The California Air Resources Board (CARB) announced that allowing businesses more time to prepare to comply with the new regulations will ease the standards for reporting emissions and prevent them from taking enforcement action during the first year of reporting. The new announcement specifically refers to the companies subject to Senate Bill 253, also known as the Climate Corporate Data Accountability Act. 

The decision to ease and delay the enforcement may give private market firms, asset managers, and impact investors more time to assess and adapt their investment strategies in response to the new regulatory landscape while potentially reducing immediate compliance costs for portfolio companies.

Let’s discuss the delay in climate reporting rules in detail. 

About the Climate Corporate Data Accountability

The Climate Corporate Data Accountability Act is a regulation that consists of a set of rules approved by California Governor Gavin Newsom last October. The regulation mandates large corporations operating in California (with revenues exceeding $1 billion) for disclosing their greenhouse gas emissions (GHG) emissions across Scope 1 (direct emissions), Scope 2 (indirect emissions from electricity), and Scope 3 (indirect emissions from the entire value chain). In addition, the regulation is expected to impact more than 5,300 companies operating in California. 

Key aspects of the delay in climate reporting rules

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  Under the new law, companies will have to start reporting on Scope 1 and 2 emissions in 2026, which cover the previous fiscal year, and on Scope 3 emissions, which cover a wider value chain, in 2027. 

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  The enforcement notice released by CARB said that “CARB recognizes that companies may need some lead time to implement new data collection processes to allow for fully complete scope 1 and scope 2 emissions reporting, to the extent they do not currently possess or collect the relevant information,”

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  The law also requires companies to report emissions in a “manner that is easily understandable and accessible to residents of the state,” independently verified by a third-party auditor. 

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  While the climate rule regulation is delayed, CARB mentioned that its decision is not intended to take enforcement lightly. It encouraged regulated entities to utilize the transition period to “move toward full compliance as quickly as possible.”

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