California Passes Key Climate Legislation

AUTHOR – Jessica Di Bartolomeo

California passed two climate bills in October 2023 mandating GHG emissions reporting and climate-related financial risk legislation for large companies doing business in the state

The two climate bills, Senate Bill (SB) 253: Climate Corporate Data Accountability Act and SB 261: Climate-related Financial Risk, passed on October 7th, 2023. The legislations aim to improve the consistency and comparability of greenhouse gas (GHG) emissions disclosure and climate related financial information, so financial users can transparently understand climate risks.

GHG emissions reporting

Which companies have to comply

SB 253 captures reporting entities doing business in California with an annual revenue of more than $1 billion. These companies can be private or public, and includes those engaging in transactions for financial gain, headquartered, or having sales, property or payroll over specified amounts1, in the state. Non-American entities are excluded (in contrast to the proposed Securities and Exchange Commission (SEC) climate disclosure rule which would additionally capture foreign private issuers).

What they have to disclose

The bill requires reporting entities to publicly report their scope 1 and scope 2 emissions for their 2025 fiscal year by 2026. Scope 3 emissions will be added a year later in 2026, to be reported in 2027. The GHG emissions will need to be calculated in accordance with the Greenhouse Gas Protocol standard.

The requirements make no specifications to include only material or significant scope 3 emissions, nor scope 3 emissions covered by a target, pointing only to the scope 3 definitions of the standard. Companies will be able to use either primary data or estimations, such as those based on industry averages, for these calculations. This differs from the proposed SEC climate disclosure rule, that suggested that material scope 3 emissions be included.

SB 253 will require third-party assurance on scope 1 and 2 emissions, starting with limited assurance in 2026. Legislators will assess the feasibility of mandating scope 3 emissions assurance the same year. Similarly, the SEC has proposed that large accelerated filers and accelerated filers need to undergo third-party verification for their scope 1 and 2 emissions, starting with limited assurance followed by a phase-in to reasonable assurance.

Reporting entities will need to disclose the emissions publicly on a registry. The timelines for reporting will be determined based on feasibility considering scope 3 emissions calculations and third-party assurance timelines.

Climate-related financial risk reporting

Which companies have to comply

SB 261 will require companies doing business in California with over $500 million in revenue to publicly report on climate-related financial risk starting in 2026 and two years thereafter. The bill will allow subsidiaries to pass their disclosures obligations onto the parent company.

What they have to disclose

The legislation will accept disclosures based on the IFRS (International Financial Reporting Standards) climate standards created by the International Sustainability Standard Board (ISSB) or requirements from regulated exchanges, national or other governments that are consistent with the IFRS Climate standard. Reporting entities will have flexibility in where they report the information, whether it be in Form 10-k financial reports or a standalone report, for instance, so long as a copy is on the company’s website.

How we can help

We are accredited experts in climate metrics and since 2008 and have been enabling organizations across the globe to effectively and transparently calculate their GHG emissions and disclose their climate impact in accordance with the most up to date and stringent standards and regulations. Our Sustainability Reporting Platform is built from the ground up and is based on the GHG Protocol

Uniquely, our Platform has been used in mandatory reporting markets that require the same robust GHG emissions accounting and physical risk assessment as in California for decades. It has been audited independently for 10 consecutive years by PwC and is designed to be fully transparent and auditable. We can help you report and comply with confidence.

We have SaaS solutions for:

• Financial-grade GHG accounting
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• Full scope 1, 2 and 3 calculations
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