California Legislature Passes the Climate Accountability Package for SB-253, the Climate Corporate Data Accountability Act, and SB-261, Greenhouse Gases: Climate-related Financial Risk

California legislature recently passed the Climate Accountability Package, a pair of bills introduced by California senators on January 30th, 2023, to improve transparency and standardize disclosures relating to greenhouse gas emissions and climate-related risk. The Climate Accountability Package contains two bills, Senate Bill 253 (253), the Climate Corporate Data Accountability Act, and Senate Bill 261 (SB-261), Greenhouse Gases: Climate-related Financial Risk, which will bring new reporting requirements to California businesses.

California Global Warming Solutions Act

Because of the Global Warming Solutions Act of 2006 (AB-32), the State Air Resources Board (SARB) is required to adopt regulations on the reporting and verification of greenhouse gas emissions, monitor and enforce compliance with the act, and make available emissions of greenhouse gases, criteria pollutants, and toxic air contaminants of reporting entities on the state board’s website annually for facilities that report to the state board. The Climate Accountability Package falls within the purpose of AB-32 and the state’s goal to achieve technologically feasible and cost-effective greenhouse gas emissions reductions. Soon, more California-based businesses will need to report to the SARB.

SB-253: Climate Corporate Data Accountability Act

On September 14th, 2023, the California Legislature passed SB-253, the Climate Corporate Data Accountability Act, a bill that requires the disclosure of Scope 1, 2, and 3 greenhouse gas emissions by companies, public or private, doing business in California with $1 billion or more in gross annual revenue.

Here is what affected California businesses can expect from SB-253:

Timeline

• January 1st, 2025: The California SARB will develop and enact regulations for reporting entities’ public disclosure.
• 2026: Reporting entities will publicly disclose Scope 1 and Scope 2 greenhouse gas emissions annually (start date to be determined by SARB).
• 2027: Reporting entities will publicly disclose Scope 3 greenhouse gas emissions annually (start date to be determined by SARB).
• July 1st, 2027: A national laboratory or equivalent academic institution will prepare a report on the public disclosure emissions made by reporting entities (institution contracting to be determined by SARB).

What SB-253 Will Mean for California Businesses

Reporting will be required for entities that meet both of the following criteria:

• Companies doing business in California
• Partnerships, corporations, limited liability companies, or other business entities with total annual revenues in excess of $1 billion (applicability to be determined based on the reporting entity’s revenue for the prior fiscal year)

Businesses that match these criteria will be deemed ‘reporting entities’ and must publicly disclose emissions to the SARB and obtain an assurance engagement performed by an independent third party for reporting starting in 2026. Along with annual reporting, reporting entities must pay an annual fee set by the SARB when filing its disclosure. Fees collected will be deposited into the Climate Accountability and Emissions Disclosure Fund for usage by the SARB for the purposes of the bill. Due to the annual revenue criteria, businesses with total annual revenues of $1 billion are automatically subject to SB-261.

SB-261 Greenhouse Gases: Climate-related Financial Risk

On September 15th, 2023, the California Legislature passed SB-261, Greenhouse Gases: Climate-related Financial Risk. This bill requires disclosure of climate-change-associated financial risks by companies, public or private, doing business in California with $500 million or more in gross annual revenue. In addition to the financial risks climate change poses, businesses must also disclose how they plan to address them.

What SB-261 Will Mean for California Businesses

Disclosure will be required for entities that meet both of the following criteria:

• Companies doing business in California
• Partnerships, corporations, limited liability companies, or other business entities with total annual revenues in excess of $500 million (applicability to be determined based on the business entity’s revenue for the prior fiscal year)

Businesses that match these criteria will be deemed ‘covered entities’ and must prepare a climate-related financial risk report and publicly disclose climate-related financial risk, including any measures used to reduce or address climate-related financial risk. Reports are due on or before January 1st, 2026, reporting biennially after that. In addition to biennial reporting, covered entities must pay an annual fee set by the SARB to administer and implement the bill. Fees collected will be deposited into the Climate-Related Financial Risk Disclosure Fund for usage by the SARB for the purposes of the bill.

Will SB-253 and SB-261 Be Signed into Law

With the Climate Accountability Package’s recent passing, Governor Newsom said he plans to sign SB-253 and SB-261 into law. SB-253 will take effect in 2026, requiring disclosure of Scope 1 and Scope 2 greenhouse gas emissions. By 2027, affected California businesses will be required to disclose Scope 3 greenhouse gas emissions. Reporting will take place annually after that. SB-261 will take effect on January 1st, 2026, requiring disclosure of a climate-related financial risk report. Reporting will take place biennially after that.

The Governor has until October 14th to sign or veto SB-253 and until October 15th to sign or veto SB-261.

ALL4 will continue to track the progress of SB-253 and SB-261 and their developments related to emissions and climate-related financial risk reporting for affected California businesses.

For questions on the passed legislation or how it will affect your business, for assistance in reporting Scope 1, 2, and 3 greenhouse gas emissions, or for verification of data, please get in touch with Connie Prostko-Bell at cprostko-bell@all4inc.com or Lauren Coca at lcoca@all4inc.com for more information.