Amended  IN  Senate  March 27, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 261

Introduced by Senators Stern, Becker, Gonzalez, and Wiener
(Coauthors: Senators Blakespear and Skinner)

January 30, 2023

An act to add Section 38533 to the Health and Safety Code, relating to greenhouse gases.


LEGISLATIVE COUNSEL'S DIGEST


SB 261, as amended, Stern. Greenhouse gases: climate-related financial risk.
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 entity’s 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.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) Climate change is affecting California’s 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 France’s 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 registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to those risks.
(i) 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 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 XIII B 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 XIII B of the California Constitution.