California's Climate Corporate Data Accountability and Financial Risk Acts: A Pioneering Move in Climate Legislation

In October 2023, California made a significant leap forward in climate legislation by enacting two groundbreaking bills: Senate Bill 253, the Climate Corporate Data Accountability Act, and Senate Bill 261, the Climate-Related Financial Risk Act. These bills, passed with robust support in both legislative branches, mark a historic shift in corporate responsibility towards climate change.

SB 253: Mandating Comprehensive Emission Reporting

Senate Bill 253 mandates public and private US businesses with over $1 billion in revenues operating in California to report their emissions comprehensively, encompassing scopes 1, 2, and 3, from 2026. This bill also necessitates third-party assurance of these reports, ensuring accuracy and reliability. The law targets an estimated 5,400 companies, requiring them to disclose their greenhouse gas emissions on a digital platform and hire independent auditors for verification.

The California Air Resources Board will oversee this process, with penalties in place for non-compliance. This act is particularly significant as it includes scope 3 emissions, which often form the bulk of an organization’s climate impact and are notoriously difficult to measure. The first reporting under this act is expected to cover 2025 direct emissions from 2026 and 2026 indirect scope 3 emissions from 2027.

SB 261: Unveiling Climate-Related Financial Risks

Senate Bill 261 requires corporations with over $500 million in annual revenues to disclose climate-related financial risks and mitigation strategies annually. This applies to businesses operating under the laws of California, other U.S. states, or the federal government. The disclosure, aligning with the Task Force on Climate-Related Financial Disclosures recommendations, will be evaluated by the Climate-Related Risk Disclosure Advisory Group.

The bill, inspired by existing climate disclosure rules of CALSTRS and significant financial institutions, aims to protect against losses from climate-impacted supply chains, workforces, and infrastructure. The first round of reports under this bill is due by January 1, 2026.

The Global Impact of California's Climate Legislation

California's legislation, while paralleling the proposed federal regulations by the SEC, extends its reach further, especially in its inclusion of private companies and comprehensive scope 3 emission reporting. This broader scope is significant in promoting transparency in carbon accounting and driving decarbonization beyond the public market.

Moreover, with California's burgeoning global economic stature, these bills are poised to influence corporate practices worldwide, setting a new standard in corporate transparency and climate action. They underscore the state's proactive stance in addressing climate change, amplified by recent environmental disasters and growing public demand for action.

Preparing for Compliance and Beyond

Businesses are now gearing up for compliance with these new regulations. This preparation involves adopting robust carbon accounting practices, similar to those offered by platforms like Persefoni, which facilitate auditable, investor-grade emissions calculations. Such measures ensure adherence to California's laws and prepare companies for future federal and global mandates.

A Shift in Corporate Climate Perspective

These bills represent a paradigm shift in how corporations view and report climate impact. Enhanced transparency will allow investors and consumers to hold companies accountable for their carbon footprint, driving climate action. This shift also responds to the increasing number of organizations committing to net-zero emissions, highlighting the growing importance of accurate and comprehensive climate reporting in investment decisions and corporate strategy.

The Broader Implications for Businesses and the Economy

While directly impacting large companies in California, the effects of these bills will reverberate through the value chain, pressuring smaller businesses to adopt similar transparency in their emissions reporting. This ripple effect aligns with a global trend towards increased transparency in carbon accounting, reflecting investor demands for reliable information to integrate climate-related financial data into their decision-making processes.

Conclusion

California's Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261) are more than just state-level regulations; they are harbingers of a new era in corporate responsibility towards climate change. By setting stringent reporting standards, these laws promote transparency and accountability and encourage proactive climate action across the corporate spectrum. As other states and countries observe California's pioneering steps, these bills could very well inspire similar legislation globally, accelerating the shift towards a more sustainable and climate-resilient economy.

Additional Resources

Article:  California SB 253 and SB 261: What Businesses Need to Know 

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