US States Strike Back on Climate Disclosure
Undaunted by Trump’s 180-degree turn on environmental policies, New York recently followed in California’s footsteps with a corporate data accountability bill.
US states are continuing to actively support climate action, despite the plethora of adverse executive orders introduced by US President Donald Trump as he returned to office.
The most recent case was in New York, where on 27 January Senator Brad Hoylman-Sigal introduced Senate Bill (SB) S3456 with a view to establish a law similar to California’s Climate Corporate Data Accountability Act.
“Despite the Trump administration’s ‘anti-climate’ approach and the federal government’s de-emphasis of corporate climate disclosure, [these] regulations are not going away in the US,” said Michael Littenberg, Global Head of Ropes & Gray’s ESG compliance practice. “State legislatures, specifically those where Democrats hold a majority, are expected to continue to propose and push forward climate bills, including in relation to emissions disclosure and climate-related financial risks.”
If enacted, SB 3456 would require businesses with US$1 billion-plus revenues to annually report Scope 1, 2 and 3 emissions using the Greenhouse Gas (GHG) Protocol, and in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD). It would also establish a climate accountability and emissions disclosure fund.
“The New York bill will impact companies across the country,” said Bryan McGannon, Managing Director of the US Sustainable Investment Forum (US SIF). “Importantly, covered reporting entities will be in compliance if they report in accordance with the IFRS Sustainability Disclosure Standards or a comparable reporting framework, like California’s.”
Subject companies would be required to report emissions data according to a phase-in, with the first reports due in 2027, covering data for the 2026 fiscal year.
“California is currently the only state that has passed a law like [SB 3456], but several others are continuing to have similar conversations that stretch back a few years,” said Sam VanderMeulen, Senior US Policy Analyst at the Principles for Responsible Investment (PRI). “To make both investors’ and companies’ jobs easier, it is critical that state regulators allow reporting entities to submit reports prepared for other jurisdictions – provided they cover the same information – to most efficiently report consistent, comparable and decision-useful information.”
Other states potentially considering bills that would mandate corporate GHG emissions reporting include Washington and Illinois.
“On 7 February, a GHG emissions reporting bill was re-introduced in Illinois, containing many of the same thresholds and requirements as SB 3456 and California’s law,” said Littenberg, adding that a similar bill may be re-introduced later this year in Washington State.
SB 3456 is currently sitting with the New York Senate’s Environmental Conservation Committee. If it moves forward, it will likely undergo revisions in both the senate and assembly.
“While these laws tend to be challenged in court, California’s climate disclosure laws have withstood legal challenges thus far – although the case is ongoing,” Littenberg added. “A similar bill [to SB 3456] was introduced in the prior New York legislative session but did not make it out of committee. It remains to be seen whether [this] will be a priority on the New York State legislature’s 2025 agenda.”
Keeping hopes high
The introduction of New York’s climate corporate data accountability bill came against the backdrop of receding climate action at the federal level.
Beyond the wave of executive orders, with the broad ambition of cutting clean energy production and scaling up domestic oil and gas output, the US Securities and Exchanges Commission (SEC) took another step back on its long-awaited climate disclosure rule last week.
In a statement, SEC Acting Chair Mark Uyeda demanded that litigation proceedings be paused to provide time for the commission to determine appropriate next steps – citing a “deeply flawed [rule that] could inflict significant harm on the capital markets and our economy”.
“The SEC’s climate disclosure rules appear to be ‘dead in the egg’,” said Littenberg. “There are different paths that may result in the rules’ demise, but companies will ultimately not be required to comply with them. There is no expectation that the current administration will adopt any new climate disclosure laws or regulations in its place.”
However, mandatory disclosure is one small driver of climate transition efforts, which are influenced by a broad range of federal, state and foreign requirements and incentives – as well as commercial, reputational and other considerations, Littenberg explained.
“The SEC’s actions to pause litigation are a clear signal that they are waiting for [SEC] chair nominee Paul Atkins to be confirmed so they can vote to withdraw the rule,” argued McGannon. “State leadership is essential to fill the void, and will be the focal point for climate-related disclosures. Assuming the California law survives its legal challenge, it will become the de facto national standard for reporting.”
While the SEC’s decision has been perceived as a setback to the Biden administration’s efforts on climate, state-level climate disclosure requirements will likely continue to drive corporate climate transition efforts.
“State-level disclosure laws such as California’s and New York’s provide hope for proponents of mandatory GHG disclosure in the US in the absence of federal laws and regulations,” Littenberg said. “With a US$1 billion annual revenue reporting threshold, they will capture a large number of US companies, including many publicly listed ones that would have been required to report under the SEC’s rules, which have been stayed.”
Individual states have long been leaders in sustainability and climate action throughout multiple federal administrations and across political parties, VanderMeulen argued – adding that he expected this to continue in 2025 and beyond.
“As the world moves towards more sustainable economies and forms of energy, there are massive market shifts that present generational opportunities for communities in all parts of the country – urban or rural, Democratic or Republican,” he said. “The question isn’t ‘Is the transition happening?’, but rather ‘How can I (as a policymaker) best position my state/region/town to take advantage of the new permanent, long-term jobs that are being created?’”
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