California Leads the Way on Corporate Climate Disclosure

On October 7, 2023, California Governor Gavin Newsom signed the Climate Accountability Package. This legislation set the national standard for corporate climate disclosure in the U.S., as it mandates large companies constituted or doing business in California, to publicly report their direct and indirect greenhouse gas emissions (Scope 1, 2, and 3) in line with the SB 253, along with climate-related financial risk information and mitigation plans to reduce impacts from climate change (SB 261).


Monica Baron Senior Technical Leader Sustainability & ESG

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SB 253: Carbon Emission Disclosure

  • Applies to all public and private companies operating in California with annual revenue above $1 billion.
  • Start reporting in 2026, Scope 1 and Scope 2 emissions from the prior fiscal year and annually thereafter.
  • Start reporting in 2027, Scope 3 (value chain) emissions for the prior fiscal year and annually thereafter.
  • Companies would need to measure and report their emissions consistent with the Greenhouse Gas Protocol standard and guidance.

SB 261: Climate-Related Financial Risk and Mitigation Plans

  • Applies to all public and private companies operating in California with annual revenue above $500 million.
  • SB261 takes corporate climate disclosure a step further by mandating companies to not only identify climate-related financial risk but also disclose their plans to mitigate the consequences of climate change, set targets, and develop strategies to address potential vulnerabilities.
  • Start reporting in 2026, and subsequent reports shall be submitted biennially.
  • Climate-related financial risk must follow the TCFD guidance and recommended disclosure framework.

What are the risks of non-compliance?

The legislation directs the California Air Resources Board (CARB) to adopt regulations before January 1, 2025, and oversee the disclosure of carbon emissions on an annual basis. The CARB is authorized to adopt administrative penalties for non-filing, late filing, and compliance failures up to $500,000 for SB 253, and up to $50,000 for SB 261. There are several actions businesses can take immediately to ensure compliance:

Review internal processes

As carbon accounting and climate risk assessment expectations continue to strengthen in European and the U.S. markets, companies must identify gaps and align internal reporting metrics to ensure compliance with upcoming state and federal regulations. Begin by reviewing internal processes and adapt your strategy to align internal resources to meet short and mid-term expectations of carbon accounting and climate-risk assessment. Include analysis of current metrics to ensure emissions data aligns with globally recognized greenhouse gas carbon accounting frameworks.

Increase transparency of reporting standards

Transparency is a key component of the bill and to reflect that, reporting standards are stringent. Carbon accounting metrics must be assured by an independent third-party assurance provider. The bill also establishes a publicly available digital platform that allows stakeholders to review reported data from all companies.

Expectations for larger and publicly traded organizations

Like most state-level regulations, businesses must comply with the Climate Accountability Package in addition to federal standards. Large companies should integrate SB 253 and SB 261 compliance efforts into existing environmental programs and SEC compliance, if applicable.

Businesses of scale are expected to disclose detailed carbon emissions data from direct and indirect operations. This includes engaging suppliers to understand impacts across the supply chain and increase consistency and accountability from data reporting metrics. A strategic approach to emissions accounting is expected. Companies must present internal plans to reduce, mitigate, and compensate for their impact. Failure to do so may deter investors. Companies are also expected to integrate climate risk assessment into their resiliency and overall corporate risk management strategies.

Expectations for mid-sized and smaller companies

Mid-sized and smaller companies should understand and enhance external reporting of carbon accounting and climate risk impacts associated with direct operations. Optimizing your reporting program will require smaller businesses to increase accountability and governance in carbon and climate-risk assessments.

As with their larger counterparts, small companies should anticipate that stakeholders — especially investors and customers — may increase scrutiny from sustainability and ESG practices. Companies must assign internal accountability and align practices with global carbon accounting standards to satisfy this shift.

California’s Climate Accountability Package sets the national standard for corporate climate disclosure in the U.S., mandating companies doing business in California to report their greenhouse gas emissions and climate-related risks and mitigation plans.

The new Climate Accountability Package and SB 253 and SB 261 regulations coincide with global efforts to enhance corporate sustainability and social responsibility transparency. In January 2024, the EU Commission will mandate private and public companies to adopt the Corporate Sustainability Reporting Directive (CSRD), requiring companies doing business in the European Union to report on environmental and social impact across their supply chain. This is expected to affect numerous U.S. companies operating internationally. Furthermore, the U.S. Securities Exchange Commission (SEC) is finalizing mandatory rules for publicly traded companies to disclose carbon emissions and climate-financial risk disclosures.

Woodard & Curran is dedicated to supporting our clients to develop actionable and quantifiable climate action plans that protect our environment. Get in touch with us to discuss how we can help your company optimize compliance and transparency, and reduce your climate risks and impacts.

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