California's Climate Disclosure Bills Signed into Laws: SB 253 and SB 261

On October 7, 2023, California Governor Gavin Newsom signed into law two climate disclosure and reporting bills: the Climate Corporate Data Accountability Act or Senate Bill (SB) 253, and Climate-Related Financial Risk Act (SB 261). These two laws, together known as the Climate Accountability Package, will require certain public and private companies that conduct business in California to report on their greenhouse gas emissions and disclose climate-related financial risks. Who must comply and what does this mean for corporations? Below, we dive into the requirements of both.

SB 253: Climate Corporate Data Accountability Act

SB 253 pertains to private and public companies that do business in California and have a total revenue larger than $1 billion in the prior fiscal year. This piece of legislature applies to corporations, partnerships, and limited liability companies, but insurance companies are exempt.

Beginning in 2026, the law will require reporting entities to provide annual reports on their greenhouse gas emissions, including direct emissions from operations (Scope 1), and indirect emissions from energy use (Scope 2). In 2027, companies will also be required to report on their upstream and downstream supply-chain emissions (Scope 3) from the prior fiscal year. These reports will need to adhere to the Greenhouse Gas Protocol standards, and will provide a clearer picture of a corporation’s carbon footprint throughout their value chain, from suppliers to end-users. The administrative penalties for not filing, late filing, or failure to meet requirements would result in a penalty up to $500,000 in a reporting year.

SB 261: Climate-Related Financial Risk Act

SB 261 pertains to private and public companies that do business in California and have a total annual gross revenue of at least $500 million in the prior fiscal year. This companion law applies also to corporations, partnerships, and limited liability companies, while insurance companies are exempt.

Starting January 1, 2026, companies will need to prepare and submit biennial (every other year) climate-related financial risk reports that are aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) framework. This means that companies will need to report the physical and financial risks posed by climate change to their properties and operations, as well as any resiliency measures they are adopting to mitigate those risks. SB 261, therefore, works to ensure that investors, regulators, and other stakeholders can accurately evaluate and respond to the companies’ climate risks and opportunities. Failure to make this report publicly available would result in a penalty up to $50,000 in a reporting year.

Implications for Corporations

For corporations, these two laws signify a paradigm shift towards transparency and accountability regarding their environmental impact. While the new laws herald a step forward in corporate climate action, they also bring challenges like:

The complexity of collecting data and reporting on the three scopes of GHG emissions, especially in intricate and globally spread supply chains.
Navigating through the various disclosure standards and frameworks.
Determining future climate risks and the appropriate resilience measures for each property.

California’s SB 253 and SB 261 represent a significant move towards integrating corporate actions with climate sustainability and risk management. Though they pose certain challenges for corporations, the resulting transparency and accountability are imperative for mitigating global climate risks and ensuring sustainable corporate operations. By mandating clear disclosure of climate-related risks and actions, these laws not only safeguard stakeholder interests but also encourage corporations to step up their climate actions, thereby contributing to global sustainability efforts.

It may be daunting at first for corporations, especially for those who have yet to begin collecting the necessary data for these reports for other purposes. The amount of data involved for the two laws can be extensive, so it is advantageous to engage an independent sustainability consulting firm like Partner Energy that is well-versed in the disclosure frameworks in order to aid in data collection and report preparation, ensuring compliance.