Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—ABA comments on California Air Resources Board implementation of climate-disclosure legislation, (Mar 10, 2025)

By Jonathan Anderson

The laws require certain business entities to report specified greenhouse gas emissions and climate-related financial risks.

The American Bankers Association (ABA) has submitted comments to the California Air Resources Board (CARB) regarding the implementation of California climate-disclosure legislation. The ABA urged the board to prioritize flexibility in measurement and reporting requirements, align reporting standards with established frameworks, and exempt socially chartered entities and small businesses from detailed disclosure obligations.

Background. On Dec. 16, 2024, CARB solicited feedback to help inform its work to implement Senate Bills (SB) 253 and 261, which were both amended by SB 219. Enacted in 2023, SB 253 and SB 261 require business entities formed under the laws of California, the laws of any other state or the District of Columbia, or under an act of Congress to report specified greenhouse gas (GHG) emissions and climate-related financial risks.

SB 253, the Climate Corporate Data Accountability Act, requires U.S.-based entities with more than $1 billion in annual revenue doing business in California to annually report all direct GHG emissions (Scope 1), indirect GHG emissions from consumed energy (Scope 2), and indirect upstream and downstream GHG emissions (Scope 3). SB 219 amends parts of SB 253 regarding regulatory timelines, and the timing of Scope 3 emissions reporting, fee payment, and other provisions.

SB 261, the Climate Related Financial Risk Act, requires U.S.-based entities with more than $500 million in annual revenue doing business in California to biennially report any climate-related financial risks they have identified and any measures they have adopted to reduce and adapt to those risks. SB 219 amends parts of SB 261 on the timing of fee payment, among other provisions.

ABA comments. In response to the solicitation of feedback, the ABA recommended the following:

Broad flexibility. CARB’s implementation of the laws should prioritize flexibility, which would help ensure that reporting entities can navigate the complexities of measurement and disclosure obligations. The ABA identified the GHG Protocol and the recommendations of the Task Force for Climate-related Financial Disclosure (TCFD) as examples of frameworks already developed to address the complexities of climate-related data collection.

Non-standardized approach. CARB should incorporate the GHG Protocol by reference as the foundation for emissions disclosure, including its flexibilities and methodologies guidance. This would afford financial institutions flexibility to address the variety of challenges raised by disclosing GHG emissions while still complying with SB 253 requirements. Requiring a standardized approach would eliminate the adaptability of the GHG Protocol and may fail to account for sector-specific differences and evolving practices.

TCFD flexibility. SB 261 requires covered entities to prepare and publicly disclose a climate-related financial risk report aligned with TCFD recommendations or an equivalent framework. Entities should have the option to disclose based on the 2017 TCFD recommendations rather than the more onerous 2021 updates, which many financial institutions have not adopted fully.

Annual revenue threshold standards. Annual revenue thresholds should be based on net interest income for regulated banking institutions rather than gross revenue, which is consistent with investor and regulatory norms. Further, annual revenue thresholds should exclude other comprehensive income (OCI). Most companies in the United States report revenues that exclude OCI for public reporting purposes. Finally, the annual revenue criterion should be based on the previous two fiscal years. This would help mitigate volatility as to whether companies qualify for or are exempt from the reporting requirements.

Flexibility, exemptions for financed emissions. CARB should emphasize high levels of judgment and the flexible estimation approaches provided in the GHG Protocol for financed emissions. Further, CARB should exempt from reporting requirements the financed emissions related to socially chartered entities and small businesses under Category 15 of Scope 3 emissions under the GHG Protocol. Absent these exemptions, these entities and smaller community banks may be required to provide Scopes 1, 2, and 3 estimates to equity investors, lenders, and depositors, which may be unduly burdensome.

Companies: American Bankers Association

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