California is known for leading the way in environmental and sustainability rules, and its ESG regulations are set to have a big impact beyond the state. As one of the largest economies in the world, California’s influence often reaches across the U.S. and even internationally, pushing companies to change how they report on sustainability.
These rules bring tougher requirements for transparency and accountability. But how do they fit in with existing national and global reporting standards, and what challenges will businesses face?
We’ve explored the California Regulations in previous posts, which you can read here and here. In this blog, we’ll look at the effects of California’s regulations and how they differ from other major reporting frameworks, shaping the future of corporate reporting.
Overview of California’s Climate Regulations
California’s climate regulations are reshaping how companies report on sustainability. These rules place a strong focus on mandatory Scope 3 emissions disclosure, material climate risk reporting, and non-materiality-based requirements. The recent SB 219 amendments to SB 253 and SB 261 introduce flexibility, such as extended timelines for regulatory development and Scope 3 reporting, while maintaining core reporting obligations for Scope 1, 2, and 3 emissions.
| Regulation | Description | Purpose |
| AB 1305 | Requires companies engaged in voluntary carbon markets to disclose project details, including protocols, verification, and project outcomes, on their websites. | Reduces greenwashing and increases accountability in carbon offset claims by enhancing transparency for carbon-neutral and net-zero declarations. |
| SB 253 | Mandates that companies with $1 billion+ in revenue disclose Scope 1, 2, and 3 GHG emissions annually; allows consolidated parent-level reporting. CARB regulations to be developed by July 2025. | Increases transparency of corporate climate impacts, enabling stakeholders to better assess carbon footprints and hold companies accountable. |
| SB 261 | Requires companies with $500 million+ in revenue to report material climate risks and management strategies biennially, aligned with TCFD guidelines. Reporting starts January 2026. | Provides stakeholders with insights into climate risks and resilience, supporting evaluations of long-term sustainability. |
Compliance Challenges
Adapting to California’s regulations can be challenging for businesses. Key difficulties include:
- Calculating Scope 3 emissions can be complex and resource-intensive, as it involves tracking emissions across the entire supply chain.
- Companies reporting under multiple standards must align disclosures, which can be a challenging and resource-heavy task.
- California’s laws demand certain disclosures regardless of their material impact on a company’s financials, adding complexity to the reporting process.
National Impact
California’s stringent regulations influence broader U.S. corporate practices. The SEC’s proposed rules for climate risk disclosures align with California’s focus on climate risks. The state’s mandatory Scope 3 emissions reporting could push companies nationwide toward more robust climate disclosures.
We have previously covered SEC’s Climate Rules here.
International Impact
The International Sustainability Standards Board (ISSB) emphasizes comprehensive and decision-useful climate disclosures. California’s regulations similarly require extensive emissions reporting without regard to materiality. This suggests an alignment in that both frameworks push for more robust climate transparency from companies.
The European Union has its own rules, such as the Corporate Sustainability Reporting Directive (CSRD). California’s regulations might lead the EU to strengthen its requirements to stay competitive, as both regions aim to meet climate goals. Discover more about CSRD here.
Key Differences from Other Frameworks
- California mandates reporting of all Scope 1, 2, and 3 emissions, irrespective of materiality, while other frameworks like the SEC and CSRD require materiality-based disclosures.
- California’s laws do not consider materiality for emissions, while the SEC uses financial materiality, and the CSRD uses a double materiality approach.
- These climate laws require fewer governance and strategy disclosures compared to the SEC and ISSB.
- The California state mandates comprehensive value chain emissions reporting (Scope 3), a requirement not fully mirrored in other frameworks.
- These regulations are mandatory for eligible companies, while the SEC’s rules are flexible and the ISSB standards can be implemented voluntarily.
How Cority Can Help You Navigate These Climate Rules
With decades of technology and advisory experience, Cority is here to assist your organization in not only meeting but excelling in this new compliance landscape. Our tailored sustainability solutions and services are specifically designed to help companies like yours navigate these new GHG reporting requirements seamlessly and with confidence. Contact us to explore how our solutions and advisory services can support you on your sustainability strategies.
Resources:
https://www.energycap.com/resource/everything-you-need-to-know-about-californias-climate-laws/
https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/hot-topic-california-climate-laws.pdf
https://viewpoint.pwc.com/dt/us/en/pwc/in_the_loop/assets/caitl101223.pdf
