This week, the California legislature approved Senate Bill 253, the Climate Corporate Data Accountability Act (SB 253), and Senate Bill 261, Greenhouse gases: climate-related financial risk (SB 261), which are headed to Governor Gavin Newsom to sign or veto by October 14, 2023.
SB 253 would require the California Air Resources Board (CARB) to adopt regulations before January 1, 2025, requiring “reporting entities” to publicly disclose their greenhouse gas emissions on an annual basis. Under SB 253, “reporting entity” means 1) a partnership, corporation, limited liability company, or other business entity formed under the laws of the State of California, the law of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States, 2) with total annual revenue above $1,000,000,000, and 3) that does business in California.
Pursuant to SB 253, reporting entities must start reporting in 2026 their scope 1 (direct) and scope 2 (purchase and consumption of energy) emissions for the prior fiscal year and annually thereafter, and their scope 3 (value chain) emissions in 2027 for the prior fiscal year and annually thereafter. Reporting entities would need to measure and report their emissions in conformance with the Greenhouse Gas Protocol (GGP), including taking into account acquisitions, divestments, mergers, and other structural changes consistent with GGP standards and guidance.
SB 253 requires a reporting entity’s disclosure to provide comprehensive and detailed data across the required emission scopes, and be easily understandable and accessible. At the same time, SB 253 requires that CARB’s regulations be structured in a way that minimizes duplication of effort and allows a reporting entity to submit disclosures that meet other national and international reporting requirements. Reporting entities would be required to pay an annual fee to cover the cost of administering and implementing SB 253, which would include the development and maintenance of a digital platform capable of displaying individual reporting entities’ disclosures, as well as aggregated and customizable data sets.
SB 261 requires entities with total annual revenue above $500,000,000 to file a climate-related financial risk report by January 1, 2026, and biennially thereafter, disclosing such entity’s climate-related financial risk in accordance with TCFD framework, as well as measures it has adopted to reduce and adapt to such climate-related financial risk.
SB 253 authorizes CARB to adopt administrative penalties for non-filing, late filing, or other compliance failures, although it limits the total penalties that can be imposed on a reporting entity in a reporting year to $500,000, while SB 261 limits total annual penalties to $50,000.
What to Do Now?
SB 253 and SB 261 are the latest examples of governments, investors, and stakeholders around the world adopting or considering climate-related disclosure requirements. Companies can prepare for these requirements in advance by assessing and developing internal capabilities, processes, and governance to support consistent and reliable disclosure.
We expect that companies of all sizes and across all industries will have questions as they begin to familiarize themselves with SB 253 and SB 261, the U.S. Securities and Exchange Commission’s proposed climate disclosure rules, the European Union’s Corporate Sustainability Reporting Directive, and related rules and regulations. For more information on the these topics or any related matter, please contact any member of the firm’s sustainability and ESG advisory or public company representation practices.
