USA – CALIFORNIA Law and Practice Contributed by: Kim Bick, Alan Bick, Corrie Plant and Tyler Alexander, Bick Law LLP
California also imposes environmental taxes across specific industries, including: • hazardous waste generation and handling fees; • electronic waste recycling fees; • environmental mitigation surcharges on producers of plastic-covered materials; • integrated waste management fees; • lithium extraction excise taxes; • marine invasive species fees; and • natural gas surcharges. 6.3 Incentives, Exemptions and Penalties California offers various incentives for environmentally responsible business entities, including: • sales and use tax exclusions for manufacturers of clean and alternative energy vehicles; • research and development tax credits; • tax incentives for transitioning to zero emissions vehicles; and • tax deductions for donating conservation ease- ments. Most California environmental regulations adjust pen- alties up for recalcitrant or repeat offences and adjust penalties down for co-operation with the regulators and voluntary reporting of environmental incidents. 6.4 Shareholder or Parent Company Liability California law treats a corporation as a distinct and separate legal entity from its stockholders, officers, or directors. Piercing the corporate veil and imposing liability on shareholders or a parent company is thus a departure from the normal rule. Before doing so, a reviewing court must find both (i) a unity of interest and ownership between the corporation and its sharehold- ers and (ii) that respecting the corporate form on the facts before the court would work an inequity. Among the factors courts consider in weighing piercing are: • whether the corporation and its shareholders com- mingled funds and assets; • whether the corporation disregarded corporate formalities, like board meetings or proper record keeping; • whether the corporation and its owner have identi- cal offices, employees, directors, or officers;
• whether the corporation is inadequately capital- ised; and • whether corporate assets have been diverted for personal use. 6.5 ESG Requirements Signed into law by Governor Newsome in 2023, SB 253, SB 261, and AB 1305 impose ESG reporting requirements on businesses in California. SB 253 applies to companies (i) formed in the United States; (ii) doing business in California; and (iii) with annual revenues exceeding USD1 billion. Covered entities must annually disclose (i) their direct GHG emis- sions (Scope 1); (ii) indirect GHG emissions from their consumption of electrical energy (Scope 2); and (iii) upstream and downstream GHG emissions within the entities’ value chain, such as emissions related to purchased goods and services, business travel, and employee commutes. SB 261 applies to companies (i) formed in the United States; (ii) doing business in California; and (iii) with annual revenues exceeding USD500 million. Covered entities must publish a climate-related financial risk report and publish the report on the entities’ website. AB 1305 applies to businesses selling voluntary car- bon offsets in California and requires covered entities to disclose on their company website specific details about their participation in carbon offset projects and accountability measures if those projects are not com- pleted or do not achieve their stated emissions reduc- tion or removal benefits. In addition, companies that purchase voluntary carbon offsets in California or who make marketing claims regarding their achievement of net zero emissions or carbon neutrality must disclose on their company websites details about how they determined they have achieved those claims and, if they purchased carbon offsets, details about the sell- ers and projects. SB 253 and SB 261 direct the California Air Resources Board to promulgate regulations to implement these disclosure requirements, which are forthcoming. All three statutes face legal challenges from industry groups. Thus, the applicability and scope of these laws is still unclear. However, because California is a leader in combatting climate change, the trend
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