California has recently passed two landmark bills, Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261), collectively forming the “Climate Accountability Package.” These bills introduce extensive climate-related disclosure requirements, affecting numerous U.S. public and private companies operating in the state. This blog provides an overview of who these legislations apply to and what businesses need to know about their obligations, aligning with global trends towards more stringent climate reporting requirements and reflecting the growing urgency of addressing climate-related financial risks.
On October 7, 2023, California governor Gavin Newsom signed into law Senate Bill 253 (“SB 253”) and Senate Bill 261 (“SB 261”), which together comprise the core of California’s “Climate Accountability Package.” Although the laws may be modified by future legislation, as they currently stand, these laws impose extensive new climate-related disclosure obligations on thousands of public and private U.S. companies with operations in California.
In a year marked by 23 separate billion-dollar disasters in the United States, including the recent landfall of Hurricane Idalia in western Florida the devastating wildfires in Maui, these bills underscore a growing acknowledgment of the need to comprehend climate-related risks and expedite effective mitigation.
These bills are a massive development in climate change disclosure and are, as I said, the first of their kind, but they don’t exist in a vacuum. While these bills primarily target U.S. companies operating within California, they are part of a larger global trend towards enacting stringent climate reporting requirements for businesses. This movement includes the SEC’s proposed climate disclosure rule in the United States and the Corporate Sustainability Reporting Directive (CSRD) in the European Union.
And back in 2021, President Biden instructed his Administration to craft a strategy for addressing climate-related financial risk in In Executive Order 14030, titled “Executive Order on Climate-Related Financial Risk”. The intent here was to promote “consistent, clear, intelligible, comparable, and accurate disclosure” of climate-related financial risks.
Additionally, the 2023 Climate Change Synthesis Report from the Intergovernmental Panel on Climate Change emphasizes the urgency of action as climate risks become increasingly severe, intricate, and challenging to manage.
All of that is to say that governments and investors alike are finally clamoring for clear, comparable climate disclosure. So- what are these specific pieces of legislation and what do you need to do about it?
California
Similar to the EU’s approach, California has adopted an inclusive stance when it comes to the companies affected. Meaning that instead of solely targeting businesses headquartered or primarily operating in California, the state will mandate climate disclosures from any company conducting business within its borders.
And for anyone thinking these bills might not land- Last week during an appearance at Climate Week NYC, Governor Newsom told the audience emphatically, “of course I will sign those bills.” When he does, many more companies will be required to improve the accuracy, completeness and rigor of their GHG reporting and climate risk disclosures.
What does SB 253 require?
SB 253, known as the Climate Corporate Data Accountability Act mandates that companies with annual revenues exceeding $1 billion must disclose their pollution data and their Scope 1, 2 and 3 greenhouse gas (GHG) emissions. This means that we’re talking about carbon accounting. Companies will be expected to conduct and then disclose the results of a carbon accounting assessment.
When will this take effect?
This law obliges the California Air Resources Board to create regulations by 2025. Starting in 2026, these companies will be compelled to publicly disclose their greenhouse gas emissions from both their operations and electricity consumption. Furthermore, they must also reveal the extent of pollution generated by their supply chains and customers by 2027.
Specifically, companies will have to disclose the following:
- Scope 1 and Scope 2 greenhouse gas emissions starting in 2026 and annually thereafter.
- Scope 3 greenhouse gas emissions starting in 2027 based on 2026 data and annually thereafter.
- Make available, and update at least annually, the emissions of greenhouse gases, criteria pollutants, and toxic air contaminants for each facility that reports to the California Air Resources Board (CARB).
- Demonstrate independent verification by a 3rd party auditor.
Over 5,000 companies doing business in California will be required to make disclosures.
What does SB 261 require?
Senate Bill 261 (SB 261) would mandate that companies generating annual revenues exceeding $500 million produce biennial reports. These reports should disclose financial risks associated with climate change and outline strategies adopted for risk mitigation and adaptation.
In addition to furnishing these climate-related financial risk reports to the California State Air Resources Board, affected companies must also make these reports accessible on their respective websites. Companies under the jurisdiction of the California Department of Insurance or engaged in insurance activities in other states would be exempt.
It’s definitely worth noting that SB 261 sets a lower revenue threshold ($500 million) compared to SB 253 (>$1 billion) so it is expected to cover a larger set of companies. Consequently, certain companies not obligated to report emissions under SB 253 would still need to fulfill reporting requirements for climate-related financial risk under SB 261.
What do you need to think about now?
It is really exciting to see regulation finally coming to fruition over climate change-related disclosures. It’s the only way we can start to truly compare performance and understand feasibility of goals and targets, let alone track progress against them.
Greenplaces can help customers prepare for these disclosure requirements from start to finish, regardless of where you are in your sustainability journey. If you’ve never collected a sustainability metric or if you’ve been reporting to a leading sustainability framework for years, we can guide you through the process and make sure that you understand what compliance looks like for your company specifically and are preparing now for the future of sustainability.
Step one would be to get a handle on your carbon footprint and we’ve got information listed on this page about how to get in touch with us to start that process.
