New California Bill Would Require Climate-Related Financial Risk Reports
On Monday, four California state senators introduced a bill, SB 261, that would require businesses to prepare and submit climate-related financial risk reports. The bill would apply to any corporation or other business entity formed under the laws of California, 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 $500,000,000 and that does business in California. Oddly, businesses formed under the laws of other countries would not be covered even if they do business in California. The bill also does not define what constitutes doing business in California. See You May Be Doing Business In California Even When Not Transacting Intrastate Business.
A "climate-related financial risk report" would be required to disclose the business' (i) 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; and (ii) the measures adopted to reduce and adapt to disclosed climate-related financial risk. The reference to the Final Report is apparently to this report by a private-sector Task Force, chaired by Michael R. Bloomberg, that was established by the Financial Stability Board in December 2015 to develop a set of voluntary disclosure recommendations for use by companies in providing information to investors, lenders, and insurance underwriters about their climate-related financial risks. The Financial Stability Board is not a U.S. government agency. It is an international body that claims to monitor and make recommendations about the global financial system.
The bill would also require the involvement of the California Secretary of State. Covered businesses would be required to submit to the Secretary of State a statement affirming, not under penalty of perjury, that the report prepared and filed pursuant to the statute discloses climate-related financial risk.
On obvious question will be whether SB 261 would survive a challenge under the dormant commerce clause. The law does not directly regulate goods or services sold or purchased in California. Therefore, what is California's interest in imposing disclosure obligations on companies that may have minimal contacts with the state? According to the bill's proposed legislative findings, "the 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". That assertion is both highly speculative and tenuous.