New California Laws Will Give Investors More Information about Climate-Related Financial Risks

(October 7, 2023) – California has two brand-new laws that require large companies operating in California to disclose their risks from climate change — a vitally important step that will help ensure investors have the information they need to make prudent financial decisions.

Governor Gavin Newsom signed the measures, SB253 and SB261, into law today.

“Climate-related financial risks are already serious, and they are intensifying. Climate-amplified weather disasters, including heat waves, wildfires and floods, are causing billions of dollars in damage every year,” said Michael Panfil, Senior Director of Climate Risk and Clean Power at Environmental Defense Fund “Investors, both big and small, need to understand the nature and scope of climate risks, and California’s actions today are a critical step toward meeting that need.”

The new laws apply to companies doing business in the state of California. SB 261 applies to companies with annual revenues of at least $500 million a year. Those businesses would be required to disclose information about their climate risk management. SB 253 applies to companies with annual revenues of  at least one billion dollars a year, who will also have to disclose their greenhouse gas emissions.

California’s adoption of laws increasing transparency around climate-related financial risks follows the release of a report by the Treasury-led Financial Stability Oversight Council. That report found “climate change is an emerging threat to the financial stability of the United States.” 

The laws also align with actions around the globe, as regulators and legislators in multiple countries seek to ensure that the disclosure of climate-related financial risk is brought level with the disclosure of other forms of financial risk. Countries including the United Kingdom, New Zealand and Japan have already taken steps to require that the mounting harms of climate change to their financial systems are proactively identified and understood.

The U.S. Securities and Exchange Commission has also proposed a standard that would require publicly traded companies to disclose their climate-related financial risks, so that investors have sufficient information. California’s new laws are designed to work with these other standards and minimize duplication of efforts by companies.

Investors, asset managers and companies have increasingly made clear that they urgently need the information made possible through climate-related financial risk disclosure – and that doing so is feasible, today. In California this includes more than a dozen companies.

“Our economy is healthiest when investors are able to have relevant data and make informed decisions on the basis of that available information,” said Panfil. “An economy where the financial risks of climate change are better understood and disclosed strengthens the financial resilience and stability that is vital for all.”