Why California’s new climate reporting rules matter for companies worldwide (including yours)
For the past few years, proposed rules by the SEC (now expected to be finalized in April 2024), have dominated headlines in terms of U.S.-based climate regulations.
Yet with new developments in California, there’s even more sweeping requirements in place: On October 7, 2023, Governor Gavin Newsom signed two first-of-their kind climate disclosure laws. And even though these are laws at the state level, they’ll have an impact on companies worldwide.
More reporting requirements for all three levels of carbon emissions
Under the Climate Corporate Data Accountability Act (SB 253), all companies doing business in California with more than $1 billion in annual revenues will need to disclose Scope 1 and 2 greenhouse gas emissions in a publicly accessible format to a state-contracted, non-profit emissions reporting organization.
Additionally, under SB 261, all business entities with annual revenues of over $500 million will need to report their climate-related financial risks, including Scope 3 emissions, on their websites. This broadens the purview of climate reporting into sources the company does not own or directly control, such as purchased goods and services, business travel, employee commutes, and how a company’s products are purchased and used.
SB 253 and SB 261 will take effect in 2026 and 2027, respectively.
A broader-than-ever definition of “doing business”
Unlike the SEC’s proposed rules, these two bills cover more than just publicly traded entities: They apply to any company “doing business in California.”
What does this phrase mean for your company? While the California Air Resources Board will ultimately craft a definition, energy and environmental law firm Hunton Andrews Kurth offers some idea of what to expect based on the bills’ legislative histories and the California tax code.
A company falls under the purview of SB 253 and SB 261 if it:
- Has annual sales of more than $610,395 in the state
- Has California payroll of more than $61,040
- Has real or tangible personal property of more than $61,040
- “Enters into repeated and successive transactions of its business in this state”
Given the interconnectedness of today’s business landscape and California’s global profile across industries — if it were a country, it would have the fifth largest economy in the world — it’s likely that many large corporations worldwide, public and private alike, will need to add SB 253 and SB 261 to their reporting rosters.
But this is just one reason why you should pay attention to these new regulations.
An opportunity to consolidate, streamline and standardize
With the passing of the CSRD in the EU last year, these new developments in the United States, and complex Scope 3 requirements increasingly entering the mix, the pressure is on for compliance, sustainability and ESG teams.
Meanwhile, there’s more and more overlap and potential confusion as regulations build upon and reference each other. For example, while the CSRD draws from the EU’s Non-Financial Reporting Directive (NFRD), California's SB 253 and SB 261 disclosures must be made in accordance with the Task Force on Climate-related Financial Disclosures (TCFD).
With all these moving pieces, 2024 could be a tipping point, putting companies at dangerous risk of getting bogged down and left behind.
“For the next couple of years, even the organizations that say they want to do the minimum are going to experience death by a thousand cuts as they try to comply with each new regulation as it comes out,” says David Metcalfe, CEO of research and advisory firm Verdantix. Instead, he suggests, companies should “have an ESG framework that allows [them] to comply as [regulations] arise.”
Such a framework, powered by carbon accounting software, can help companies navigate evolving data sources, reporting requirements and methodologies while delivering the necessary details to those who need to know.
Get ready for SB 253, SB 261 and the future. Download this free buyer's guide for carbon accounting software to find the right solution for your organization.
