California Climate Rule Locked In

What’s in this week’s newsletter:

• CARB has its first public workshop on the California climate disclosure rules.

• The disclosure deadlines are locked in, but the rules are not yet clear. 

• Texas GOP efforts to stall renewables fall flat

• Bank of England employees claim climate risk is being ignored

• EU climate scientists warn against carbon credit loopholes

• EFRAG asks ISSB to keep financed emissions reporting

• UAE releases climate law

After months of silence on the most significant climate disclosure rule in the U.S., late last week, the silence was broken as the California Air Resources Board (CARB) held its first public meeting on the topic. 

The three and a half hour marathon meeting touched on aspects of the rule that were already known and added some new information. The biggest takeaway from the event is that the California climate rules are on schedule, meaning that companies will begin reporting next year.  As the bill's architect, Senator Scott Weiner, said, “the timelines are holding firm.”

Taking a step back, two climate disclosure laws were approved in 2023. SB 253 - which requires reporting greenhouse gas emissions, and SB 261 requiring disclosure of climate risks. The two laws were subsequently combined into Senate Bill 219 (SB 219), enacted on September 27, 2024, which made key administrative changes to facilitate implementation but did not alter the core requirements of these laws.

With the compliance deadline looming in 2026, stakeholders have been eagerly awaiting the implementing rules from CARB.  Here is what we know so far:

• Companies with more than $1 billion in total revenue that are “doing business in California” must report Scope 1 and 2 emissions in 2026 (based on 2025 data). CARB has the authority to establish the specific schedule for Scope 3 disclosures in 2027.

• Limited assurance is required for Scope 1 and 2 emissions disclosures until 2029. Starting in 2030, ‘reasonable assurance' is mandated for Scope 1 and 2 emissions, and limited assurance for Scope 3 emissions. 

• Businesses with more than $500 million in total revenue that are “doing business in California” must report their material climate risks beginning in 2026 (based on 2025 data) and every second year after that. 

• The definition of "doing business in California" will most likely be defined under Section 23101(a) and 23101(b) of the California Revenue and Tax Code. There is a lot of detail in this, but for a company not domiciled or organized in CA, the key thresholds are: 

• Greater than $735,000 or 25% of sales in CA, 

• Property in CA greater than $73,500 or 25% of assets, 

• Greater than $73,500 or 25% of payroll in CA.

• Alignment with the International Sustainability Standards Board (S2) is being “looked at very closely” as the underlying climate disclosure standard.

• Confirmation that inaccurate or incomplete 2026 reporting will not be penalized if done in good faith. 

Two-thirds of the meeting was focused on questions and statements from the public. Many of these revolved around the timing of when CARB would release its rule, which was set for July 1st. An exact date wasn’t provided, and CARB only committed to the end of this year. As one commenter said, the ambiguity around timing and exactly what is in the rule does not help businesses prepare for the compliance that is required so soon. 

Several questions were raised around how parent and subsidiary entities would be considered under the rule. CARB is considering replicating the applicability portion of their cap-and-trade regulations, where subsidiaries are included if the parent owns or controls 50% or more.

CARB will have more public workshops in the coming months to clarify details. 

The ongoing litigation seeking to block this law was not directly addressed. A court dismissed portions of the lawsuit, but uncertainty remains over the outcome. And, the recent Congressional vote blocking California’s automobile emissions rules, may suggest the federal government will seek to block this law too. The slides from the workshop are here. 

Renewable Energy is Unstoppable

Texas is the leading state for renewable energy production. It will likely continue its leadership after a package of bills from Texas Republicans failed to get the support needed to make it through the state legislature. 

The bills would have limited renewable energy permits, required solar and wind projects to purchase gas-fired backup generation, and required that half of all new power plant capacity come from gas-fired generation. However, the state’s ‘all-of-the-above’ energy policy requires them to use all available sources to meet rising demands. 

Doug Lewin, president of Texas-based Stoic Energy Consulting, said, “Texas has an energy dominance. Why would you give it away for ideological reasons?”

Climate Risks in Finance

The Bank of England staffers who resigned recently have called out the Bank’s governor for failing to consider climate change, which they say leaves the bank unprepared. The BoE under former governor, Canada’s Prime Minister Mark Carney, pioneered climate risk considerations, but current governor Andrew Bailey claimed climate is a “soft” and hard-to-quantify risk. 

A former staff member said, “The biggest risks facing the financial system . . . are from climate and environmental risk . . . and I just felt that what the bank was doing to address those things was insufficient.”

The alleged backtracking on climate risk comes as the Norges Bank Investment Management, which manages the world’s largest sovereign wealth fund, released a report saying that climate risks impacting the fund have been “severely underestimated. Unless global emissions peak very soon and fall significantly.” Adding that they expect companies to “address material climate and nature issues in their governance, risk management, disclosures, and stakeholder engagement.”

Texas Rescinds BlackRock Boycott

Texas removed BlackRock from its state funds boycott list this week. The move was prompted by the state Comptroller in the belief that BlackRock - the world’s largest asset manager - had ‘stopped penalizing oil and gas companies in their investments.’ 

The move comes after BlackRock exited the Net Zero Asset Managers Alliance, reduced its role in Climate 100+, and minimized the number of funds that prohibit investment in oil and gas companies. Texas Comptroller Glen Hegar said, BlackRock has shifted away from blanket policies that ignore the critical need for fossil fuel-based energy generation now and long into the future.” There are fifteen financial institutions remaining on the boycott list.

EU Scientists Warn Against Carbon Credits

Brussels is expected to release an updated 2040 climate goal early next month (July 2nd). The current 90% reduction goal (against the 1990 baseline) is likely to remain, but be more flexible and pragmatic. The pragmatism is widely interpreted to refer to allowing the use of carbon offsets (credits from emission reductions achieved elsewhere). However, EU climate chief Teresa Ribera said the carbon credits cannot be “a big watering down of our 2040 domestic action.” 

The EU’s climate advisory board has come out against using carbon credits, saying that using credits would make the goal less credible and undermine domestic decarbonization. This puts the climate advisory board at loggerheads with the German government, which said it would only agree to a 90% reduction if 3% of those reductions were from carbon credits. 

EFRAG Comments on ISSB Changes

While many argue that the International Sustainability Standard Board’s (ISSB) update to its climate-related disclosure standard (S2) is pragmatic, the European Financial Reporting Advisory Group (EFRAG) believes some of the changes should be temporary.

In April, the ISSB released an update that excluded specific financial activities from the Scope 3 disclosure of ‘financed emissions’ - the emissions attributed to financial institutions from their financing activities. EFRAG agreed with these changes. However, it contends that the exemptions should be temporary since financial institutions are maturing their processes.

The ISSB comment period will be open until June 27, before an amended version of S2 is released before the end of 2025. 

UAE Climate Law Comes Into Effect

Last Friday, a landmark climate law came into effect in the United Arab Emirates. The rule will require all public sector and some private companies to make annual measurements of their emissions and climate adaptation plans or face fines of up to Dh 2 million ($544,588). The law will also request that businesses align emissions reductions with the UAE’s climate goals.

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Other Notable News:

This new video campaign takes a comedic approach to communicating the implications of emissions and global climate change with actor and comedian David Cross and climate scientist Professor Michael Oppenheimer.

Energy Transition

• Increasingly cheaper batteries, coupled with cheap wind and solar, are reducing energy costs and emissions in countries like Pakistan. 

• Meta struck a huge nuclear power deal to power their AI data centers. 

Climate Tech Investing

• JP Morgan banker warns investors to change their climate tech investment strategies, and they may not see returns in the time frames that they are used to.

Global Weirding

• The Japanese government issued a new law requiring employers to offer protections to workers facing extreme heat after last summer's record heat-related work deaths and injuries.

• The UK records its hottest and sunniest Spring on record, 43% above the average.

Trump 2.0

• The Trump administration overturned a Biden-era rule that would allow the federal retirement funds to consider ESG factors. 

• Trump’s appointee for the US Forest Service, Michael Boren, was formerly in a battle with the service for years over building an airfield on protected land. 

• Another Trump appointee, the acting head of the Federal Emergency Management Agency (FEMA), said he was unaware that the U.S. had a hurricane season.

• The Trump administration has opened the Alaskan wilderness for drilling and mining, reversing Biden-era blocks.

Climate Litigation

• Oil and gas companies are increasingly facing lawsuits. Last week, the first case of a wrongful death was brought against fossil fuel companies.

Sustainability Research

• A survey of businesses that have started mandated sustainability reporting found that 72% of respondents reported ESG regulatory compliance has made their organization more valuable to investors or shareholders.

• A new report reveals that almost 90% of institutional investors are maintaining their commitments to sustainable investing, but are just not being public about them in the face of geopolitical pressure. 

Notable Podcasts: 

• This week’s episode of Bloomberg’s Zero: The Climate Race podcast is the first in their bottlenecks series, where they explore the lesser-known issues that are slowing the race to net zero. This episode focuses on the global shortage of transformers and how that has industry experts worried. 

• In this week’s episode of Two Steps Forward from Joel Makower and Solitaire Townsend, they spoke with Mastercard CSO Ellen Jackowski. They discuss how Mastercard uses pioneering approaches to using payment systems to inspire, inform, and enable change, and the company's role in effecting systemic change.

Notable Jobs:

• Manager, Energy, We Mean Business Coalition, Remote, US

• Senior Coordinator, Sustainability, NASCAR, Charlotte, NC

• Climate Program Manager & Analyst, TIME, New York, NY

• Director, Sustainability Disclosure and Ratings, Western Digital, San Jose, CA

• Technical Program Manager, Carbon Removal, Google, New York, NY

• ESG/Impact Analyst, SOLV Energy, San Diego, CA

• Climate Action Generalist, Adamah, Remote, U.S.

• Manager Sustainability, Universal Music Group, New York, NY

• Sustainability Intern, Above Green, Remote, U.S.