Colorado Joins wave of States Considering Greenhouse Gas Emission Disclosure Requirements

Introduction to the Movement

Colorado has become the latest state to join a growing wave of U.S. states considering legislation that would require businesses to disclose their greenhouse gas (GHG) emissions. This move comes against the backdrop of a broader national and global effort to combat climate change. The U.S. Securities and Exchange Commission (SEC) had previously introduced a climate-related disclosure rule in 2024, but it faced legal challenges and was eventually repealed in February 2024. Now, states like California and Colorado are taking matters into their own hands, proposing stringent reporting requirements for businesses operating within their borders. In Colorado, the proposed legislation targets companies with annual revenues exceeding $1 billion, requiring them to start reporting emissions as early as 2028.

The Global Context: Paris Agreement and International Sustainability Efforts

The push for emissions transparency can be traced back to the Paris Agreement of 2015, which set a global goal of reducing GHG emissions to achieve "net zero" by 2050. In the years following the agreement, various international initiatives emerged to regulate and influence businesses to adopt sustainable practices. Large investment firms like BlackRock used their influence to push companies toward environmental, social, and governance (ESG) practices. By 2021, it had become standard for businesses to release annual ESG and sustainability reports. However, these reports lacked standardization and clarity, often serving as marketing tools rather than providing actionable data.

The financial industry, in particular, faced challenges as funds claiming to be "green" or "sustainable" were required to back up their claims with reliable data. This led international regulators to develop standardized reporting frameworks. In 2023, the International Sustainability Standards Board (ISSB) adopted the Sustainability Disclosure Standards, which became the global benchmark for reporting on climate change and GHG emissions. While these standards are not used in the U.S., which follows Generally Accepted Accounting Principles (GAAP), they have been adopted in 132 other jurisdictions worldwide.

The Regulatory Landscape in the U.S.

In the U.S., the SEC proposed its own climate-related reporting standards in March 2022, with the final rule approved in March 2024. The rule required large publicly traded companies to disclose climate actions, GHG emissions, and the financial impacts of severe weather events. However, the rule faced immediate legal challenges and was delayed indefinitely. In February 2024, the SEC announced that it was repealing the rule, shifting the focus to state-level initiatives.

California was among the first states to act, approving the Climate Accountability Package in September 2023. This legislation required companies operating in California with revenues over $1 billion to submit annual reports on Scope 1 and Scope 2 emissions starting in 2026, with Scope 3 reporting phased in by 2027. However, the implementation timeline is likely to be delayed as regulators draft the necessary guidelines.

Colorado Follows Suit with House Bill 25-1119

Colorado is now following California’s lead with House Bill 25-1119, titled "Requiring Certain Entities to Disclose Information Concerning Greenhouse Gas Emissions." Introduced by Democratic state Representative Manny Rutinel on January 28, 2024, the bill mirrors California’s requirements. Companies with revenues exceeding $1 billion and a presence in Colorado would be required to disclose their GHG emissions.

The bill defines "reporting entities" as businesses that operate in Colorado and have annual revenues over $1 billion, including revenues from subsidiaries operating in the state. The definition of "doing business in Colorado" has been a point of contention in similar legislation, particularly in California, where businesses have struggled to determine whether they fall under the reporting requirements. It remains to be seen how Colorado will address this ambiguity.

Scope and Timing of Reporting Requirements

The bill mandates the disclosure of Scope 1 emissions (direct GHG emissions from company operations) and Scope 2 emissions (emissions from the energy provider tied to the company’s energy consumption) starting January 1, 2027, for the 2027 annual year. Scope 3 emissions, which include indirect emissions from sources not owned or controlled by the company, such as supply chains, business travel, and waste, will be phased in over several years.

By January 1, 2029, companies will need to report Scope 3 emissions from "purchased goods and services, capital goods, and the use of sold products." By January 1, 2030, the scope will expand to include emissions from fuel and energy activities, waste generation, and the processing and end-of-life of sold products. Finally, by January 1, 2031, companies will need to disclose Scope 3 emissions from upstream transportation, business travel, employee commutes, and other activities.

Notably, the bill’s current timeline for reporting appears overly ambitious, requiring companies to report emissions from the preceding calendar year by January 1. Most jurisdictions allow a six-month grace period for businesses to compile and submit such reports. This provision is likely to be revised as the bill progresses through the legislative process.

Challenges and Future Outlook

Enforcement of the proposed legislation in Colorado will be the responsibility of the state’s district attorneys and attorney general. Companies that fail to comply with the disclosure requirements could face penalties of $100,000 per day, although this figure is likely to be revised during the legislative process.

The bill’s passage is far from guaranteed, but the political landscape in Colorado suggests it has a strong chance of becoming law. Democrats currently control both chambers of the Colorado General Assembly, and Governor Jared Polis, also a Democrat, is likely to support the measure. However, opposition from the business lobby could lead to significant amendments or even the bill’s defeat.

As states like Colorado and California push forward with their own emissions disclosure requirements, they are setting a precedent for other states to follow. While the absence of federal regulation creates a patchwork of requirements, these state-level initiatives demonstrate a growing consensus on the need for transparency and accountability in the fight against climate change. The outcome of Colorado’s bill will be closely watched as a potential model for other states looking to address this critical issue.