In September 2023, the California legislature passed two notable climate-related bills, which Governor Newsom signed into law on October 7, 2023. This legislation, dubbed the Climate Accountability Package, is significant as the first of its kind in the U.S., requiring all large public and private companies that do business in California to publicly report a) their Scopes 1, 2 and 3 carbon emissions (SB 253), and b) climate-related financial risks, along with plans for addressing those risks (SB 261). This table summarizes the details of the two bills.
Summary of SB 252 and SB 261
Let’s address some of the frequently asked questions about California’s Climate Accountability Package:
Is this limited to California-based companies?
The legislation is not limited to California-based companies. Disclosure requirements will apply to large companies doing business in California regardless of where they are incorporated. Companies earning at least $1 billion will be expected to disclose emissions in line with SB 253, and companies earning $500 million or more will need to disclose the business risks posed by climate change, in line with SB 261.
Is this limited to public companies, like the proposed federal regulations from the SEC?
California’s Climate Accountability Package does not distinguish between public and private companies, and the disclosures will apply to both. This is a key difference from the proposed SEC rules.
How is “do business in California” defined?
The legislation does not provide an explicit definition for “doing business in California.” However, the likely definition of “doing business” will include engaging in transactions for financial gain in California, being organized in California, or having sales, property, or payroll in California over specific amounts.
It looks like disclosure requirements don’t begin until 2026. How can companies get started?
The two-year runway provided by this legislation will be a welcome detail for companies just getting started with the now business-critical exercises of carbon accounting and climate risk tracking. If this describes your company, getting started as soon as possible will give you the best chance of meeting the new requirements by 2026. To get started, break the project into phases, such as:
- Phase 1: Gather data needed for Scopes 1 and 2 carbon footprints, and calculate emissions for a Scope 1 and 2 carbon baseline. Consider adopting a meaningful emissions reduction target and roadmap.
- Phase 2: Gather data required for Scope 3 carbon emissions and establish Scope 3 carbon footprint baseline. Consider adopting a supply chain emissions reduction target and roadmap.
- Phase 3: Engage the highest levels of company leadership in conversations around financial risks to the company posed by climate change. Map the risks that have been realized or pose a high level of threat across the company’s value chain. Follow the TCFD guidance and recommended disclosures.
How will these new requirements be enforced?
This legislation directs California’s Air Resource Board (CARB) to adopt regulations and oversee the required reporting, including development of a reporting program to collect disclosures and make them public. The legislation authorizes CARB to administer penalties of up to $500,000 for failure to report disclosures.
Is there an expectation that targets will be disclosed, or does this legislation cover emissions and risks only?
SB 261 requires risk reporting in line with TCFD, whose guidelines do ask companies to describe their climate-related targets as well as a description of the methodology used to calculate the targets.
Understanding your company’s climate impacts and climate risk can be an enlightening process that supports strategic decision making in a rapidly changing world. Similarly, climate information is considered essential for customers and investors when making decisions about where to invest. thinkPARALLAX supports transparency of climate information as one of many existing tools to confront the climate crisis, and limit global warming to 1.5°C.
If you have additional questions, don’t hesitate to reach out.
Sources:
https://legiscan.com/CA/text/SB253/2023
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