Navigating New State and SEC Environmental Disclosure Regulations

Historically, some companies have disclosed their environmental footprint voluntarily, choosing to highlight their sustainability initiatives to appeal to investors and customers. Corporations may have reported metrics such as greenhouse gas (GHG) emissions and water usage to stakeholders through platforms such as the Carbon Disclosure Project (CDP) or EcoVadis, but such reporting was often sporadic and lacked standardization.

Under new regulations, many companies are now required to track and disclose their environmental footprint, including direct (Scope 1) and energy-related (Scope 2) GHG emissions and water security risks. Even companies not directly regulated are impacted as data requests flow through supply chains, requiring smaller suppliers to support their larger customers' disclosures. This article explores how these regulations are reshaping the business landscape and offers guidance on how businesses can stay compliant.

Key State and SEC Environmental Disclosure Changes

California’s Senate Bill (SB) 253, the Climate Corporate Data Accountability Act, will require California companies with annual revenues over $1 billion to begin disclosing their Scope 1 and Scope 2 emissions by 2026, and their Scope 3 emissions, which account for supply chain impacts, by 2027. The regulation specifically aims to provide more consistent, accurate, and detailed data on corporate emissions to inform investors, regulators, and other stakeholders. Companies subject to SB 253 may face up to $500,000 per year in penalties for failure to comply or misstatement of emissions.

Simultaneously, California’s SB 261, the Climate-Related Financial Risk Disclosure Act, will require California companies with revenues over $500 million to biannually disclose their climate-related financial risks and mitigation strategies. By 2026, businesses will need to report how climate risks — such as severe weather events, resource shortages, or changing regulations — could impact their financial health. The reporting must follow guidelines from the Task Force on Climate-Related Financial Disclosures (TCFD), which go beyond simple emissions data to address broader risks to long-term business operations and viability. Companies subject to SB 261 may face penalties of up to $50,000 per year for noncompliance or inadequate disclosures.

At the federal level, the Securities and Exchange Commission’s (SEC) environmental disclosure rule targets certain publicly traded companies, requiring them to disclose Scope 1 and 2 emissions. The reporting schedule is staggered with larger companies (as defined by SEC) having a reporting deadline of December 31, 2025. The SEC rule also mandates that companies disclose other environmental risks, such as water usage, water scarcity risks, and potential operational disruptions from severe weather events. The disclosure must include the financial impacts of water-related risks, such as costs from flooding, drought, and mitigation efforts.

What’s Next

Whether your business is directly regulated by SEC’s environmental disclosure rule or California’s SB 253 and SB 261, or you are responding to supply chain pressures from partners, some actions that could help companies maintain compliance are:

• Implementing data tracking and reporting systems that capture Scope 1, 2, and 3 emissions, as well as other environmental impacts such as water usage and resource depletion.
• Conducting materiality assessments to help identify and prioritize the environmental risks most relevant to your operations.
• Developing long-term strategies that align with current regulations and position your business to adapt as regulatory requirements continue to evolve.

Trihydro assists businesses in building the necessary frameworks to meet current regulatory obligations while preparing for future changes. Our services focus on understanding the full scope of your environmental impact and establishing effective systems to track and report this data.

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