On October 7th 2023, Governor Newsom signed the first-of-its-kind legislation that would require Scope 1, 2, & 3 disclosure from all major corporations operating within the State. California Senate Bill 253, or the Climate Corporate Data Accountability Act, requires both public and private businesses in California with revenues greater than $1 billion USD to report all direct and indirect emissions, beginning in 2026 (for the year of ). Also signed was its partner bill SB 261, the Climate-Related Financial Risk Act that requires risks associated with climate phenomena to be reported by businesses with over $500 million in revenue, also beginning in 2026.
Last year, SB 253 passed the Senate and came within one vote of passage of the Assembly floor. This January, it re-emerged along with SB 261 in The Climate Accountability Package, a suite of bills designed to improve transparency, standardize disclosures, align public investments with climate goals, and raise the bar on corporate action to address the climate crisis. SB 253 in particular was reintroduced with an even larger and more diverse coalition of supporters. Ceres joined as a co-sponsor, and major corporations such as Apple, Amalgamated Bank, Levi’s, Google, and Microsoft announced their support for the bill in the weeks leading up to the Assembly vote.
While both SB 253 and SB 261 are similar to proposed federal regulations put forward by the SEC, there are several fronts on which these bills reach even further. It is likely that California’s outsized influence on the global economy will be leveraged to perpetuate these standards well beyond state borders.
SB 253: The Climate Corporate Data Accountability Act
The Climate Corporate Data Accountability Act, or SB 253 will require both public and private US-based organizations that do business in California with an annual gross revenue of over $1 billion USD to disclose their greenhouse gas emissions in accordance with the GHG protocol. This bill will directly impact an estimated 5,400 companies ranging from US-based partnerships, corporations, LLCs, and other entities, according to a report published by the California Senate. In addition to submitting emissions to a digital reporting platform, companies will be required to hire independent auditors to verify their Scope 1 & 2 reported emissions. Reporting and ensuring verification of data by a registry or third-party auditor with expertise in carbon accounting will be overseen by the California Air Resources Board (CARB).
Using 2025 emissions data, Scopes 1 and 2 reporting would be required to commence in 2026, with Scope 3 deferred to 2027. With such a timeline, corporations will need to have a concrete plan for gathering auditable emissions data before the end of 2024.
SB 261: The Climate-Related Financial Risk Act
The other act also signed into law by Governor Newsom is SB 261, otherwise known as, “The Climate-Related Financial Risk Act.” SB 261 will require both public and private US-based organizations that do business in California with an annual gross revenue of over $500 million USD to prepare a climate-related financial risk report disclosing “the entity’s climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk.” According to a report published by the California Senate, this bill will directly impact an estimated 10,000 companies.
As to what this “climate-related financial risk report” will actually encompass, the law specifies that the report should be published using the recommended framework and disclosures contained in the Final Report of Recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD is a commonly used voluntary reporting standard for climate-risk reporting with recommendations that are widely endorsed by governments, investors and financial leaders.
SB 261 does note that companies who do not want to use the TCFD’s reporting framework can also disclose their report through “equivalent reporting requirements,” which encompass biennial climate-related financial risk disclosure reports meeting TCFD criteria. These equivalent reports can originate from voluntary frameworks like the IFRS Sustainability Disclosure Standards or be mandated by laws, regulations, or listings from government entities, including the U.S. government. This is especially significant because if the SEC’s climate-risk reporting rule aligns with TCFD standards and CARB deems it equivalent, companies can streamline their reporting by submitting their SEC disclosure to CARB, avoiding the need for separate California-specific reports.
How do these California laws compare to proposed SEC regulations?
The pending climate disclosure rule proposed by the US Securities and Exchange Commission (SEC) would require public companies to disclose their operational and potentially value chain greenhouse gas emissions, exposure to climate risk, and detailed roadmap for achieving any publicly disclosed climate targets. SB 253 and SB 261 differ from the SEC’s climate proposal on a few key fronts (see figure below).
How EcoAct can help companies get ahead
At EcoAct, we are committed to assisting our clients in effectively navigating the evolving landscape of climate regulations. Our team of experts specializes in guiding companies through the complexities of regulatory frameworks, including those outlined in SB 253 and SB 261. We offer tailored support in ensuring compliance through thorough regulatory gap analyses, covering diverse sectors, regions, and company sizes, while also developing comprehensive Scope 1-3 inventories.
Furthermore, our seasoned climate-risk experts stand ready to help clients assess and manage their climate-related financial risks. If your organization is seeking expert guidance in these critical areas, we invite you to reach out to us. Together, we can navigate the regulatory challenges and build a sustainable future for your business.