources from multiple divisions within the SOS.
Moreover, the SOS anticipates that this bill would have a substantial fiscal impact to its office. It may need to develop a new form for the statement requirements and establish a filing requirement, either by mail for physical statements, or an online filing database. The SOS would also have to physically and digitally retain the statements for an undetermined amount of time. An internal application would also be required to allow SOS staff to manage the data. The SOS notes that the development, implementation, and maintenance of a new form and data collection would not only significantly impact the SOS; it would also impact current information and technology projects currently underway. The SOS also notes that the requirement to develop and test the new annual statement form would in and of itself require significant resources that are being utilized by the California Business Connect project, but also to develop and test a searchable database would divert the necessary information technology resources.
Court costs. It is unknown how many civil actions the Attorney General would bring as a result of this bill. However, the estimated workload cost of one hour of court time is approximately $1,000.
Staff notes that the requirements this bill would impose are complex and, as a result, judicial involvement in a potential violation of its provisions could result in protracted litigation. If additional causes of action were filed that, combined, result in 50 hours or more of court time, then this bill would meet the Suspense File threshold based on court workload cost pressure alone. Although courts are not funded on the basis of workload, increased pressure court staff time and resources may create a need for increased funding for courts from the General Fund to perform existing duties. Numerous trial court operations are funded through the imposition and collection of fines and fees. However, the Legislature has reduced and eliminated fines and fees over the past decade. As a result, the 2023-24 proposed budget anticipates an ongoing annual allocation of $109.3 million from the General Fund to the Trial Court Trust Fund in order to address the decline in revenue.
-- END --
Senator Thomas Umberg, Chair
2023-2024 Regular Session
Bill No: SB 261 (Author:Stern)
Version: April 10, 2023
Hearing Date: April 18, 2023
Fiscal: Yes
Urgency: No
Consultant: AWM
SUBJECT
Greenhouse gases: climate-related financial risk
DIGEST
This bill requires companies that do business in California and have gross revenues exceeding $500 million annually, excluding insurance companies, to report on their climate-related financial risk, as specified; and requires the California Air Resources Board (CARB) to contract with a qualified climate reporting organization to review and publish an analysis of those reports, as specified.
EXECUTIVE SUMMARY
Climate change is here; the question that remains is how catastrophic it will be. As the effects of climate change are felt around the world, businesses and governments increasingly have to account for climate-related financial risks—the uncertainties and threats caused by climate change that may affect decisionmaking.
The Taskforce on Climate-Related Financial Disclosure (TCFD), founded at the behest of the G20, has developed a recommended framework for corporate climate-risk reporting. The TCFD-recommended disclosures include identifying the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning, and disclosing how the organization identifies, assesses, and manages climate-related risks. A number of organizations have voluntarily published reports containing some or all of the TCFD-recommended disclosures, and the United Kingdom requires certain organizations to make TCFD disclosures on annual basis, but there is no domestic requirement for companies to make TCFD-recommended disclosures.
This bill requires companies with over $500 million in annual revenues that do business in California, beginning in 2024, to annually submit a report to the CARB disclosing their climate-related financial risks using the TCFD framework; the report must also be posted to the entity’s website. The bill further requires that CARB contract with a qualified climate reporting organization to review the reports and annually publish a report analyzing the information provided and a sector-by-sector breakdown of climate-related financial risks. The bill specifies that, if a similar reporting requirement is enacted at the federal level, a reporting entity can satisfy its obligations under this bill by submitting the federal report. Finally, the bill provides that a reporting entity’s violation of the reporting requirements is punishable by a civil penalty of up to $500,000, which may be awarded in a civil action brought by the Attorney General.
This bill is sponsored by Ceres and is supported by over 80 organizations, including groups dedicated to minimizing the effects of climate change, businesses, and faith-based organizations. This bill is opposed by over 50 organizations, including the California Chamber of Commerce and local Chambers of Commerce and a range of organization representing various industries. This bill was passed out of the Senate Environmental Quality Committee with a vote of 4-2.
PROPOSED CHANGES TO THE LAW
Existing state law:
- Establishes the California Global Warming Solutions Act of 2006 (AB 32 (Nunez, Ch. 488, Stats. 2006)), which declares that global warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California, and that action taken by California to reduce emissions of greenhouse gases will have far-reaching effects by encouraging other states, the federal government, and other countries to act. (Health & Saf. Code, div. 25.5, §§ 38500 et seq.)
- Requires the CARB to monitor compliance with and enforce the requirements of the California Global Warming Solutions Act of 2006, and deems any violation to result in an emission of an air contaminant that may result in criminal and civil penalties. (Health & Saf. Code, § 38580.)
- Defines “doing business” in California as engaging in any transaction for the purpose of financial gain within California, being organized or commercially domiciled in California, or having California sales, property, or payroll exceed $610,395, $61,040, and $61,040, respectively, as of 2020. (Rev. & Tax. Code, §§17041, 23101.)
- Requires, until January 31, 2035, California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) to publicly report on its analysis of the climate-related financial risk in its public market portfolio, as specified. (Gov. Code, § 7510.5.)
Existing federal law:
- Gives Congress the authority to regulate commerce with foreign nations and between states, i.e. the commerce clause. (U.S. Const. art. I, § 8.)
- Directs specified federal officers and bodies, pursuant to an executive order, to develop a comprehensive, government-wide strategy regarding the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations. (Exec. Order No. 14030, 86 Fed.Reg. 27967 (May 20, 2021).)
This bill:
- Makes findings and declarations regarding, among other things, the importance of climate risk in effective decision-making.
- Defines the following terms:
- “Climate reporting organization” is a nonprofit climate reporting organization contracted by the CARB that (1) currently operates a voluntary climate reporting organization for organizations operating in the United States and (2) has experience with voluntary climate-related disclosure by entities operating in California.
- “Climate-related financial risk” is material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
- “Climate-related financial risk report” is a report required by 3).
- “Covered entity” is a corporation, partnership, limited liability company, or other business entity formed under the laws of this state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of $500,000,000 and that does business in California; the term does not include business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.
- Requires a covered entity, on or before December 31, 2024, and annually thereafter, to prepare a climate-related financial risk report disclosing both of the following:
- Its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017) published by the Task Force on Climate-Related Financial Disclosures, or any subsequent publication thereto.
- Its measures adopted to reduce and adapt to climate-related financial risk disclosed pursuant to 3)(a).
- Requires a covered entity, on or before December 31, 2024, and annually thereafter, to submit to the CARB, and make available to the public on its own website, a copy of the report required by 3); and to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to 3) discloses climate-related financial risk in accordance with the TCFD framework, as required.
- Provides that, if a federal law or regulation enacted or promulgated after January 1, 2023, requires a covered entity to prepare an annual report disclosing information materially similar to the information described in 3), a report prepared pursuant to the federal requirement satisfies the requirements of 3) and a covered entity may satisfy its obligations under 4) by submitting the federal report to the CARB.
- Requires the CARB to contract with a climate reporting organization to prepare an annual public report on the climate risk disclosures required under 3) and ensure the required climate risk disclosures remain consistent with current practices.
- Requires the climate reporting organization contracted under 6) to do all of the following:
- Annually prepare a report that contains: (1) a review of the disclosure of climate-related financial risk contained in the reports submitted to the CARB; (2) an analysis of the systematic and sector-wide climate-related financial risks facing the state based on the contents of the reports, including, but not limited to, potential impacts one economically vulnerable communities; and (3) identification of inadequate or insufficient reports.
- Regularly convene representatives of sectors responsible for reporting climate-related financial risks, state agencies responsible for oversight of reporting sectors, investment managers, academic experts, and other stakeholders to offer input on current best practices regarding the disclosure of financial risks resulting from climate change, including, but not limited to, proposals to update the definition of “climate-related financial risk,” and the framework or disclosure standard of “climate-related financial risk reports.”
- Monitor federal regulatory actions among agency members of the federal Financial Stability Oversight Council, as well as nonindependent regulators overseen by the White House.
- Provides that if the Attorney General finds that a reporting entity has violated the requirements above of 3) or 4), or upon a report received from the CARB, the entity shall be liable for a civil penalty not to exceed $500,000 per violation, which may be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General in a court of competent jurisdiction.
- Places 2)-6) within the California Global Warming Solutions Act of 2006.
COMMENTS
- Author’s comment
According to the author:
It is abundantly clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catastrophic wildfires, and extreme weather events. These impacts not only [a]ffect our environment but they also [a]ffect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identified, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decision making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.
2. Background on climate-related financial disclosures
In 2015, the G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to review how the financial sector could better account for climate-change-related issues.[1] The FSB formed the TCFD, and in 2017 the TCFD released a recommended framework for companies on climate-related financial disclosures.[2] The report explains that “climate change poses significant financial challenges and opportunities,” but “[a]t the same time, the risk-return profile of organizations exposed to climate-related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”[3] As such, the TCFD recommended that companies make climate disclosures in four key areas:
- Governance: disclose the organization’s governance around climate-related risks and opportunities.
- Strategy: disclose the actual and potential impacts of the climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.
- Risk management: disclose how the organization identifies, assesses, and manages climate-related risks.
- Metrics and targets: disclose the metrics and targets used to assess and manage climate-related risks and opportunities where such information is material.[4]
The United Kingdom adopted the TCFD as a mandatory disclosure framework for publicly traded companies and large private companies in 2021.[5] As of March 2022, CDP—an organization that provides a platform for TCFD-aligned disclosures—reports that over 680 financial institutions with over $130 trillion in assets had called on nearly 10,400 companies to disclose TCFD climate-related data.[6] Major investment firms, such as BlackRock, have also made TCFD climate-risk reports.
Here in California, the Legislature in 2018 enacted SB 964 (Allen, Ch. 731, Stats. 2018), which requires CalPERS and CalSTRS to make public climate-related financial risk disclosures on a triannual basis.[7] CalSTRS, writing in support of the bill, has noted that the task of determining its own climate-related financial risk would be significantly simplified if companies covered by this bill were also required to make TCFD-aligned disclosures.
3. This bill requires very large companies doing business in California to disclose their climate-related financial risks beginning in 2024
This bill requires companies who do business in California and whose gross revenues exceed $500 million annually, excluding insurance companies, to annually disclose their climate-related financial risks under the TCFD framework, beginning in 2024. The report must be submitted to the CARB and posted on the company’s own website. Insurance companies are exempted because the National Association of Insurance Commissioners, which includes California’s Insurance Commissioner, already require insurance companies to report their climate-related risks in alignment with TCFD.[8] The bill provides that a company that violates the bill’s reporting requirements may be liable for a civil penalty of up to $500,000, which may be recovered in a civil action brought by the Attorney General in the name of the people of the State of California.
The bill also requires the CARB to contract with an experienced climate reporting organization to analyze the reports. The contracted entity must, on an annual basis, prepare a public report that reviews the climate-related financial risk disclosures and provides breakdowns of risk by sector and identify inadequate or insufficient reports.
An earlier version of the bill did not account for the possibility that the federal government may impose a similar climate-related-risk reporting requirement. As the Senate Environmental Quality Committee’s analysis notes, the Securities and Exchange Commission (SEC) is considering its own potential climate disclosure rules which may overlap with this bill’s disclosures. While the SEC’s rules would apply only to publicly traded companies, imposing a dual reporting requirement could unduly burden companies or result in a conflict with federal requirements. The author has accordingly amended the bill to provide that, if federal laws or regulations are enacted to require climate-risk reporting, a covered entity can comply with this bill by submitting the federally required report to the CARB, rather than creating a second report.
4. This bill does not present a clear dormant interstate commerce clause issue
Section 8 of Article I of the United States Constitution grants the United States Congress the power to regulate interstate commerce.[9] Since the early nineteenth century, the Supreme Court has held that obverse proposition—that states may not usurp Congress’s express power to regulate interstate commerce—must also be true.[10] This rule against state interference in interstate commerce, sometimes known as the dormant interstate commerce clause, serves as an absolute bar to regulations that discriminate against interstate commerce, i.e., by favoring in-state businesses or excluding out-of-state businesses.[11] But when a state passes a law that “ ‘regulat[es] even-handedly [across all in-state and out-of-state businesses] to effectuate a legitimate local public interest,’ ” that law “ ‘will be upheld unless the burden imposed upon such commerce is clearly excessive in relation to the putative local benefits.’ ”[12]
There is no facial dormant Commerce Clause issue here. This bill grants no favoritism for in-state companies—all U.S.-based companies doing business in California with annual revenues in excess of $500 million are subject to the bill’s reporting requirement. That leaves only the questions of whether the bill’s reporting requirement serves a legitimate local interest, and whether the burden imposed by the reporting requirement is clearly excessive in relation to the benefits conferred.
5. Arguments in support
According to Ceres, the bill’s sponsor:
Climate change poses a significant risk to our long-term economic success, impacts the health and livelihood of the communities in which we operate and live, and disrupts the value chains on which we rely. Consistent, comparable, and reliable information at scale is necessary to fully assess companies’ risk exposure and to navigate the path to a net-zero future.
Companies need to invest in climate disclosure analysis and reporting because ignoring the risks will be very costly, while finding the path towards a net-zero future offers economic stability and growth. The current state of voluntary climate disclosure is inadequate for meeting rapidly accelerating climate risks, and the SEC’s climate risk disclosure would only apply to publicly traded US entities. Climate disclosure is needed from non-listed actors as well. SB 261 sets the bar on robust, multi-sector disclosure and holds companies accountable for managing climate risk to ensure a sustainable, resilient, and prosperous future for California.
6. Arguments in opposition
According to a coalition of over 50 organizations writing in opposition:
By mandating an annual report in accordance with the Final Recommendations of the Task Force on Climate-Related Financial Disclosures, SB 261 is itself in conflict with the recommendations. The recommendations are designed to be voluntary and to maintain the standard of materiality, the report notes that “any disclosure recommendations by the Task Force would need to be voluntary, would need to incorporate the principle of materiality and would need to weigh the balance of costs and benefits.” The recommendations also assert the need for flexibility. Further the report acknowledges the importance of a deliberate transition, noting that “As understanding, data analytics, and modeling of climate-related issues becomes more widespread, disclosures can mature accordingly.” Unfortunately, SB 261 was drafted with a degree of rigidity that doesn’t allow for flexibility based on the maturation of our understanding of data collection and analytics as noted in the Task Force’s own findings.
The Task Force’s recommendations seem to be designed to offer guidance to those in the business community on how best to mitigate risk, yet the approach taken by SB 261 would actually impose the greatest amount of risk on those most susceptible to financial uncertainty: the small business community. SB 261 takes a one-size fits all approach to the business community and applies a reporting standard that would impact a broad array of businesses here in California. The Task Force’s own findings note that there should be a proportional approach to developing disclosure requirements to ensure that smaller organizations are not subject to risk. Risk that the report clearly identifies in the form of “litigation given the high degree of uncertainty around future timing and magnitude of climate-related impacts.” While larger institutions might be able to assume that risk, that is often not the case for smaller businesses here in California. And, at an even more granular level, the impact to the small business community will vary based on geographic location, which is not accounted for in this proposal. Unfortunately, SB 261 does not follow the guidance offered in the report and puts the small business community at risk writ large.
SUPPORT
Ceres (sponsor)
350 Bay Area Action
350 Conejo/San Fernando Valley
350 Humboldt
350 Juneau
350 Marin
350 Sacramento
350 South Bay Los Angeles
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Alter Eco
Americans for Financial Reform
Avocado Green
Ban SUP (Single Use Plastic)
California Environmental Voters
California State Teachers’ Retirement System (CalSTRS)
CALPIRG
Catholic Network US (Colorado)
Center for Biological Diversity
Citizens’ Climate Lobby, Sacramento/Roseville Chapter
Climate 911
Climate Action California
Climate Action Campaign, Humboldt
Climate Hawks Vote
Climate Reality Project, Los Angeles
Climate Reality Project, San Fernando Valley
Coalition for Clean Air
Coastside Jewish Community
Colorado Businesses for a Livable Climate
Community for Sustainable Energy
Conejo Climate Coalition
Cool Planet Group of First Presbyterian Church, Palo Alto
Divest Oregon
DSM North America
E2
East Valley Indivisibles
Environment California
Environmental Defense Fund
Extinction Rebellion San Francisco Bay Area
Fossil Free California
Friends Committee on legislation of California
Friends of the Earth
Giniw Collective
Glendale Environmental Coalition
Greater New Orleans Housing Alliance
Grove Collaborative
Honor the Earth
Indivisible Alta Pasadena
Indivisible Ambassadors (Colorado)
Indivisible California Green Team
Indivisible California: StateStrong
Leading Change Consulting and Coaching
Littleton Business Alliance
Mental Health & Inclusion Ministries
Mind Eye World
Mothers Out Front California
Natural Resources Defense Council
North Range Concerned Citizens
Oil & Gas Action Network
Peninsula Interfaith Climate Action
Public Citizen
RapidShift Network
San Fernando Valley Climate Reality
San Francisco Bay Physicians for Social Responsibility
Santa Cruz Climate Action Network
Save EPA
Sierra Club California
Sierra Nevada Brewing Co.
Silicon Valley Youth Climate Action
SoCal 350 Climate Action
SolidarityINFOService
Southwest Organization for Sustainability
Spirit of the Sun, Inc.
Stand.earth
System Change Not Climate Change
The Climate Center
The Phoenix Group
The Vessel Project of Louisiana
Third Act
Transformative Wealth Management, LLC
Trinity Respecting Earth and Environment
Union of Concerned Scientists
Urban Ecology Project
OPPOSITION
Advanced Medical Technology Association
African American Farmers of California
Agricultural Energy Consumers Association
American Beverage Association
American Composites Manufacturers Association
American Pistachio Growers
Antelope Valley Chambers of Commerce
Auto Care Association
Building Owners and Managers Association
California Advanced Biofuels Alliance
California Apartment Association
California Apple Commission
California Asphalt Pavement Association
California Blueberry Association
California Blueberry Commission
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Construction and Industrial Materials Association
California Cotton Ginners and Growers Association
California Credit Union League
California Date Commission
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Hispanic Chamber of Commerce
California Independent Petroleum Association
California Life Sciences
California Manufacturers & Technology Association
California Poultry Federation
California Retailers Association
California Walnut Commission
Can Manufacturers Institute
Carlsbad Chamber of Commerce
CAWA
Chino Valley Chamber of Commerce
Citrus Heights Chamber
Costa Mesa Chamber of Commerce
Danville Area Chambers of Commerce
Far West Equipment Dealers Association
La Cañada Flintridge Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
National Association of Industrial and Office Properties
Nisei Farmers League
North San Diego Chamber of Commerce
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
Rancho Cordova Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Securities Industry and Financial Markets Association
Southern California Leadership Council
Specialty Equipment Market Association
The Greater High Desert Chamber of Commerce
Torrance Area Chamber of Commerce
Walnut Creek Chamber of Commerce
West Precast Prestressed Concrete Institute
West Ventura County Business Alliance
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute
RELATED LEGISLATION
Pending Legislation:
SB 253 (Wiener, 2023) requires any partnership, corporation, limited liability company, or other U.S. business entity with total annual revenues in excess of one billion dollars and that does business in California to publicly report their annual greenhouse gas (GHG) emissions, as specified by the CARB. SB 253 is pending before this Committee and is scheduled to be heard on the same date as this bill.
SB 252 (Gonzalez, 2023) prohibits the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from making new investments or renewing existing investments of public employee retirement funds in a fossil fuel company, as defined, and would require the boards to liquidate investments in a fossil fuel company on or before July 1, 2030. SB 252 is pending before the Senate Judiciary Committee.
Prior Legislation:
SB 449 (Stern, 2021) was substantially similar to this bill, in that it would have required certain California-based financial institutions to prepare and disclose climate-related financial risk reports disclosing the institution’s climate-related financial risk and its measures to reduce and adapt to those risks and established an entity to review the institutions’ reports and prepare analysis of the systemic and sector-wide climate-related financial risk. SB 449 died in the Senate Appropriations Committee.
SB 260 (Wiener, 2021) would have required the CARB to develop regulations to require a reporting entity—defined as a business entity with total annual revenues over one billion dollars that does business in California—to report to an emissions registry, as defined, their Scope 1, Scope 2, and Scope 3 emissions, as defined. The bill also would have required the ARB to prepare a report by January 1, 2026, on those disclosures, and it requires the emissions registry to establish a public data platform to view the disclosures. SB 260 died on the Assembly Floor.
SB 964 (Allen, Ch. 731, Stats. 2018) requires CalPERS and CalSTRS to make public climate-related financial risk disclosures on a triannual basis until January 1, 2035.
PRIOR VOTES:
Senate Environmental Quality Committee (Ayes 4, Noes 2)
**************
Task Force on Climate-Related Financial Disclosures, History, https://www.fsb-tcfd.org/about/#history. All links in this analysis are current as of April 14, 2023. ↑
See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (Jun. 2017), available at https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf. ↑
Id. at p. ii. ↑
Id. at p. 14. ↑
United Kingdom Department for Business, Energy & Industrial Strategy, MD Treasury, Press Release, UK to enshrine mandatory climate disclosures for largest companies in law (Oct. 29, 2021), https://www.gov.uk/government/news/uk-to-enshrine-mandatory-climate-disclosures-for-largest-companies-in-law. ↑
CDP, More than 680 financial institutions with US$130+ trillion in assets call on nearly 10,400 companies to disclose environmental data through CDP (Mar. 14 2022), https://www.cdp.net/en/articles/media/More-than-680-financial-institutions-call-on-nearly-10400-companies-to-disclose-environmental-data-through-CDP. ↑
Gov. Code, § 7510.5. The requirement is set to sunset on January 31, 2035. (Gov. Code, § 7510.5(f).) ↑
See National Association of Insurance Commissioners, U.S. Insurance Commissioners Endorse Internationally Recognized Climate Risk Disclosure Standard for Insurance Companies (Apr. 2, 2022), https://content.naic.org/article/us-insurance-commissioners-endorse-internationally-recognized-climate-risk-disclosure-standard. ↑
U.S. Const., art. I, § 8, cl. 3. ↑
See Gibbons v. Ogden (1824) 22 U.S. 1. ↑
E.g., Dean Milk Co. v. Madison (1951) 340 U.S. 349, 354. ↑
South Dakota v. Wayfair, Inc. (2018) 138 S.Ct. 2080, 2091. ↑
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Allen, Chair
2023 - 2024 Regular
Bill No: SB 261
Author: | Stern, et al. | ||
Version: | 1/30/2023 | Hearing Date: | 3/15/2023 |
Urgency: | No | Fiscal: | Yes |
Consultant: | Eric Walters | ||
SUBJECT: Greenhouse gases: climate-related financial risk
DIGEST: This bill requires most companies who do business in California and have gross revenues exceeding $500,000,000 annually to report on their climate-related financial risk. The bill further requires the Climate-Related Risk Disclosure Advisory Group and Governor’s Office of Planning and Research (OPR) to review and analyze those reports.
ANALYSIS:
Existing law:
- Establishes the Governor’s Office of Planning and Research (OPR) as the State of California’s comprehensive planning agency, and tasks it with studying future research and planning needs, fostering goal-driven collaboration, and delivering guidance to state partners and local communities, with a focus on land use and community development, climate risk and resilience, and high road economic development.
- Provides processes and requirements related to forming business entities, such as corporations, partnerships, and limited liability companies, and requires that specified documents and instruments related to business entities be filed with the Secretary of State. (Corporations Code § 100 et seq)
- Under SB 964 (Allen, Chapter 731, Statutes of 2017), requires California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) to issue financial disclosures utilizing the Taskforce on Climate-Related Financial Disclosure (TCFD) recommendations.
This bill:
- Makes findings and declarations regarding, among other things, the importance of climate risk in effective decision-making.
- Defines terms for the purposes of this bill, including but not limited to:
- “Climate-related financial risk,” to mean material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health; and
- “Covered entity” to mean a corporation, partnership, limited liability company, or other U.S business entity with total annual revenues in excess of five hundred million dollars ($500,000,000) and that does business in California—excluding any business entity that is subject to regulation by the California Department of Insurance or in the business of insurance in any other state.
- “Climate-related financial risk,” to mean material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health; and
- Requires, on or before December 31, 2024, and annually thereafter, covered entities to prepare a climate-related financial risk report, as defined, disclosing its climate-related financial risk and its measures adopted to reduce and adapt to that risk.
- Requires the Advisory Group established in response to Executive Order N-19-19—with OPR serving as administrative staff—to:
- Collect and review the climate-related financial risk reports;
- Annually prepare a public report on those reports, as specified;
- Regularly convene representatives of relevant sectors; and
- Monitor specified federal regulatory actions.
Background
- Financial risks & disclosures. When investing money into a given asset, an investor lends money with the expectation of earning an additional return sometime in the future. Typically, the expected rate of return is a function of the risk associated with the investment; low-risk investments yield low returns, and greater risk brings greater potential returns. Managing portfolios of assets to yield predictable returns requires an accurate assessment of the risk associated with those assets and appropriate pricing of them. Especially when the scale of assets is so large (for example, BlackRock, the world’s largest asset management company, has roughly $10 trillion in assets under management; nearly 10% of the gross world product), accurate risk management is essential. If companies and investors do not have access to sufficient information, they may misprice climate-related assets and create financial instability.
- Task Force on Climate-Related Financial Disclosures (TCFD). In 2015, after the G20 summit concluded there was insufficient information for the financial sector surrounding climate risk, the Financial Stability Board (FSB) established the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD sought to develop recommendations for voluntary climate-related financial disclosures that were consistent, comparable, reliable, clear, efficient, and provide decision-useful information. This report was published in 2017 in order to enable investors and other stakeholders to accurately assess companies’ climate-related financial risk.
The disclosure recommendations are structured around four pillars of how organizations operate: governance, strategy, risk management, and metrics and targets. In late 2020, the UK became the first country in the world to mandate economy wide disclosures in line with the TCFD recommendations. The process began in 2021 with the largest pension schemes and financial institutions, and it will gradually expand to include smaller firms and broader entities over the next two years. - The California Climate-Related Risk Disclosure Advisory Group. Called to serve by Governor Newsom as a follow-up to Executive Order N-19-19, the California Climate Risk Disclosure Advisory Group is composed of 20 global leaders with deep expertise in state and local government, infrastructure, economics, finance, accounting, banking, business, insurance, and investment portfolio management. The 20 members of the Advisory Group were selected by the Governor with no input or direction from the Legislature. Since its establishment in April of 2021, the Advisory Group has produced one report, released in September of 2021, Developing Climate Risk Disclosure Practices for the State of California.
The report delivered more than 45 infrastructure and financial disclosure recommendations focused on the state’s $262 billion operating budget and the combined $1 trillion in assets under management across the state’s three biggest pension funds. The advisory group recommended, in part, “A continuing internal process should be established that coordinates state climate-related financial risk disclosure and incorporates disclosures into new state processes and policies,” and that, “The state should invest in additional personnel, staff capabilities, and technical assistance resources.”
Specifically, the Advisory Group called for the establishment of a “Climate Risk Coordination Committee” (CRCC). The report suggested that the CRCC should be a forum for constitutional office and other state entities to (1) continue developing climate-related risk disclosure standards, (2) track and integrate the evolution of climate-related risk methodologies and frameworks, (3) guide state entities to use climate-related information disclosed to better inform processes and decisions, (4) incorporate learnings from disclosure efforts into other California climate policies and regulations, (5) assess resource needs to incorporate climate-related risk considerations into state processes, and (6) share internal best practices and foster expertise.
Comments
- Purpose of Bill. According to the author, “It is abundantly clear the worsening effects of climate change pose numerous environmental risks that include extreme drought, rising sea levels, catastrophic wildfires, and extreme weather events. These impacts not only affect our environment but they also affect how we live, what services we rely upon and which investments make the most sense. Major corporations and financial institutions face climate related financial risks in their business making decisions, so it is important for these businesses and institutions to assess and share the risks they have identified, and what efforts they are employing to mitigate them. This information is important to provide more transparency to policy makers, investors, and shareholders as it will result in improved decision making on where to invest private and public dollars. Climate related financial risk disclosures are ultimately about good business, partnerships, governance and the solutions and planning necessary to navigate the increasing burdens of a changing climate.”
- Who has to report? Generally, this bill applies to companies who do business in California and whose gross revenues exceed $500,000,000 annually. The one notable exemption—insurance companies—is because on April 8, 2022, the National Association of Insurance Commissioners, which includes California’s Insurance Commissioner, adopted a new standard for insurance companies to report their climate-related risks, in alignment with TCFD. Thus, the author has excluded business entities that are subject to regulation by the Department of Insurance in this state, or that are in the business of insurance in any other state from the definition of covered entity.
At the federal level, the Securities & Exchange Commission (SEC) has proposed its own climate disclosure rules for publicly listed companies. That proposal has yet to be adopted and excludes privately held companies. Among the over 10,000 companies who do business in California and exceed the $500,000,000 revenue threshold, only 20% of them are publicly traded. Thus, there are clear advantages in the completeness and scope of the data that could be gathered by California in enacting SB 261, regardless of the progress of the SEC proposal. However, moving forward the author should take care to ensure that SB 261 does not create an undue reporting burden when taken alongside the SEC proposal.
Ultimately, the reporting requirements contemplated under SB 261 will indeed create additional work for covered entities. However, the reports will also bring benefits, insofar as it allows those businesses and their investors to have a more complete picture of how their future operations may affect—and be affected by—global climate change. While there remain questions regarding how these requirements will be enforced, those are more the purview of the Senate Judiciary Committee, where this bill will go next should it be passed today. - Are the Advisory Group and OPR the right home for this huge workload? As described in the background, the California Climate-Related Risk Disclosure Advisory Group produced one report nine months after its creation, and has been seemingly inactive since. This bill would massively increase the role and duties of the Advisory Group and task OPR with serving as the administrative staff for it. Over ten thousand businesses are estimated to need to report under SB 261, and as written the Advisory Group and/or OPR would be required to review, analyze, and report on all of them, in addition to other roles.
The Advisory Group was initially established and selected at the sole discretion of the Governor, and it is worth considering whether assigning the numerous duties of this bill to them best reflects the priorities of the Legislature. In fact, the Advisory Group specifically called for the creation of a new body within state government to advance these efforts: the Climate Risk Coordination Committee (CRCC). Establishing the CRCC could give the Legislature an opportunity to better define the composition, representation, and duties of the group, rather than deferring to a Governor-selected Advisory Group.
Considerations for the author regarding creating the CRCC as a distinct entity should include, but are not limited to:- The size, composition, represented groups, and appointing authority for the members of the committee;
- Procedural considerations regarding the committee’s business (e.g. Bagley-Keene applicability);
- The appropriate location of the CRCC in the executive branch, especially vis a vis existing climate-related risk efforts; and
- The scope of the work, if any, beyond the requirements of this bill.
Regardless of who is responsible, these duties do still represent a substantial volume of work. While from a policy perspective these may be laudable and impactful goals, our present financial reality may require a significant scaling back of these provisions. Such considerations are ultimately the purview of the Appropriations Committee.
DOUBLE REFERRAL:
If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Judiciary Committee.
Related/Prior Legislation
SB 449 (Stern, 2021) was substantially similar to this bill in requiring TCFD-aligned disclosures. SB 449 died in the Senate Appropriations Committee.
SB 253 (Wiener, 2023) requires any partnership, corporation, limited liability company, or other U.S. business entity with total annual revenues in excess of one billion dollars and that does business in California to publicly report their annual full-scope GHG emissions. SB 253 is currently before this committee.
SB 262 (Gonzalez, 2023) prohibits the boards of the Public Employees’ Retirement System and the State Teachers’ Retirement System from making new investments or renewing existing investments of public employee retirement funds in a fossil fuel company, as defined, and would require the boards to liquidate investments in a fossil fuel company on or before July 1, 2030. SB 252 is currently in the Senate Labor, Public Employment and Retirement Committee.
SOURCE:
Ceres
SUPPORT:
350 Bay Area Action
350 Conejo / San Fernando Valley
350 Humboldt
350 Juneau
350 Marin
350 Sacramento
350 South Bay LA
350 Southland Legislative Alliance
350 Ventura County Climate Hub
Alter Eco
Americans for Financial Reform
Avocado Green Brands
Ban Sup (Single Use Plastic)
California Environmental Voters (formerly CLCV)
California State Teachers' Retirement System
CalPIRG
Ceres
Citizens Climate Lobby Sacramento / Roseville Chapter
Climate 911
Climate Action California
Climate Hawks Vote
Climate Reality Project, San Fernando Valley
Coalition for Clean Air
Coastside Jewish Community
Conejo Climate Coalition
Cool Planet Group of First Presbyterian Church, Palo Alto
Divest Oregon
Dsm North America
East Valley Indivisibles
Elders Climate Action, Norcal and Socal Chapters
Environment California
Environmental Defense Fund
Extinction Rebellion San Francisco Bay Area
Fossil Free California
Friends Committee on Legislation of California
Friends of The Earth
Giniw Collective
Glendale Environmental Coalition
Grove Collaborative
Honor the Earth
Humboldt Unitarian Universalist Fellowship's Climate Action Campaign
Indivisible Alta Pasadena
Indivisible California Green Team
Indivisible California Statestrong
Leading Change Consulting and Coaching
Mothers Out Front California
NRDC
Oil & Gas Action Network
Peninsula Interfaith Climate Action
Public Citizen, INC
Rapidshift Network
San Francisco Bay Physicians for Social Responsibility
Santa Cruz Climate Action Network
Sierra Club California
Sierra Nevada Brewing Company
Socal 350 Climate Action
Solidarityinfoservice
Stand.earth
The Climate Center
The Phoenix Group
The Vessel Project of Louisiana
Third ACT
Transformative Wealth Management LLC
Trinity Respecting Earth and Environment (TREE)
Union of Concerned Scientists
Urban Ecology Project
Working for Racial Equity
OPPOSITION:
African American Farmers of California
Agricultural Energy Consumer Association
Agricultural Energy Consumers Association
American Composites Manufacturers Association
American Pistachio Growers
Antelope Valley Chambers of Commerce
Building Owners and Managers Association
California Advanced Biofuels Alliance
California Apartment Association
California Apple Commission
California Asphalt Pavement Association
California Blueberry Association
California Blueberry Commission
California Business Properties Association
California Chamber of Commerce
California Construction & Industrial Materials Association
California Cotton Ginners & Growers Association
California Cotton Ginners and Growers Association
California Credit Union League
California Date Commission
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Independent Petroleum Association (CIPA)
California Manufacturers & Technology Association
California Poultry Federation
California Retailers Association
California Walnut Commission
Can Manufacturers Institute
Carlsbad Chamber of Commerce
Chino Valley Chamber of Commerce
Citrus Heights Chamber of Commerce
Costa Mesa Chamber of Commerce
Danville Area Chamber of Commerce
Far West Equipment Dealers Association
Greater High Desert Chamber of Commerce
LA Canada Flintridge Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Naiop California
Nisei Farmers League
North San Diego Business Chamber
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
Pci West-chapter of The Precast/prestressed Concrete Institute
Rancho Cordova Area Chamber of Commerce
Rancho Cordova Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Securities Industry and Financial Markets Association
Southern California Leadership Council
Specialty Equipment Market Association (SEMA)
Torrance Area Chamber of Commerce
Walnut Creek Chamber of Commerce
West Ventura County Business Alliance
Western Agricultural Processors Association
Western Growers Association
Western Plant Health Association
Western States Petroleum Association
Wine Institute
ARGUMENTS IN SUPPORT:
According to a coalition of groups in support, “The transition to a low-carbon economy, occurring as we grapple with environmental and social harms that can’t be mitigated, challenges practically every sector of the economy. Without accurate information about climate-related financial risk and a robust discussion of how to manage that risk, governments, money managers, and companies can only guess at strategies that will carry them through the changes that are already underway. SB 261 requires risk reporting and public disclosure of the steps financial institutions and businesses are taking to mitigate and adapt to global climate change, and mandates ongoing consideration and study of best policy practices.”
ARGUMENTS IN OPPOSITION:
According to a coalition of groups in opposition, “The measure is premature given the amount of activity happening at the federal and international levels. Both the executive and legislative branches have served notice that changes will be happening soon in this area. The Securities and Exchange Commission is already reviewing their guidance documents on the topic and expects to provide an update shortly. There is a very real risk that compliance with SB 261 will not align with federal or the Task Force’s own recommendations. The recommendations also assert that any national level requirements should preempt those at state or local levels, noting that “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not be seen as superseding national disclosure requirements”. The measure not only lacks compliance acknowledgement for entities subject to a federal level requirement, but it also jumps the gun by superseding national disclosure requirements that are imminent.”
-- END --
Discussed in Hearing
6MIN
Senate Floor
3MIN
Assembly Floor
36SEC
Assembly Floor
28MIN
Assembly Standing Committee on Natural Resources
4MIN
Senate Floor
23MIN
Senate Standing Committee on Judiciary
22MIN
