2 and 3 – Sustainability, Resiliency and Risk Mitigation

Last week, the New York State Senate in its Environmental Conservation Committee proposed Bill SB 3456 which is a companion bill to Assembly Bill A4282. See attached draft copy at https://www.nysenate.gov/legislation/bills/2025/S3456

These bills, if enacted, would become the second set of bills passed in the United States which are aimed at requiring entities with connections to New York to report on their greenhouse gas emissions under Scope 1, Scope 2 and Scope 3 beginning in 2027. New York would join California as the second state in the US in requiring this type of reporting for companies with over $1 Billion in revenue.

Between New York at $1.6 Trillion of real GDP and California at $2.9 Trillion of real GDP, these two states together would represent more than 17.5% of the US’s real GDP being subject to Scope 1, 2 and 3 reporting requirements for greenhouse gas emissions.

California passed their version of a very similar reporting bill, SB 253, in 2023, with an effective date of January 2026. New York’s bill, if enacted, required regulations to be passed by December 31, 2026 with an effective reporting requirement for entities subject to the bill during 2027 for Scope 1 and 2 and 2028 for Scope 3.

As readers will likely recall, the SEC has pursued a similar path during 2023 and 2024, issuing proposed rules, and then final rules and then revised final rules which were then challenged and consolidated into one case in the 8th Circuit. The SEC’s final rules only required reporting on Scope 1 and 2 after receiving a backlash of comments about Scope 3. Currently, as of February 11, 2025, the SEC’s acting Chairman Mark Uyeda said that the commission will pause litigation of its climate disclosure rule in the 8th Circuit case, effectively ending, for now at least, the SEC’s pursuit of federal rules focusing on climate disclosure of Scope 1 and 2 greenhouse gases for reporting companies.

Despite the SEC’s position, it appears that states will continue to pursue their own path regarding climate disclosure. While California’s law had been challenged by various parties, earlier this month on February 3, 2025, the District Court for the Central District of California issued an order (https://www.troutman.com/a/web/gEwAfXN75c6MMmenKh3yd3/us_dis_cacd_2_24cv801_d96315207e190_order_granting_defendants_motion_to_dismiss_plaint.pdf) dismissing constitutional challenges posed to SB 253 and SB 261 and clears a path for the California Air Resources Board to develop necessary implementing regulations.

The New York bill is very similar to the California bill and requires reporting starting in 2027 and additional reporting in 2028. It also requires a third party report of limited assurance on Scope 1 and 2 in 2027 and a reasonable assurance report starting in 2031.

If New York follows the path of California here, companies with limited contacts to New York will find themselves subject to this reporting regime and need to put in the work to measure, monitor and report on their Scope 1, 2 and 3 greenhouse gas emissions if they have sales of over $1 Billion Dollars (and those sales need NOT be in New York alone, rather they are in the aggregate and likely will include subsidiary and related entities).

Green Spouts: While it is highly likely that various parties like the US Chamber of Commerce (who sued California for implementing SB 261 and 253) will also attempt to block New York from implementing its version of SB 3456, given the District Court’s ruling noted above, it appears that if passed in New York, that the constitutional challenges raised by the plaintiffs are not likely to withstand New York court scrutiny and New York could join California as requiring such reporting as early as 2027. Again, the Bill needs to clear the Senate Environmental Committee and then needs to be voted on and approved by the Senate and also needs Assembly approval and the Governor’s signature, but it appears that these steps are not only possible but likely in 2025, partially/fully in reaction to the Federal government’s overall environmental position and its position taken in withdrawing from the SEC Final rules on climate disclosure. This author’s view is that the Bill will likely pass in New York and be signed by the Governor, will attract challenges like California’s version did and that those challenges under New York law will survive such a challenge and that the law will become a reality during 2025/2026.

Duane Morris has an active Sustainability and Risk Mitigation Team to help organizations and individuals plan, respond to, and execute on your Sustainability and Risk Mitigation planning and initiatives. For more information, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Jeff Hamera, Jolie-Anne Ansley, Robert Montejo, or the attorney in the firm with whom you are regularly in contact.

We had the pleasure or participating in the I-Global LP and GP Conference yesterday in New York City. In a fast moving, lots of ground covered panel headlined by Andrea Pinabell – RE Tech, Uma Moriarity – Center Square, John Forester – RMR Group, Hyon Rah – DWS and Randy Hoff – PWC which I had the honor of moderating, the discussion focused on Sustainability, ESG and Real Estate investment.

The panel covered how each of their organizations have set goals and targets for sustainability including some setting net zero 2024 goals (wow), operational efficiency and energy usage reduction goals, water and recycling goals, return on investment goals and how sustainability is used as part of the various lenses to evaluate and determine which assets to purchase and invest in and how resiliency and weather impacts like hurricanes, floods, and wild fires are relevant to decisions being made by investment committees on where to invest and where to divest assets.

We touched on the advent of Energy Star, the free tool from the EPA that has been around for decades and keeps getting better with more in depth features and analysis tools, and how it can be used to measure building performance within a market segment as well as across various market segments given that the data within the tool is normalized for weather and temperature.

The panel defined and discussed Scope 1 (the energy one consumes and the greenhouse gas (“ghg”) impact of it on site), Scope 2 (the energy one brings on site and the ghg impact from a utility) and Scope 3 (the ghg impact from one’s supply chain and one’s own travel) and why it is important to be measuring and monitoring these items, even though the final SEC Rules on Climate Disclosure did not include Scope 3 reporting, noting that the California Climate bills that were passed in 2023, do indeed include Scope 3 measuring and reporting.

We touched on the challenge of data integrity and data management when multiple geographies and product types are owned and operated but that these challenges can be met and how their organizations were indeed including sustainability features within their due diligence processes in purchasing properties and in developing them let alone operating them within their various portfolios.

Building performance on energy, water and waste within the 48 cities, 3 states and 2 counties requiring such monitoring, measuring and reporting was also reviewed as was the new Local Law 97 type mandates requiring greenhouse gas measuring and reporting and a fining regime for non-compliance in various cities like Boston, New York, Washington DC, Denver, San Francisco, etc. were continuing to appear and evolve and how such trends are being tracked by the Institute for Market Transformation (IMT) on line with an easy to see tool and map.

Lastly, we spoke of the various changes to the final rules in the SEC’s Rules on Climate Disclosure which are now the law, but which have been granted a temporary stay by the 5th Circuit, delaying their implementation but not impacting various public companies from complying anyway given the likelihood that the rules will be required at some point in the near future.

We also learned that the panelists were currently enjoying Columbia University’s Energy podcast, Monday Morning Quarterback, All In, How I Built This and the Energy Gang as their guilty pleasure ESG or other podcasts.

Green Spouts: The picture that was painted by the panelists, despite news headlines in certain business publications to the contrary, is that sustainability, weather incidents, resiliency and risk mitigation are topics that are agnostic to politics and political winds and that very large real estate companies are continuing to focus on and expand their ambit of goal setting, measuring, monitoring and acting on various energy, water, waste and social and governance issues where they believe they can obtain an appropriate return or where they are otherwise being required by law to report their results.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. For more information, please contact Brad A. Molotsky, David Amerikaner, Joseph West, Sharon Caffrey, Sheila Rafferty-Wiggins, Alice Shanahan, Jeff Hamera, Nanette Heide, Joel Ephross, Jolie-Anne Ansley, Robert Montejo or the attorney in the firm with whom you are regularly in contact.