Thank you for signing up for our webinar: What CA SB-253 Means for Business
We hope you enjoy the webinar recording.
During the live session, we received a handful of questions -- and we promised we'd put the same team of experts that advised Wiener's team for the past year on it to answer each and every one!
Q: Who would CA SB 253 apply to?
A: SB 253 applies to US-based partnerships, corporations, limited liability companies, and other entities doing business in California and annual gross revenue of $1B USD or more.
Q: Is that $1B threshold for USA revenue alone or globally?
A: The bill defines a “reporting entity” as a US-based entity with $1B in total annual revenue, not just revenue within the US. Please see SEC 2 Section 38532 of the bill text. Further detail as to the interpretation of “reporting entity” and other definitions in the bill are expected to be fleshed out in the implementing regulations to be adopted by the California Air Resources Board (CARB).
Q: So if a parent company is located outside California but has operations in California, the full parent will be subject to reporting?
A: As the legislative text is currently written, yes that would be the case, assuming the thresholds set forth in the bill are satisfied.
Q: Will franchisors with corporate revenue under $1B, but revenue across the franchisee network over $1B be required to report?
A: As the legislative text is currently written, this is not yet clear. We expect the CARB implementing regulations to provide further guidance on such issues.
Q: Is there a more specific definition for "doing business in California"? What constitutes "doing business"? Will there be a sales or dollar threshold?
A: As the legislative text is currently written, this is not yet clear. The State of California Franchise Tax Board defines “doing business in California” as meeting any of the following criteria:
- Engage in any transaction for the purpose of financial gain within California
- Are organized or commercially domiciled in California
- Your California sales, property or payroll exceed the following amounts:
- $690,144 in CA sales exceed (either the threshold amount or 25% of total sales) for 2022
- $69,015 in CA real and tangible personal property exceed (either the threshold amount or 25% of total property)
- $69,015 in CA payroll compensation exceeds (either the threshold amount or 25% of total payroll)
To be clear, SB 253 does not clearly state that this law will use this definition or if it will use revenue from financial reporting, tax revenue, or some other definition. As with other details, the CARB implementing regulations will provide further detail. It seems likely, however, based on the existing standards as set forth above, that the bar for “doing business in California” could be quite low.
This is not uncommon. When the General Data Protection Regulation in Europe was developed, the threshold for which companies would have to be in compliance was developed after the regulation was approved.
Q: How exactly will companies file with CARB? Could a CDP disclosure be sufficient?
A: This is not yet clear, as the legislative text has not defined the process for filing with the Board.
Here is what we know from the text:
- CARB will contract with an emissions reporting organization to develop a reporting program to receive and make disclosure publicly available
- CARB will ensure that “emissions reporting is structured in a way that minimizes duplication of effort and allows a reporting entity to submit to the emissions reporting organization reports prepared to meet other national and international reporting requirements, including any reports required by the federal government”
Q: In addition to the revenue threshold, are there any plans to focus on mandating reporting for high emitting industries?
A: SB 253 does not address industries specifically.
Q: Does the act require companies to report emissions from sales in California or emissions worldwide?
A: As the legislative text is currently written, it appears that companies will be required to report emissions for their entire organization, even those generated outside California. Again, further detail will emerge in the implementing regulations.
Q: In line with SB 253, if a company is under the $1B threshold but over $500M in revenue, what could those timelines look like?
A: If the company is below the $1 billion threshold, SB 253 will not apply. However, SB 261 would require climate-related financial risk reporting on or before January 1, 2026 and biannually thereafter.
Q: How many corporations will be subject to SB 253?
A: Estimates reported at this time show approximately 5,400 companies will be subject to the law.
Q: Do you see Transition Plan disclosures as helpful in the implementation of SB 253?
A: Transition plans are not required in SB 253 disclosures. However, transition plans are a helpful tool in climate disclosure generally because it outlines a company’s strategy for managing the risks and opportunities associated with climate change. It also helps communicate to stakeholders, including investors and the public, how the company intends to meet their goals (if they have any) and transition to a more sustainable and low-carbon economy.
Q: When will CA 253 be enacted?
A: California Governor Newsom has until October 14, 2023 to sign, veto, or let the bill pass into law without signing. At Climate Week NYC on September 17th, Governor Newsom confirmed that he would sign SB 253 into law.
Q: How does SB 253 compare to the proposed SEC Climate Rule?
A: 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.
Q: When will companies need to start reporting emissions under SB 253?
A: 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.
Q: What should my company do now to prepare for SB 253?
A: The bottom line – companies need to focus on controls and transparency. 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.
- California SB 253 and SB 261: What Businesses Need to Know
- Doing business in California: What does that mean?
- What are scope 1, 2, 3 emissions?
- [eBook] Climate Disclosure Starter Guide
- [Persefoni Academy] Carbon Accounting 101