At a glance
California’s climate disclosure laws, requiring companies to report emissions and climate risks from 2026, remain on track despite lawsuits and political pushback from the federal government
Key business groups are challenging the rules in court, but state officials are confident they will withstand legal scrutiny — one claim has already been dismissed
Corporate leaders and state regulators say disclosure is essential to managing business risk, and warn that non-compliance could carry serious consequences
Companies doing business in California must continue preparing for incoming climate disclosure rules, despite them being challenged in court.
In 2023, California became the first state in the US to require corporate climate disclosures. Given the size and economic power of the state — it is the fourth-largest economy in the world, with a higher GDP than the UK — thousands of companies across the US will be required to report their carbon emissions and the climate risks they face.
Both the federal government and the mood music have changed considerably since 2023. But California legislators have repeatedly insisted that these reports will be required from January 1 2026 as planned.
This is important, because while many companies are voluntarily providing similar information under a range of frameworks like the Task Force on Climate-Related Financial Disclosures, physical risk disclosure remains low, according to speakers at a workshop hosted by regulator the California Air Resources Board.
Research by the University of California Los Angeles found that only 25 per cent of companies were disclosing their risk exposure to extreme heat, while 21.5 per cent disclosed their wildfire and drought risk. Yet all of these are major risks for California in particular.
“Climate risk has been part of our work for years, but . . . a decade ago, there were no frameworks, until the TCFD came out,” Natasha Tuck, sustainability and ESG director at San Francisco-headquartered multimedia company Dolby, said during a separate webinar in June.
“We now have good guidelines to help us understand what it actually means to assess climate risk. I’m a huge fan of frameworks in general.”
Can of worms
Almost immediately after California governor Gavin Newsom signed the rules into law, the US Chamber of Commerce and other business groups filed lawsuits challenging it.
Catherine Atkin, director of climate data initiative Carbon Accountable, has been heavily involved in the drafting of California’s climate rules with state senators. She tells Sustainable Views that the state is “very confident” about the rules surviving the legal challenge.
The suit is based on three claims: that the rules violate their first amendment, which addresses compelled speech; that the rules pre-empt federal law; and that they present a burden to interstate commerce. A court has already dismissed the pre-emption claim.
Atkin says that if the first amendment claim were to succeed, that would mean the courts deciding that every business disclosure of any kind is compelled speech: speech that is forced or required by the government. “That would call into question everything businesses report — we would have much bigger fish to fry,” she says.
For companies wondering whether they can opt out of compliance, “I would suggest they look at the history of the regulator and ask the big US automakers whether they were able to ignore the low carbon fuel standard”, Atkin says. In the late 2010s a number of companies were fined for misreporting fuel data under the rule.
“The [California Air Resources Board] takes its mandate extremely seriously — it’s time for companies to roll up their sleeves,” adds Atkin.
Unwanted attention
Progressive California has been a particular target of the federal government since US President Donald Trump began his second term. This culminated with Congress voting to rescind California’s waiver from the Clean Air Act that allows it to regulate tailpipe emissions in the state.
That waiver gave the state the ability to introduce a ban on the sale of new internal combustion engine vehicles by 2035 — and there is concern among lawmakers that this is the tip of the iceberg of federal interference in state-level climate action.
“We are seeing an all-out attack on all things climate and, frankly, all things that provide a sense of security for Californians, and Americans,” California’s secretary for environmental protection, Yana Garcia, tells Sustainable Views.
The private sector also has allies in the highest court. Last week, the Supreme Court allowed a historic case brought by fuel producers to proceed against the low carbon fuel standard.
Garcia says there is some concern among California lawmakers that the disclosure rule will attract unwanted attention from the administration. But she says she consistently hears from companies that they “see climate risk as business risk”, and that emissions disclosures are important for resilience.
“Some people say these disclosure laws aren’t going to do anything, but to that I say, well why are you spending millions of dollars fighting against them then? Disclosure doesn’t do everything, but transparency does matter,” adds Atkin. “California has a unique opportunity — and an obligation — to carry the climate risk flag for the US.”