While The SEC Pauses, States Are Pushing Forward With Climate-Related Disclosures

While The SEC Pauses, States Are Pushing Forward With Climate-Related Disclosures

Despite the lack of federal climate leadership, several states across the US have stepped up. California, most notably, first introduced climate-related legislation in January 2023, which includes requirements for GHG emission and climate-related financial risk disclosures. This legislation has since been amended and passed, and while it faces legal challenges, firms could be required to make their first disclosures in 2026. Since President Trump’s inauguration, four additional states – Colorado, Illinois, New Jersey and New York – have proposed legislation requiring organizations to disclosure GHG emissions. New York’s proposal also includes requirements for firms to disclose climate-related financial risks. While these bills have some differences, they all:

• Apply to firms with more than $1 billion in revenue.
  The states’ proposed legislation applies to public and privately held firms with over $1 billion in revenue that do business in the state, unlike the SEC’s rule which only applied to publicly listed firms. As such, large privately held firms, such as Illinois-based Reyes Holdings and New York-based Wegmans Food Markets, among many others, could be subject to state-level disclosures.
  
  
• Require organizations to disclose Scope 1, 2 and 3 emissions, and get assurance.
  One of the most controversial elements of the SEC’s proposed climate rule was the inclusion of Scope 3 emissions – which was eventually omitted in the SEC’s final rule. All five states would require firms to disclose Scope 1 and 2 emissions (as soon as 2026, in California) and Scope 3 emissions (as soon as 2027, in California). The state-level legislation requires organizations to obtain third-party assurance on these emissions, although specific requirements vary. California will eventually require firms to obtain limited assurance on Scope 3 emissions, while the proposed bills in Colorado and Illinois do not provide specifics on assurance requirements.
  
  
• Impose hefty financial penalties.
  The states have noted significant penalties for non-compliance with reporting requirements. Organizations in Colorado could face monetary fines of up to $100,000 per day, while firms in California and New York could receive penalties of up to $500,000 annually.
  
  
  

At the federal level, requirements for ESG disclosures are essentially dead. Since the SEC’s climate rule was first proposed in 2022, there has been much uncertainty surrounding the legislation, such as whether firms would be required to report Scope 3 emissions and the extent of the SEC’s legal authority. The SEC’s announcement in February 2025 that it would be pausing its climate rule finally provided organizations with clarity: there will be no federal climate disclosure requirements in the next four (or more) years.

While it remains uncertain whether the state bills will face legal challenges or successfully pass through the legislature, states are increasingly pushing for greater transparency in GHG emissions. For firms that have yet to calculate their GHG emissions or evaluate their climate-related risks, now is the time to start. To do so, organizations should prioritize establishing strong internal governance structures and efficient data collection processes while exploring investment in software and services.

Verdantix will continue to follow climate and sustainability-related updates coming out of the US, including the evolution of these climate-related disclosure rules.