In early October 2023, California took a significant step in addressing the growing concern of climate change by signing two important bills into law. The Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261) are part of a comprehensive climate accountability package designed to enhance transparency and accountability regarding companies’ greenhouse gas emissions.
These bills will have a profound impact on both public and private companies operating in California, making it crucial for businesses to understand their implications and be prepared for compliance.
SB 253 and SB 261 arrive ahead of the anticipated federal SEC Rule on Climate-Related Disclosures becoming law and like the SEC rule, these new bills align with established standards and frameworks.
SB 253: Climate Corporate Data Accountability Act
This legislation targets companies with annual revenues exceeding $1 billion. It mandates the reporting of scope 1, 2, and 3 greenhouse gas emissions, with scope 1 and 2 emissions reporting commencing in 2026, and scope 3 emissions starting in 2027 (based on 2026 data). Notably, this affects more than 5,000 companies doing business in California.
To ensure the accuracy of these reports, third-party verification of emissions will be required. Limited assurance for scope 1 and 2 emissions will be necessary beginning in 2026, escalating to reasonable assurance for scope 1 and 2 emissions by 2030. Scope 3 disclosures will require limited assurance starting in 2030. These verified and assured emissions reports will be made publicly available in a new digital registry.
Failure to meet the requirements of SB 253 may result in civil penalties, with fines reaching up to $500,000, making it essential for businesses to adhere to the new standards.
SB 261: Climate-Related Financial Risk Act
SB 261 targets entities with annual revenues exceeding $500 million. This law mandates the submission of reports on climate-related financial risks to the California Air Resources Board (CARB). A climate-related financial risk includes any potential harm to financial outcomes due to physical and transaction risks, encompassing various aspects such as corporate operations, supply chain, employee health and safety, financial investments, and more.
Reports under SB 261 must align with the Task Force on Climate-Related Disclosures (TCFD) reporting framework. The first report will be due by January 1, 2026, followed by biennial reporting thereafter.
Non-compliance with SB 261 may result in civil penalties of up to $50,000, underscoring the importance of adhering to these new regulations.
Who Is Affected
SB 253 and SB 261 have a broad reach, impacting both public and private companies doing business in California. This includes not only businesses located within the state but also companies from other parts of the United States, as well as those from the European Union and the United Kingdom that transact in California.
While the bills do not explicitly define what it means to “do business in California,” they reference criteria used by the State of California Franchise Tax Board. Companies that engage in transactions for financial gain within California, are organized or commercially domiciled in California, or meet specific sales, property, or payroll thresholds may be subject to these new regulations.
Preparing for SB 253 and SB 261
To prepare for these new requirements, organizations should consider the following steps:
- Create a greenhouse gas inventory for operations, including establishing a baseline for greenhouse gas emissions.
- Conduct a climate-related risk and opportunity assessment to identify material risks to the business.
- Develop a strategic plan to address climate-related risks and reduce greenhouse gas emissions.
It’s also desirable to seek guidance from trusted advisors to understand the specific impact of SB 253 and SB 261 on your organization and how best to prepare for compliance.
In signing these bills into law, California aims to enhance transparency and accountability regarding companies’ contributions to greenhouse gas emissions and the associated financial risks. These new regulations represent a significant step in the fight against climate change and emphasize California’s commitment to addressing this global challenge.
How Cority Can Help You Navigate These New Climate Rules
Cority has been at the forefront of sustainability solutions for years, and we are here to assist your organization in not only meeting but excelling in this new compliance landscape. Our tailored sustainability solutions are specifically designed to help companies like yours navigate these new GHG reporting requirements seamlessly. Let’s explore how we can tailor our solutions to your requirements and objectives. Contact us here.
Sources:
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253
