California's New Climate Laws Take Effect
On October 7, 2023, California Governor Gavin Newsom signed California Senate Bill 253 (SB 253), California Senate Bill 261 (SB 261), and California Assembly Bill 1305 (AB 1305) into law. These three bills represent substantial climate-related legislation with wide-ranging climate compliance implications for a considerable number of corporations.
California SB 253: Climate Corporate Data Accountability Act
The Climate Corporate Data Accountability Act (SB 253) requires companies, both publicly traded and private, doing business in California with greater than $1 billion in annual revenue to publicly disclose their Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions. SB 253 will require Scope 1 and Scope 2 disclosures by applicable companies to be reported in 2026 for FY 2025, as well as Scope 3 disclosures for FY 2026 to be reported in 2027.
SB 253 Assurance Requirements
A requirement of SB 253 is Third-Party Assurance of the GHG emissions information. Scope 1 and 2 disclosures will initially require limited assurance, which attests that the verifier is unaware of material issues or omissions with the disclosures. In 2030, verification will increase in rigor to reasonable assurance, which requires the verifier to review all necessary evidence to confirm the disclosure contains no material misstatements. Scope 3 disclosures will not face assurance requirements until 2030 when they will need limited assurance. Good-faith Scope 3 disclosures are also exempt from penalties until this time.
California SB 261: Climate-Related Financial Risk Act
The Climate-Related Financial Risk Act (SB 261) requires entities doing business in California, both publicly traded and private, with greater than $500 million in annual revenue to release a public climate-related financial risk report every two years. The climate-related financial risk report should disclose the entity's climate-related financial risks as well as the measures adopted to reduce and adapt to these risks. The first of these reports must be submitted by January 1, 2026, and must be in accordance with the recommended guidance contained in the Final Report of Recommendations of the Task Force on Climate-Related Disclosures (TCFD) or the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards. If these standards cannot be met, a company must provide a detailed explanation of its gaps and steps taken to fill them. This regulation is expected to impact over 7,000 companies.
The California Air Resources Board (CARB) was designated the regulatory body of SB 253 and 261 and will partner with a university partner to track disclosures and their impact on state greenhouse gas emission reduction goals. CARB is in the process of developing regulations for SB 253 and 261, which they will release by January 1, 2025.
California AB 1305: Voluntary Carbon Market Disclosures Business Regulation Act
The Voluntary Carbon Market Disclosures Business Regulation Act (AB 1305) takes effect on January 1, 2024. AB 1305 features separate disclosure requirements for organizations marketing and selling voluntary carbon offsets and organizations purchasing and using voluntary carbon offsets.
Certain businesses that purchase or use voluntary carbon offsets in California are required to disclose the following on their website:
The name of the business entity selling the offset and the offset registry or program
The project identification number, if applicable
The project name as listed in the registry or program, if applicable
The offset project type, including whether the offsets purchased were derived from a carbon removal, an avoided emission, or a combination of both, and site location
The specific protocol used to estimate emissions reductions or removal benefits
Whether there is independent third-party verification of company data and claims listed
Finally, those businesses who claim to be net zero or carbon neutral due to their purchase or use of carbon offsets in California also need to disclose the following on their website:
All information documenting how, if at all, a “carbon neutral,” “net zero emission,” or other similar claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured. This information may include, but not be limited to, disclosure of independent third-party assurance of all of the entity’s GHG emissions, identification of the entity’s science-based targets (SBT) for its emissions reduction pathway, disclosure of the relevant sector methodology, and third-party assurance used for the entity’s science-based targets, and emissions reduction pathway.
Whether there is independent third-party assurance of the company data and claims listed
California Bills vs. SEC Ruling
SB 253 and 261 align with the proposed SEC Climate Rule in requiring Scope 1, 2, and 3 emission disclosures and climate-related risk disclosure. The laws of both jurisdictions include requirements for third-party assurance. However, California’s bills expand the proposed SEC rule by applying to private companies as well as publicly traded companies doing business in California. There is also potential for the final SEC rule to remove Scope 3 reporting requirements, which would leave California’s bills to stand alone in requiring Scope 3 GHG emissions data.
California Climate Laws Timeline
October 7, 2023 – SB 253, SB 261, and AB 1305 signed into California law
January 1, 2024 – Disclose carbon offsets information on company’s website (AB 1305)
January 1, 2025 – CARB develops and adopts clarifying regulations for SB 253/261
January 1, 2026 – Disclose and verify Scope 1 and 2 emissions annually; release climate-related financial risk report biennially
January 1, 2027 – Disclose and verify Scope 3 emissions annually
January 1, 2030 – Scope 1 and 2 disclosures intensify to reasonable assurance requirements; Scope 3 disclosures add limited assurance requirements
Preparing Your Company
California SB 253, California SB 261, and California AB 1305 represent a notable change not only in California's climate policy and regulatory requirements but, more importantly, in the expected national regulatory framework, with compliance implications for many corporations. Businesses should understand these laws, start planning on how to best report and comply with them, and monitor for the coming regulations. Businesses that start preparing now for potential disclosures, will benefit from allowing adequate time to collect applicable and appropriate data, strategize on establishing the baseline year, and plan for reporting that meets the regulatory requirements. Greenhouse gas reporting requirements are expected to expand in upcoming years, so even companies that don’t fall under current regulations would be wise to begin the preparation process now.
Unsure where to start? Use our quick response form or call (800) 508-8034 to speak with one of our experienced professionals and learn more about our greenhouse gas inventory and climate-related financial disclosure services today.
Authors
Ben Bira, J.D., MBA, M.S.
Senior Sustainability Advisor
KERAMIDA Inc.
Contact Ben at bbira@keramida.com
Kendra Roth
Sustainability Research Associate
KERAMIDA Inc.
Contact Kendra at kroth@keramida.com