California is forging a path for climate disclosure with its series of related legal frameworks requiring covered entities to disclose climate-related information, supporting documentation for certain net zero claims and financial risk frameworks.
In October 2023, California became the first state to enact such broad climate disclosure legislation, with the passage of the:
- Climate Corporate Data Accountability Act (SB 253),
- Climate-Related Financial Risk Act (SB 261), and
- California’s Voluntary Carbon Market Disclosures Act (AB 1305).
Entities covered by these three programs generally include those that do business in the state of California and either (1) make certain climate related claims about the business, its products, etc.; (2) market and/or purchase certain voluntary carbon offsets; and/or (3) meet certain monetary thresholds (for purposes of SB 253 and SB 261).
With compliance deadlines already in place or approaching quickly, implementation has been challenging for industry. The California Air Resources Board (CARB) is responsible for promulgating regulations associated with the three statutory programs, but has yet to do so. AB 1305 has already gone into effect, with its first deadline occurring as of January 1, 2025. SB 253 and SB 261 have deadlines starting in 2026. Like AB 1305, SB 261’s climate-related financial risk disclosure requirement does not depend on CARB completing its rulemaking prior to when the first reports are due on January 1, 2026. However, SB 253 differs from the other two in that no reporting obligations are imposed without CARB’s adoption of implementing regulations. Regulated entities needs to be prepared to comply while remaining flexible given pending publication of regulations in December.
To assist, this three part series provides a high-level guide on the three programs, including the applicability, the program’s coverage, steps for compliance, timing and other miscellaneous information based on current regulatory guidance. Here we focus on disclosure under California’s Voluntary Carbon Market Disclosures Act (AB 1305). Although disclosures required for Parts One, Two and Three of this program were already required to be publicly posted on websites as of January 1, 2025, disclosures must also be updated annually.
California AB 1305; Cal. Health & Safety Code § 44475; -1, -2, -3
(California’s Voluntary Carbon Market Disclosures Act)
- What – California AB 1305 and its implementing regulations cover disclosure requirements for entities that participate in the carbon offset market and, separately, disclosures for covered entities that make certain net-zero or significant reductions in greenhouse gas claims.
- Part one – Voluntary Carbon Offsets – Entities marketing or selling voluntary carbon offsets must publicly disclose on their website certain information regarding the applicable carbon offset project and accountability measures. A voluntary carbon offset is defined as “any product sold or marketed in the state that claims to be a “greenhouse gas emissions offset,” a “voluntary emissions reduction,” a “retail offset,” or any like term, that connotes that the product represents or corresponds to a reduction in the amount of greenhouse gases present in the atmosphere or that prevents the emission of greenhouse gases into the atmosphere that would have otherwise been emitted.”
- Part Two – Claims Regarding Voluntary Carbon Offsets – Entities that purchase or use voluntary carbon offsets, and make claims regarding net zero emissions, carbon neutrality and/or related claims “implying the entity, related entity or a product does not add net carbon dioxide, or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions” must make certain disclosures on their website.
- Part Three – General Claims re Net Zero Emissions – Importantly, the third layer does not include carbon offsets at all. This broader category covers any entity that makes claims regarding net zero emissions, carbon neutrality and/ or “makes other claims implying the entity, as well as related or affiliated entity, or a product does not add net carbon dioxide or greenhouse gases, as defined in Section 38505, to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions, as described in Section 38505.” Like the categories above, the entity must then disclose additional information on their website. Information must include documentation on how the claim was found to be accurate; interim progress toward how the goal is being measured; and whether independent third-party verification was used.
- Who – Covered entities must have nexus to the state, which has been interpreted very broadly. For Part One, covered entities are those that market or sell voluntary carbon offsets within the state. For Part Two, covered entities are those that operate within the state, and/or purchase or use voluntary carbon offsets sold within the state. For Part Three, covered entities that operate within the state, and/or make claims within the state.
- Timing – Disclosures required for Parts One, Two and Three were already required to be publicly posted on websites as of January 1, 2025. Disclosures must be updated annually.
- How – Disclosures for Parts One, Two, and Three are to be publicly posted on the entity’s website. There is no clear format required yet by CARB, but covered entities have established industry best practices of what these should look like based on the initial reporting. We have templates available and can provide guidance on standards referenced depending on the industry
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Questions about the Climate-Related Financial Risk Act (SB 261) requirements? Check out Part 1 of our series here.
Questions about the Climate Corporate Data Accountability Act (SB 253) requirements? Check out Part 2 of our series here.
