Environmental regulation in the U.S. is a complex system that involves federal, state, and local governments collaborating to address environmental issues, such as climate change, air and water pollution, and resource depletion. The importance of this system has grown significantly, particularly as the global community recognizes the necessity of international environmental agreements to protect human health, maintain environmental quality, and mitigate the consequences of human activities. These environmental laws aim to balance economic growth with environmental protection, promoting sustainability, regulatory transparency, and environmental justice.
In recent years, new environmental laws and expanded rules have emerged to ensure that businesses take responsibility for their environmental impact. The United States has implemented various laws that encourage transparency in climate-related disclosures, mitigate environmental harm, and push industries to contribute to global efforts to combat climate change. This guide will outline several key pieces of environmental legislation affecting businesses in the U.S. These include the SEC’s new rules on climate-related disclosures, California’s SB253 and SB261, New York’s Bill A4123, and the EU’s Corporate Sustainability Reporting Directive (CSRD) for U.S. companies. Each section will detail what these laws are, who they apply to, their reporting obligations, and the timelines for implementation. We will also discuss the broader impact of these environmental laws, particularly as they pertain to environmental justice and sustainability.
The history of environmental law in the United States
The National Environmental Policy Act (NEPA) of 1969 is a landmark federal law that sets the framework for environmental policy in the United States. NEPA requires federal agencies to consider the environmental impacts of their actions and to prepare environmental impact statements (EISs) for major projects. This process ensures that potential environmental effects are carefully evaluated and that public input is considered before decisions are made. The Environmental Protection Agency (EPA) is the primary federal agency responsible for implementing and enforcing environmental laws in the United States. The EPA’s role includes setting standards, monitoring compliance, and taking enforcement actions to protect human health and the environment.
Key principles and frameworks
Environmental law in the United States is guided by several key principles and frameworks, including:
- The Precautionary Principle: This principle holds that when there is a risk of harm to the environment or human health, precautionary measures should be taken to prevent or mitigate that harm, even if some cause-and-effect relationships are not fully established scientifically.
- The Polluter Pays Principle: This principle asserts that those who cause environmental harm should be responsible for paying for the costs of cleanup and restoration. It ensures that the financial burden of pollution is borne by those responsible, rather than by society at large.
- The Principle of Environmental Justice: This principle emphasizes that all communities, regardless of their racial or socioeconomic composition, have the right to a safe and healthy environment. It seeks to address and rectify the disproportionate environmental burdens faced by marginalized and disadvantaged communities.
What is the SEC’s new legislation?
The SEC’s new regulations, introduced to improve climate-related disclosures for public companies, represent a significant step forward in ensuring transparency in how businesses manage climate risks. As the U.S. faces growing climate challenges, including the impacts of extreme weather and shifting environmental regulations, the SEC’s rules are designed to provide investors and the public with reliable and comparable data on a company’s environmental impact. This includes greenhouse gas (GHG) emissions, physical climate risks, and how companies integrate these risks into their governance structures and business models. These rules align with the broader regulatory process at the federal level, seeking to support the protection of human health and the long-term environmental quality of the U.S.
The SEC’s climate-related disclosure requirements mark a response to international environmental agreements, such as the Paris Agreement, which aims to reduce global emissions and limit global temperature rise to well below 2°C. By establishing standardized reporting obligations, these environmental laws create a more predictable and transparent business environment while helping to combat the climate crisis and promote a comprehensive environmental response.
Who does it apply to?
The SEC’s rules apply to all publicly traded companies with revenues over $700 million, meaning that large corporations in the U.S. are required to comply. Given the broad range of industries in the U.S. that contribute to environmental harm through energy consumption, emissions, and waste, these environmental laws will have a far-reaching impact. The regulations require that these companies disclose their direct (Scope 1) emissions, indirect emissions from purchased electricity (Scope 2), and, if necessary, indirect emissions from their supply chains (Scope 3).
What are the reporting obligations?
Under the SEC’s new rules, businesses are required to disclose:
- Greenhouse gas emissions: Companies must report their Scope 1, Scope 2, and potentially Scope 3 emissions. These disclosures should align with the Greenhouse Gas Protocol, ensuring consistency across companies.
- Climate-related risks: Companies must assess and disclose how physical risks (e.g., extreme weather) and transitional risks (e.g., changes in regulations) affect their business model. These risks must be assessed on both short- and long-term horizons.
- Governance of climate risk: Companies must disclose how their boards and executives are involved in overseeing climate-related risks. This might include detailing the role of committees or specific individuals tasked with sustainability efforts and managing climate risks.
- Financial impacts of climate risks: Businesses must describe how climate-related risks are expected to affect their financial condition, including potential impacts on revenue, costs, or market value.
What is the timeline for implementation?
The timeline for SEC compliance is expected to unfold in stages. Large public companies are required to begin disclosing climate-related information in their 2024 annual filings. By 2026, the SEC will require full disclosure of Scope 3 emissions, and companies will need to obtain third-party verification of their climate data. This phased implementation will allow businesses time to develop the necessary systems for tracking and reporting their emissions and climate-related risks.
Preparing for compliance
To meet these reporting obligations, companies should audit their current environmental impact data, establish robust governance and risk management structures, and invest in systems for accurate emissions tracking. Engaging with sustainability experts and ensuring compliance with international environmental frameworks will be critical to avoiding regulatory penalties and fostering greater transparency in line with environmental laws.
What are SB253 and SB261?
California’s Senate Bill 253 (SB253) and Senate Bill 261 (SB261) are landmark pieces of environmental legislation that seek to impose strict requirements on large corporations regarding their climate-related disclosures. SB253, also known as the Climate Corporate Data Accountability Act, mandates that companies with revenue exceeding $1 billion disclose their GHG emissions. Meanwhile, SB261 focuses on climate-related financial risk disclosures, which are designed to assess how businesses are exposed to and managing risks associated with climate change. These bills are significant because they reflect California’s leadership in setting high standards for corporate transparency and sustainability and echo global efforts to protect human health, mitigate environmental harm, and address climate change through robust environmental laws.
Who do these laws apply to?
SB253 applies to companies with revenues exceeding $1 billion that do business in California. SB261 applies to businesses with revenues exceeding $500 million and mandates that companies disclose their financial risks related to climate change. Together, these environmental laws aim to hold large corporations accountable for their environmental impact and ensure that climate-related risks are transparently reported to investors and the public.
What are the reporting obligations?
Under SB253 and SB261, companies must disclose the following:
- Greenhouse gas emissions: Companies must report on Scope 1 and Scope 2 emissions, as well as provide details on their emission reduction efforts. Scope 3 emissions may be required if they are deemed material to the company’s operations.
- Climate-related financial risks: Companies must assess how physical risks (such as rising sea levels or extreme weather) and transitional risks (like regulatory changes and market shifts) affect their operations and financial outcomes.
- Third-party verification: SB253 requires that by 2026, companies will need third-party verification for their GHG emissions data, ensuring that the information is accurate and credible. Full verification is expected to be required by 2030.
What is the timeline for implementation?
Companies subject to SB253 and SB261 must begin their climate-related disclosures by 2026. However, the timeline for full implementation is staggered, with third-party assurance and full disclosure of Scope 3 emissions expected by 2030. This extended timeline gives businesses time to adjust their practices, audit their emissions data, and ensure that their reporting systems meet the new legal standards set by environmental laws.
Preparing for compliance
To ensure compliance with these environmental laws, companies should implement strong data management systems that accurately track their GHG emissions. They should also begin developing strategies for mitigating climate-related financial risks, assessing the potential impacts on their business models, and integrating sustainability into their long-term plans. By aligning their disclosures with international environmental standards, companies will not only comply with California’s laws but also contribute to the broader effort to protect the environment and public health.
What is Bill A4123?
New York’s Bill A4123 is a piece of proposed legislation that would require businesses operating in the state to disclose their GHG emissions and climate-related financial risks. Modeled after California’s SB253 and SB261, Bill A4123 aims to increase transparency and accountability, ensuring that businesses consider the long-term environmental and financial implications of climate change. By mandating these disclosures, New York aims to align with national and international environmental agreements that promote climate resilience and sustainability.
Who does it apply to?
Bill A4123 would apply to companies with revenues exceeding $500 million. These businesses would be required to disclose their direct and indirect emissions and provide details on how they are managing climate-related financial risks under the new environmental laws.
What are the reporting obligations?
Under Bill A4123, businesses must disclose:
- Greenhouse gas emissions: This includes Scope 1 and Scope 2 emissions, as well as the potential inclusion of Scope 3 emissions, depending on the materiality to the company.
- Climate-related financial risks: Businesses must evaluate and disclose the potential financial risks associated with climate change, including risks from extreme weather events, shifting regulations, and changing market conditions.
- Governance and oversight: Companies must describe how climate-related risks are managed at the board and executive levels, ensuring accountability for sustainability efforts and risk mitigation.
What is the timeline for implementation?
Although Bill A4123 is still under consideration, it is expected that companies will need to start disclosing climate-related information within a few years of the bill’s passage. A timeline similar to California’s laws is likely, with full compliance expected by the late 2020s.
Preparing for compliance
Businesses should begin preparing by assessing their emissions data and identifying areas where climate risks may affect their financial stability. Engaging with environmental consultants and auditing current sustainability practices will be essential in ensuring that the company meets the legislative requirements set forth by these environmental laws.
What is the CSRD?
The CSRD is an EU regulation that requires large companies to disclose sustainability and environmental data in a standardized and transparent manner. While it primarily applies to EU companies, its impact extends to U.S. businesses with significant operations in the EU. The CSRD mandates disclosure on a broad range of environmental, social, and governance (ESG) factors, with a particular focus on climate-related disclosures and sustainability efforts. This regulation supports global efforts to reduce environmental harm, protect human health, and address climate change.
Who does it apply to?
The CSRD applies to all large companies operating within the EU, including non-EU companies with substantial activities in the EU. This means U.S. companies doing business in Europe must comply with the CSRD’s extensive reporting requirements. This will likely affect many U.S.-based multinational corporations as they navigate environmental laws globally.
What are the reporting obligations?
The CSRD requires companies to report on:
- Climate-related risks: How physical and transitional risks are assessed and managed.
- Environmental impact: A detailed analysis of how a company’s activities affect the environment, including carbon emissions, water usage, waste management, and biodiversity.
- Governance structures: The role of board members and executives in managing sustainability and climate risks.
What is the timeline for implementation?
The CSRD will be fully implemented by 2026. U.S. companies operating in the EU should begin preparing for these reporting obligations in the near future, as the regulation has significant implications for how businesses report on their sustainability performance, including environmental laws.
The Environmental Protection Agency (EPA) plays a critical role in protecting human health and the environment in the United States. Established in 1970, the EPA is tasked with enforcing federal environmental laws, providing support to state and local governments, and conducting research to address environmental challenges.
EPA’s Mission and Functions
The EPA’s mission is to protect human health and the environment by enforcing federal environmental laws and regulations, providing funding and technical assistance to state and local governments, and conducting research and development to identify and address environmental problems. The EPA’s functions include:
- Enforcing Federal Environmental Laws and Regulations: The EPA enforces key laws such as the Clean Air Act and the Clean Water Act, ensuring that industries and other entities comply with standards designed to reduce pollution and protect public health.
- Providing Funding and Technical Assistance: The EPA supports state and local governments by providing grants, technical assistance, and guidance to help them implement and enforce their own environmental programs.
- Conducting Research and Development: The EPA conducts scientific research to understand environmental issues, develop new technologies, and inform policy decisions. This research addresses a wide range of topics, including climate change, air and water quality, and environmental contamination.
- Educating the Public: The EPA promotes environmental awareness and education through various programs and initiatives, helping individuals and communities understand and address environmental issues.
By fulfilling these functions, the EPA plays a vital role in ensuring that environmental laws are effectively implemented and that the environment and human health are protected for present and future generations.
Looking ahead – Navigating the future of environmental laws
In conclusion, U.S. businesses need to be prepared for a new era of environmental regulations aimed at protecting human health, addressing climate change, and ensuring transparency in corporate sustainability efforts. The SEC’s climate-related disclosure rules, California’s SB253 and SB261, New York’s Bill A4123, and the EU’s CSRD all represent significant steps toward a more sustainable and transparent business environment. As these environmental laws evolve, companies will be required to adhere to increasingly stringent legal standards, aiming to reduce environmental harm, support climate resilience, and contribute to international environmental agreements.
These environmental laws provide a clear framework for how businesses must address their environmental impact and governance, promoting corporate accountability and environmental justice. By embracing these changes, companies can contribute to a broad range of environmental protection goals while positioning themselves for long-term success in a rapidly changing regulatory landscape.
U.S. businesses that operate globally must take these environmental laws seriously to stay competitive, mitigate risks, and align with the growing expectations for sustainability and transparency. The transition to a greener, more sustainable future is underway, and compliance with these new environmental laws is not just about meeting legal requirements but also about safeguarding the planet’s future for generations to come.
