California Enacts Corporate Climate Disclosure Bills

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The enactment of two significant climate-related bills in California will increase environmental disclosure requirements for public and private companies of all sizes.

On October 7, Gov. Gavin Newsom signed into law two bills that collectively represent the first regulatory action in the United States requiring companies to measure and report out on their climate-related risks and impacts:

  • SB 253, known as the Climate Corporate Data Accountability Act, will require companies with more than $1 billion in annual revenue and operating in California to report on their annual direct and indirect greenhouse gas (GHG) emissions (Scopes 1, 2, and 3), including emissions generated by their supply-chain partners.
  • SB 261, titled Greenhouse Gases: Climate-Related Financial Risk, will require companies with more than $500 million in yearly revenue to report biannually on their climate-related financial risks. This disclosure will help stakeholders understand the potential financial implications of climate change and climate risk for large companies.

Under the new law, California’s Air Resources Board (CARB) will need to approve implementation rules by 2025. By 2026, companies will be required to report direct GHG emissions, as well as those used to power, heat, and cool their facilities. By 2027, companies will need to disclose indirect emissions as well.

In signing a statement associated with SB 261, Newsom said he believes the implementation deadlines do not provide CARB with “sufficient time to adequately carry out the requirements in this bill,”.

He also expressed concern about the bill’s financial impact on businesses. Newsom shared similar concerns about SB 253, and asked the legislature and CARB to examine the implementation schedule and potential implementation costs.

Sensiba will continue to monitor and engage in this process through our association with CalCPA and AICPA as these regulations are finalized and adopted.

The Effect on Businesses of All Sizes

On the surface, these bills may seem like they only impact large companies, but their requirements will likely affect small-to-medium-sized enterprises as well—particularly companies involved in the supply chain of larger businesses.

For example, a small business that sells to a large publicly traded retailer operating in California should expect questions from its larger partners about its carbon footprint and any associated emissions reduction plans.

Taking Action on Your Sustainability Efforts

This legislation creates an opportunity right now for companies to measure their carbon footprint as they prepare to comply with these new regulations. Companies can also use this opportunity to begin to identify the climate impact associated with their business.

Examining and reducing a company’s carbon footprint can also produce unexpected cost savings that emerge after adopting more sustainable business practices. To learn more about these California climate disclosure bills and carbon accounting, contact our sustainability team.