The two challenged laws are the Climate Corporate Data
Accountability Act (California Senate Bill 253 (SB253)) and the
Climate-Related Financial Risk Act (California Senate Bill 261
(SB261)). Both were signed into law on October 7, 2023 and form
part of California’s “Climate Accountability
Package.” The laws require US-based companies “doing
business”2 in California to make certain
public disclosures about Scope 1, 2 and 3 greenhouse gas emissions
and the extent and management of climate-related financial risks.
Several thousand companies are expected to be subject to these
laws. See our earlier Client Alert for a more detailed discussion
of these laws, which can be found here.3
The lawsuit challenging SB253 and SB261 was filed
against the California Air Resources Board (and its
representatives) in federal court by the U.S. Chamber of Commerce,
California Chamber of Commerce, American Farm Bureau Federation,
Los Angeles County Business Federation, Central Valley Business
Federation, and Western Growers Association. The plaintiffs are
seeking a ruling that would block and overturn SB253 and SB261.
The legal challenge alleges that SB253 and SB261:
- violate the First Amendment by unconstitutionally compelling
speech and “forc[ing] thousands of companies to engage in
controversial speech that they do not wish to make, untethered to
any commercial purpose or transaction”; - are “precluded by the [federal] Clean Air Act” under
the Supremacy Clause (i.e., where regulation of a particular matter
is exclusively in the federal government’s domain), given that
SB253 and SB261 do not limit their scope to “intrastate”
matters (i.e., disclosures relating only to “emissions
produced in California or to companies’ expected climate change
financial risks in California”) but, instead, potentially
extend to emissions produced, or climate-related risks expected,
anywhere in the world; and - “are invalid under the [U.S.] Constitution’s
limitations on extraterritorial regulation, including the Dormant
Commerce Clause” (i.e., that prohibits states from passing
laws that discriminate against or excessively burden interstate
commerce) on the basis that the disclosure requirements are not
limited to emissions produced, or climate-related risks expected in
California.
According to the plaintiffs, the laws also “impermissibly
compel thousands of businesses to make costly, burdensome, and
politically fraught statements” about their operations around
the world in an effort to shape the behavior of those
businesses.
In response to the lawsuit, the lead author of SB253 –
Senator Scott Weiner – issued a statement in which he declared the lawsuit to
be “baseless” and challenged the plaintiffs’ argument
that SB253 and SB261 would cause undue expense by stating that
“[t]he costs to major corporations” to comply with the
requirements of these laws was “miniscule.”
While it remains to be seen how the court will rule on this
lawsuit, the California legislature is understood to have been
mindful of the risk of constitutional challenges in formulating
these new laws.4 As such, covered companies should
continue to prepare for compliance with SB253 and SB261.
While the lawsuit seeks only to challenge SB253 and SB261, it
may offer insight into the basis of potential future challenges
that other similar laws may face whether in California or beyond,
including, for example, the Securities and Exchange Commission’s proposed
climate disclosure rules and Minnesota’s recently recently
passed law requiring climate risk disclosures from banks.
Footnotes
1 Interestingly, the lawsuit does not
challenge the other climate-related law enacted at the same time as
SB253 and SB261 – the Voluntary Carbon Market Disclosure Act
(California Assembly Bill (AB1305)), which requires corporate
public disclosures relating to certain climate-related claims and
the use of voluntary carbon offsets. We provide a more detailed
discussion of AB1305 in our recent Client Alert.
2 See our previous Client Alert, “Are You ‘Doing Business’ in
California?”, for a discussion of this “doing
business” analysis.
3 See also our Client Alert – “Global Climate Change Disclosure Initiatives and
Board Corporate Governance Considerations” – which
provides a global overview of climate-related initiatives
(including commentary on California).
4 See, e.g., State. Sen.
Judiciary Comm., Analysis of SB253 (2023-2024 Reg. Sess.) Apr. 14,
2023 at 12-13 (considering SB253 in the context of the dormant
interstate Commerce Clause), and State. Sen. Judiciary Comm.,
Analysis of SB261 (2023-2024 Reg. Sess.) Apr. 14, 2023 at 7-8
(considering SB261 in the context of the dormant interstate
Commerce Clause).
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