Climate action in California has repercussions around the globe–the state has the fifth-largest economy in the world, and is forecast to overtake Germany and become the fourth sometime this year. That’s why all eyes are on the Climate Accountability Package that was introduced in the California Senate in January.
Three separate bills are bundled into the Climate Accountability Package, though they share common goals: improving corporate transparency and standardizing corporate disclosures regarding carbon emissions; aligning public investments with climate goals; and raising the bar on corporate action to address the climate crisis. If these bills pass, they would compel thousands of companies doing business in California to disclose their scope 1, 2, and 3 greenhouse gas emissions and/or climate-related financial risk information. Some of these reports would be due as soon as December 2024.
Though these bills focus on companies that do business in the state, they are part of a global movement towards legislation that requires robust climate reporting from companies, including the SEC’s proposed climate disclosure rule in the US, and the Corporate Sustainability Reporting Directive in Europe.
The first California bill, SB 252, applies only to two California state pension funds, so for the purposes of this article, we will focus on the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261).
What does the Climate Corporate Data Accountability Act (SB 253) require?
SB 253 would require some public and private companies doing business in California to disclose their scope 1, 2, and 3 emissions, beginning in 2026 on 2025 data. Scope 1 emissions are those that result directly from a company’s activities, while scope 2 are those released indirectly, for example, from electricity purchased and used by the company. Scope 3 encompasses all indirect emissions produced from a company’s entire supply chain.
Emissions disclosures would have to be independently verified and would be housed on a publicly available digital registry administered by an organization contracted by the California State Air Resources Board. This registry would enable users to review individual reporting entity disclosures and analyze underlying data elements in a variety of ways.
Who would be impacted by SB 253?
As proposed, the act would compel public and private companies doing business in California with annual revenue in excess of $1 billion to disclose their emissions as outlined above. Over 5,000 companies doing business in California could be required to make disclosures under the act as proposed, though the final definition could change.
What are the liability implications of SB 253?
The bill would authorize the California Attorney General to bring civil actions against subject companies and seek civil penalties for violations of the act.
What does the Climate-Related Financial Risk Act (SB 261) require?
The Climate-Related Financial Risk Act, or SB 261, would require certain entities doing business in California to prepare and submit climate-related financial risk reports that cover climate-related financial risks consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework. For example, businesses would have to disclose whether they’ve budgeted for increased compliance and insurance costs and quantified potential opportunities and strategic priorities. The first report would be required to be prepared by December 31, 2024.
Who would be impacted by SB 261?
If passed, the Act would require US entities that do business in California with annual revenue of at least $500M to prepare and submit climate-related financial reports as outlined above.
What are the liability implications of SB 261?
In addition to submitting these climate-related financial reports risk reports to the California State Air Resources Board, subject companies would need to make the reports available on their websites. Companies subject to regulation by the California Department of Insurance or that are in the business of insurance in any other state would be excluded.
What do these bills mean for companies doing business in California?
If these bills pass, they would compel thousands of companies doing business in California to disclose their scope 1, 2, and 3 greenhouse gas emissions and/or climate-related financial risk information. At this time, neither bill expressly defines what constitutes doing business in California, but this is expected to be clarified before the bill passes.
Notably, the financial threshold of SB 261 ($500M in revenue) is lower than that of SB 253 (>$1B in revenue). Therefore, if passed as proposed, some companies that are not required to report their emissions under SB 253 would still have obligations to report their climate-related financial risk under SB 261.
Watershed can help validate your data, prepare your filing, and ensure your disclosures are vetted and audit-ready. We'll also help you set targets and take concrete steps to reduce your emissions and mitigate climate risk. We're here to help companies meet all levels of regulatory requirements – just get in touch.
