States Advance Climate Disclosure Proposals as SEC Steps Back

State lawmakers want to make large companies disclose carbon emissions as the Trump administration retreats from federal requirements, proposing legislation that could unearth mountains of climate data while creating a patchy regulatory environment.

The bills introduced in New York, Colorado, New Jersey, and Illinois would require companies with more than $1 billion in annual revenue doing business in the state to report their greenhouse gas emissions every year or risk civil action from their respective attorneys general.

“Investors, consumers, and other stakeholders deserve transparency from companies regarding their greenhouse gas emissions to inform their decision-making,” New Jersey’s bill says. “Companies can increase the State’s climate risk through emissions,” and residents have a right to know about those risks.

The proposed state laws are sector-agnostic and would cover everything from technology to manufacturing, said Ari Selman, partner at Morgan Lewis.

Reports would have to disclose both direct and indirect emissions across three categories that include everything from energy generation to employee commutes. California enacted a similar law in 2023, but its first phase isn’t scheduled to take effect until 2026.

Some of the world’s largest companies—such as Amazon.com Inc., which last year reported $638 billion in net sales—could be on the hook, though many already report their emissions.

Climate disclosure bills in the states this legislative session echo a 2024 US Securities and Exchange Commission rule that the Trump administration is distancing itself from in court. The regulation required public companies to report “climate-related risks” and other metrics.

Although this year’s proposed emission reporting laws are state-level, they’re nationwide in scope, Selman said. That’s because they cover any company—public or private—that meets the revenue threshold and does business in a state, regardless of where the entity is headquartered or incorporated.

Even before President Donald Trump took office, the SEC rule was already perceived to be on shaky legal ground due to concerns that the regulation’s granular reporting requirements could exceed the agency’s authority, said Jacob Hupart, co-chair of Mintz law firm’s ESG practice. But some companies liked the rule for its uniformity, he said.

Deciding Who’s Covered

If multiple states enact corporate climate reporting rules, companies’ regulatory burden and compliance costs would increase, Hupart said. In this way, states’ proposed solution to the federal government’s climate antipathy “may also end up inflicting significant problems,” he said.

Even if the laws are nearly identical, regulators in each state could interpret them differently. A resulting patchwork of requirements could prompt companies to sever their smaller ties to states that promulgate climate disclosure rules, Hupart said.

Corporate climate disclosure lawmaking “isn’t something that states have traditionally been involved in doing,” and they would have to carefully iron out language about whether subsidiaries are also subject to the laws, said Sarah Grey, partner at Arnold & Porter.

All four states with this type of legislation are attempting to cover large companies that “do business” in the state. But that term may not be explicitly defined until state agencies’ rulemaking process.

Scope 3 emissions—greenhouse gases from supplier transportation and other sources the company doesn’t directly control—are often the most significant aspect of a company’s carbon footprint, said Ramya Ravishankar, general counsel at food sustainability software company HowGood.

This could mean that smaller companies, such as vendors and distributors, would need to report their emissions to the firms they contract with, who then would report to the state.

Legal Challenges

Litigation is likely if more states advance climate disclosure rules, Selman said. California has already seen a lawsuit from the US Chamber of Commerce and other business groups, which argued last year that the law violated the First Amendment and encroached on the federal government’s authority.

“I do think litigation is likely” if more states enact climate disclosure laws, Selman said. “We see a template for that litigation in California.”

California scored a temporary win in November after a federal judge said more evidence was needed to make a determination on the First Amendment claims. The same judge also later dismissed the business groups’ two remaining claims but allowed one concerning limits on extraterritorial regulation to be reintroduced in the future.

The Chamber and its co-plaintiffs have since moved to block enforcement of California’s law, arguing that they would suffer irreparable harm by being forced “to speak on the controversial issue of climate change.”

If more litigation ensues, states would likely argue that their consumers are affected by greenhouse gas emissions and need data to make informed buying choices, Ravishankar said.

Even if they haven’t previously delved into corporate climate reporting standards, it’s still “well within the states’ gamut to regulate,” she said.