California has passed two pieces of major climate legislation.
The Climate Corporate Data Accountability Act (SB 253) will require public and private US businesses with revenues over $1 billion that do business in California to report their scopes 1, 2, and 3 greenhouse gas emissions. The bill mandates third-party assurance on reported emissions.
The Climate-Related Financial Risk Act (SB 261) will require large corporations to prepare and submit an annual report that publicly discloses their climate-related financial risks and the measures they’re taking to mitigate these risks.
Given that California is the 4th largest economy in the world and that SB 253 requires scope 3 emission disclosures – indirect emissions related to companies’ value chains – this bill will have significant implications for the economy and environment.
The bottom line – companies need to focus on building capacity to collect, calculate, and report on their GHG emissions data in a way that sets them up for auditable success. As we move from a voluntary reporting landscape to a regulated one, emissions data will be treated in a similar manner to financial data, including increased financial and legal internal review as well as third-party assurance. Companies will need to be confident in their reporting and be able to show their work.
Public and private companies doing more than $1 billion in revenue and doing business in California.
There are two notable differences between SB 253 and the proposed SEC Climate Rule. The first is who is subject to each rule. SB 253 targets public and private companies doing more than $1 billion in revenue and operating in California. The SEC Climate Rule targets Public companies reporting to the SEC, including U.S. public companies and Foreign Private Issuers. The second difference relates to scope 3 reporting. SB 253 requires all scope 3 emissions be reported, while the SEC Climate Rule requires scope 3 emission disclosure only if the company has set scope 3 reduction targets or the scope 3 emissions are material.
By 2026, companies will need to adhere to GHGP standards for measuring and reporting scope 1 and 2 emissions on the prior fiscal year, as well as obtain limited third-party assurance for scope 1 and 2 emissions. By 2027, companies will need to adhere to the GHGP standards for measuring and reporting scope 3 emissions on the prior fiscal year. By 2030, companies will need to obtain reasonable, third-party assurance for their scope 1 and 2 emissions reporting, as well as limited third-party assurance for their scope 3 emissions reporting.
Companies under $1 billion in revenue are not subject to California SB 253, but we expect the inclusion of scope 3 reporting for SB 253 subject companies will lead to increased pressure throughout value chains for scope 1 and 2 emissions disclosures as these help larger companies create more accurate scope 3 emission footprints.