On October 7, 2023, California enacted two major climate laws, the Climate Corporate Data Accountability Act (Senate Bill [SB] 253) and the Greenhouse Gases: Climate-Related Financial Risk Act (SB 261). These laws require companies operating in California to disclose greenhouse gas (GHG) emissions and climate-related financial risks.
Starting in 2026, companies with substantial California revenue must begin reporting. Additionally, smaller companies in larger corporations' supply chains will need to provide climate data to customers to support the scope 3 emissions reporting requirement, which begins in 2027.
SB 253 and SB 261 apply to all companies that do business in California and exceed specific revenue thresholds. California defines doing business in the state as any of the following:
- Conducting any financial transactions within California for the purpose of gaining profit.
- Being commercially based or established in California.
- Having sales, property, or payroll in California surpassing specific thresholds.
Key provisions of SB 253
Any company with a total annual revenue of $1 billion or more that conducts business in California will be required to disclose annually:
- Scope 1 and 2 GHG emissions for the prior fiscal year starting in 2026.
- Scope 3 GHG emissions for the prior fiscal year starting in 2027.
Reporting companies’ GHG inventories will be required to be publicly disclosed and filed and aligned to the GHG Protocol standards and guidance. Independent third-party assurance of scope 1 and 2 emissions will be required at a limited assurance level in 2026, while scope 3 assurance may be phased in until 2030. Starting in year one of disclosure, companies must get independent verification of their GHG emissions disclosures.
Reports must be publicly filed on a digital registry administered by the California State Air Resources Board (CARB). The aim is to provide transparency and encourage companies to reduce their environmental impact. Scope 1 and 2 disclosures require limited assurance by 2026 and reasonable assurance by 2030. Scope 3 disclosures may require CARB review by 2027 and shall require limited assurance by 2030. Companies mandated to disclose under this law will face a potential fine of up to $500,000 in a reporting year for failure to comply and publicly disclose their annual GHG inventory. Companies will be required to pay a fee to the state board.
Key provisions of SB 261
The Climate-Related Financial Risk Act, or SB 261, requires 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 (read TCFD: Beyond regulatory compliance).
Any entity doing business in California with a total annual revenue of $500 million will be required to biennially disclose a climate-related financial risk report that includes:
- The company’s climate-related financial risk starting in 2026.
- The company’s plan and adopted measures to reduce and adapt to climate-related financial risk starting in 2026.
It's worth noting that SB 261 has a lower financial threshold (requiring companies with $500 million in revenue to report emissions) than SB 253, which applies to companies with revenue over $1 billion. This means that some companies not subject to emission reporting under SB 253 will still need to report climate-related financial risk under SB 261.
These reports must be submitted to CARB and made available on the companies' websites. Businesses regulated by the California Department of Insurance or involved in insurance in another state are exempt. Failure to comply and disclose climate-related financial risk reports may result in a fine of up to $50,000 for companies required to report under this law. Companies will also be required to pay a fee to the state board.
Special note: On September 27, 2024, SB 219 Greenhouse Gases: Climate Corporate Accountability: Climate-Related Financial Risk (SB 219) was signed. This amends SB 253 and SB 261. The enforcement notice, published December 5, 2024, by CARB, states that “CARB will exercise enforcement discretion for the first reporting cycle, on the condition that entities demonstrate good faith efforts to comply with the requirements of the law.”
How should you prepare?
- Assess your emissions: Understand your scope 1, 2, and 3 emissions. Seek expert guidance if needed.
- Prepare for reporting: Start collecting data. Consider independent verification.
- Climate risk assessment: Evaluate financial risks related to climate change.
- Communicate: Share your commitment with stakeholders.
Visit BSI Consulting’s sustainability page for more information on our services. Connect with one of our experts for more on California’s and other sustainability regulatory reporting requirements.
Contributors:
Gouri Ganbavale, PhD, Senior Consultant specializing in climate science: Gouri has 10 years of experience in climate risk assessments; environmental, social, and governance (ESG) analysis; carbon credits; energy policies; and GHG accounting.
Jonathan Kroeker, LEED AP, Senior Consultant specializing in environmental compliance: Jonathan has 17 years of experience across multiple sectors.
Desmond Zheng, MSSE, Associate Consultant specializing in GHG reporting carbon reduction strategies: Desmond has experience in sustainable engineering and renewable energy and has supported organizations in developing GHG inventories and management plans.
