Latest update - Governor Newsom signed SB 219 into law on September 27, 2024. The law will be implemented without delays, with the first reports required in 2026.
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 new climate disclosure law that will soon apply to thousands of US companies doing business in the state.
The new rule compels US companies doing business in California to disclose their scope 1, 2, and 3 greenhouse gas emissions and/or climate-related financial risk information. The goal—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.
Though the rule focuses on US companies that do business in the state, it is part of a global movement towards legislation that requires robust climate reporting from companies, including the SEC’s climate disclosure rule in the US, and the Corporate Sustainability Reporting Directive in Europe.
A note on terminology—the CCDAA has been known by several different acronyms in the course of being agreed and amended, and used to be two separate laws that have now merged into one. The final bill that legislated for the rules is known as SB 219, and you may sometimes see reference to the original bills SB 253 and SB 261.
What does the Climate Corporate Data Accountability Act (CCDAA) require?
The CCDAA requires some US based 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. Scope 3 emissions reporting is required in 2027 on 2026 data; a year after the first scope 1 and 2 disclosures.
Scope 1 and 2 emissions disclosures need to be independently assured by an independent third party. Scope 3 emissions may also require assurance; CARB is set to take that decision in 2027, and can introduce the requirement from 2030. All emissions disclosures will be housed on a publicly available digital registry.
As well as emissions disclosures, the rule also requires certain entities doing business in California to prepare and publish climate-related financial risk reports that are consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework. Those reports must be published on a company’s website. 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 January 1, 2026, and then refreshed biennially.
Which companies are impacted by the CCDAA?
The scope of the rule is broken into two parts. The emissions disclosure requirements apply to US public and private companies with annual revenue in excess of $1B, that are doing business in California.
The requirement to publish climate related financial risk reports, captures a wider set of companies: US public and private companies that do business in California, with annual revenue of at least $500M.
What are the liability implications of the CCDAA?
The law authorizes the State Board to bring civil actions against subject companies and seek civil penalties for violations of the act. Penalties for companies relating to the emissions disclosure requirements can be up to $500,000. Penalties relating to the financial risk report part of the requirements can be up to $50,000. There is a safe harbor for scope 3 emissions disclosures; companies are not subject to administrative penalties for misstatements about scope 3 emissions made with reasonable basis and disclosed in good faith.
What does the CCDAA mean for companies doing business in California?
The rule compels 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. Although it’s a state rule, the scope means that its impact is truly national, capturing companies across the US.
Importantly, this may not be the only climate disclosure rule that in scope companies are subject to. The SEC recently published a climate disclosure rule for companies publicly listed in the US. The European Union has also introduced its Corporate Sustainability Reporting Directive (CSRD), which captures US businesses doing over a given amount of business in the EU. In principle, the CCDAA is designed to avoid duplication; companies are allowed to comply by submitting other regulatory reporting that is of an equivalent standard. However, CARB is yet to set out exactly how that would work, so for now, companies should assume they will need an entirely separate disclosure process.
