California recently enacted two climate disclosure acts SB-253 Climate Corporate Data Accountability Act and SB-261 Greenhouse Gases: Climate-Related Financial Risk. These new legislative documents make it mandatory for many companies operating in California to report both quantitative and qualitative climate information. These laws are expected to have a significant impact as many of the largest U.S. companies are headquartered within California with many more conducting a significant amount of business in the state.
SB-253 CLIMATE CORPORATE DATA ACCOUNTABILITY ACT
U.S. companies with total annual revenues of $1 billion or more and doing business in California (approximately 5,000 companies) will be required to report both their direct and indirect greenhouse gas emissions starting in 2026 and 2027.
SB-261 CLIMATE-RELATED FINANCIAL RISK ACT
U.S. companies generating total revenues of $500 million or more and doing business in California (approximately 10,000 companies) will be required to report their financial risks related to climate change and their plans for risk mitigation.
The California Air Resources Board (CARB) is responsible for codifying the requirements in both bills. Companies within the scope of legislation must pay an annual fee to CARB. Penalties for noncompliance or insufficient reporting are outlined in the legislation. Failure to comply will result in a fine of up to $500,000 per reporting year for SB-253 and up to $50,000 per reporting year for SB-261.
SB-253 & SB-261 HIGHLIGHTS
APPLICABILITY BASED ON REVENUE
- Both public and private U.S. companies, depending on their total annual revenue, are subject to these bills.
- Private companies that wouldn’t be subject to U.S. SEC climate reporting will be required to disclose if they meet specific revenue thresholds and do business in California.
- The bills currently lack a clear definition of “doing business in California,” but the threshold for this activity may be relatively low based on California tax law.
- The regulations apply to U.S.-based companies, without specific exemptions for non-U.S. parent companies.
- Foreign businesses with U.S.-based subsidiaries meeting the criteria are also subject to California’s disclosure mandates.
EMISSION DISCLOSURES (SB-253)
- Companies with over $1 billion in total annual revenue must disclose their GHG emissions in accordance with GHG Protocol guidance.
- Reporting includes Scope 1, Scope 2, and Scope 3 emissions, with limited assurance required for Scope 1 and Scope 2 initially and reasonable assurance requirements starting as soon as 2030.
CLIMATE RISK DISCLOSURE (SB-261)
- In 2026, and then every two years following, companies with over $500 million in total annual revenue must publish a climate risk report on their corporate websites.
- The report must adhere to the requirements established in the Task Force on Climate-Related Financial Disclosures (TCFD) framework.
- Covered entities must also disclose their climate risk mitigation measures.
IMPLEMENTATION TIMELINE
Starting in 2026, companies subject to SB-253 must disclose and undertake limited assurance for Scope 1 and Scope 2 GHG emissions. In 2027, they must disclose their Scope 3 emissions within 180 days of disclosing Scope 1 and 2, with no assurance required for Scope 3. In 2030, reasonable assurance for Scope 1 and 2 GHG emissions will be mandatory, with possible limited assurance required for Scope 3.
SB-261 necessitates public reporting in accordance with the climate risk disclosure requirements on or before January 1, 2026. Companies must publish these reports on their websites.
Content for this article was provided courtesy of the Uplift Agency, a leading sustainability and social impact consulting firm.
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