Amidst the flurry of attention surrounding the recently adopted SEC climate disclosure rule, it’s important to step back and consider other recent climate regulations reshaping the corporate climate-related disclosure landscape. Notably, California’s (CA’s) Senate Bill (SB) 253 “Climate Corporate Data Accountability Act” and SB 261 “Greenhouse Gases: climate-related financial risk” have emerged as formidable pillars of corporate climate accountability. Concurrently, the European Union’s Corporate Sustainability Reporting Directive (CSRD) contributes to global regulatory momentum towards enhanced transparency and responsibility. After two years in the making, the SEC rule-making marks a historic milestone, but the SEC requirements are far less stringent than CA SB 253 & 261 and the CSRD, both of which require disclosure of Scope 3 carbon emissions. Unlike the SEC disclosures, CA SB 253 & 261 apply to both public and privately held companies. Herein, we’ll dig into the requirements of CA SB 253 & 261, the impact on corporations across industry sectors, and how to proactively prepare for the compliance deadlines.
What are the requirements of SB 253 & 261?
SB 253 (Climate Corporate Data Accountability Act) requires annual greenhouse gas (GHG) emissions disclosures, inclusive of Scopes 1, 2, and 3. The disclosure requirement for Scope 3 (supply chain) emissions is phased in a year after Scope 1 and 2, with emissions quantification methods aligning to the GHG Protocol. Reporting entities will be required to pay an annual fee to cover administrative costs, which contributes to the CA Climate Accountability and Emissions Disclosure fund. The rule requires independent verification of emissions data.
SB 261 (Greenhouse Gases: climate-related financial risk) requires biennial financial risk reporting. The law defines “climate-related financial risk” as the “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” The biennial report should specifically detail risks associated with climate change and document mitigation and adaptation strategies. The report is required to follow Task Force on Climate-Related Financial Disclosures (TCFD) guidelines and must be published on the reporting company’s website in addition to affirming compliance to the CA Secretary of State.
Who feels the impact of the rule?
SB 253 impacts companies doing business in CA that have greater than $1 billion in annual revenue. SB 261 impacts companies doing business in CA with greater than $500 million in annual revenue.
The rule has much broader applicability than just companies headquartered in California. A company is defined to be “doing business” in California if:
- it engages in any transaction for the purpose of financial gain within California,
- is organized or commercially domiciled in California, or
- its California sales, property, or payroll exceed the amounts listed here.
It is estimated that ~5,400 companies will be subject to SB 253. The rule applies to privately held and public companies.
What are the current deadlines or timelines associated with the rule?
SB 253: As of the time of publishing this article, the 1st annual reporting starts in 2026 for Scope 1 & 2 and 2027 for Scope 3. The submission deadline is still TBD. Third party assurance requirements increase from limited assurance (20% of data) to reasonable assurance (80% of data) in 2030.
SB 261: Biennial reporting is required to be made publicly available on the website of reporting entities by January 1, 2026 and biennially thereafter.
What is the status of the rule?
SB 253 & 261 came into law in October 2023.
For SB 253, CA Air Resources Board (CARB) is tasked with establishing regulations associated with the bill by January 1, 2025. SB 253 enables CARB to impose administrative penalties, up to $500,000, for non-compliance, which can include non-filing, late filing, or failure to meet requirements. Administrative fees have not yet been determined.
SB 261 has provisions for CARB to contract with a non-profit climate reporting organization to prepare a biennial public report on the corporate disclosures. CARB can also impose penalties for non-compliance.
Preparedness for SB 253 & 261 Compliance
SB 253 & 261 language does not explicitly differentiate between in-state and out-of-state operations for businesses that meet the applicability criteria. As such, inference can be made that if a business is deemed to be affected by the rules, the requirements would apply to all operations of the business and therefore should begin preparing to report.
SB 261 has provisions for alignment to federal regulations such that if a similar federal law is enacted, a report prepared under those requirements could be utilized to satisfy the state of CA requirements as long as it contains materially similar information.
Asset managers have possible concerns about the prospect of quantifying GHG emissions across their holdings.
The data requirements to comply with the Scope 3 portion of SB 253 are extensive – potentially subject corporations should begin preparing for compliance promptly, particularly to to address data needed from external parties throughout the corporate value chain. To ensure compliance with reporting deadlines and format requirements, corporations will need to watch for the final rulemaking from CARB for SB 253, anticipated by January 1, 2025.
How can Cleartrace help with SB 253 & 261 Compliance?
No matter where you are on your sustainability journey, whether you are just getting started and trying to confirm compliance with emerging regulatory drivers, or you are seeking to advance your progress and make traceable and transparent claims, Cleartrace is here to help with our solution offerings for quantifying and reporting of Scope 1 and Scope 2 GHG emissions, environmental attribute tracking, and more advanced initiatives like tracking 24/7 carbon free energy (CFE) and emissionality solutions. Audit ready data, enabled by the Cleartrace platform, is essential as the assurance requirements of SB 253 shift from limited to reasonable in 2030.
Cleartace’s platform will simplify your company’s process for reporting,, which can enable your teams to focus on what’s critical. Please visit our website to learn more.
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