A California Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Disclosure Act (SB 261) Reporting Laws Explainer - Last Updated: January 2, 2023

California, the fifth-largest economic region in the world, recently passed two new corporate climate reporting laws, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Disclosure Act (SB 261) in 2023. The laws are part of a broader state climate accountability package introduced by the California Senate, designed to improve corporate climate accountability and environmental impact disclosure among large companies doing business in CA. As of January 1, 2024, the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Disclosure Act (SB 261) have both been signed into law by California Governor Gavin Newsom.

SB 253 applies to all companies with:

  1. Over $1,000,000,000 (one billion dollars) in annual revenue
  2. Operating or doing business in the state of California

And requires them to:

  • Improve their corporate transparency on carbon and greenhouse gas (GHG) emissions
  • Standardize their corporate disclosures regarding GHG emissions
  • Deliver an annual emissions report to the California Air Resources Board (CARB) and the CA State Emissions Registry, with some reporting due starting in 2026
  • Complete independent, third party emissions verification

California's SB 253 greenhouse gas emissions disclosure law is expected to impact approximately 5,000 companies.

SB 261 applies to companies with:

  1. Over $500,000,000 (five hundred million) in annual revenue
  2. Operating or doing business in the state of California

And requires them to:

  • Improve their corporate transparency on climate risks and risk management
  • Standardize their corporate disclosures and communications around climate risk
  • Deliver an annual climate risk report to California Air Resources Board (CARB) and the CA Stat's Climate Risk Advisory Group, with some reporting beginning at the end of fiscal year 2024

As currently written, SB 253 and SB 261 will require thousands of companies doing business in California to disclose their annual Scope 1, 2, and 3 GHG emissions in the coming years. SB 253 and SB 261 are a follow-up revision of the California Climate Corporate Accountability Act (SB260), which failed to pass the California legislature by one vote in 2022.

What is the CA Climate Corporate Data Accountability Act (SB 253) and What Does it Require?

The California Climate Corporate Data Accountability Act (SB 253) is a new state climate reporting standard that requires large companies doing business in California to report and verify their corporate GHG emissions each year. SB 253 will require both public and private companies over the $1 billion annual revenue threshold doing business in California to disclose their emissions, beginning in 2027 based on their 2026 fiscal and operating year.

In carbon accounting:

  • Scope 1 emissions are direct carbon emissions from a company’s activities, such as driving gas vehicles or operating industrial equipment that burns fuel or propane
  • Scope 2 emissions are indirect, purchased emissions, like electricity purchased and used by the company from a utility like Southern California Edison (SCE)
  • Scope 3 encompasses all indirect emissions produced from a company’s entire supply chain

Emissions "scopes" are used by Greenhouse Gas Protocol Corporate Standard and the U.S. Environmental Protection Agency (EPA) to categorize and measure corporate emissions. CCAA reports must comply with Greenhouse Gas Protocol Corporate Standard's methodology.

California SB 253 and SB 261 Climate Corporate Accountability Act Scope 1, 2, 3 Emissions Reporting

SB 253's Impacts and Implications for California's Economy

As defined by California law, "any company engaging in any transaction for the purpose of financial gain within the state" meets SB 253 (or SB 261)'s 'doing business' criteria, regardless of that company’s location or headquarters.

Given that California is one of the largest and most important economic regions in the world, making it an important and highly desirable market for companies, SB 253 (and SB 261) will impact most American billion-dollar companies, and many international businesses as well.

Decarbonization, climate change mitigation, and climate risk reduction are key aspects of California's long-term 2045 economic plan. California regulators see requiring companies to measure and publicly disclosure their GHG emissions as a key step to driving more accountability and incentivizes for companies to reduce the emissions they generate. This in turn will reduce climate change and its negative impacts and costs on California's economy and public health.

California SB 253 and SB 261 Climate Laws and Regulation Impacts

Under SB 253, corporate emissions disclosures must be independently verified and be stored in a publicly available digital registry administered by CARB. Due to the complexity calculating and measuring Scope 3 emissions, companies will have an additional 180 day grace period to complete their initial Scope 3 emissions disclosure. SB 253 also authorizes the California Attorney General to bring civil actions against companies and seek civil penalties for any violations of the act.

The primary goal of the California Climate Corporate Accountability Act is to drive greater climate and GHG emissions accountability for large polluters. The California legislature notes the state is already facing "devastating wildfires, sea level rise, drought, and other impacts associated with climate change that threaten the health and safety of Californians," and therefore needs to "move towards a net-zero carbon economy and is a critical next step that California must take to protect the state and its residents."

The bill specifically notes:

"The current approach for disclosure of climate emissions from public and private corporate enterprises relies largely on voluntary reporting of GHG inventories, goals, commitments, and agreements, and lacks the full transparency and consistency needed by residents and financial markets to fully understand these climate risks. The people, communities, and other stakeholders in California, facing the existential threat of climate change, have a right to know about the sources of carbon pollution, as measured by the comprehensive GHG emissions data of those companies benefiting from doing business in the state, in order to make informed decisions."

What is the CA Climate-Related Financial Risk Disclosure Act (SB 261) and What Does it Require?

California's Climate-Related Financial Risk Act (SB 261) requires large entities doing business in California to prepare and submit yearly climate-related financial risk reports, consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework. For example, if an agricultural business has climate risks related to water shortages, those should be assessed, quantified, and disclosed, along with the organization's strategy for addressing those risks. The first round of SB 261 disclosure reports will be due by December 31, 2024.

Like SB 253 reporting, SB 261 reports must also be made public. However, companies regulated by the California Department of Insurance or that are in the business of insurance are exempted from mandatory climate risk reporting under SB 261, although they may want to voluntarily do it anyway as TCFD becomes more of an industry standard.

California Climate Corporate Reporting Requirements Comparison Between SB 253 and SB 261

BillClimate Corporate Data Accountability Act (SB 253)Climate-Related Financial Risk Disclosure Act (SB 261)
Disclosure Requirement(s)Requires annual corporate emissions disclosures for Scopes 1, 2 & 3 from the previous calendar year.Requires annual corporate climate-related risk disclosures.
Covered EntitiesPublicly and privately held companies with over $1 billion in revenue that do business in California.Publicly and privately held companies with over $500 million in revenue that do business in California, excluding insurance companies
Independent Standard AlignmentGHG ProtocolTCFD (ISSB)
CA State Implementing BodyCARB and CA State Emissions RegistryCARB and CA Climate Advisory Group
Reporting Timeline2027: First reports due for Scope 1 & 2 (date TBD) for reporting year 2026; Scope 3 reporting due the following year.December 31, 2024: First disclosures due

California Climate Corporate Data Accountability Act and Climate-Related Financial Risk Disclosure Act Timelines

After their introduce in January 2023, SB 253 and SB 261 were passed by the California Senate Environmental Quality Committee on March 15, 2023 and subsequently passed by California State Senate on May 30th, 2023. SB 253 was passed by the California State Assembly on September 12, 2023. After being passed in the CA State Senate and Assembly, SB 253 and SB 261 were signed by Governor Gavin Newsome in late 2023 shortly after he announced his public support for both bills.

Right now, the timeline for SB 253 and SB 261 coming into effect is:

Starting in 2026, Scope 1 and 2 emissions must be assured at a “limited assurance” level, and at a “reasonable assurance” level starting in 2030. For Scope 3 emissions, companies may need “limited assurance” starting in 2030, depending on CARB’s review and evaluation in 2026.

This means eligible companies should start preparing to plan and implement their California Climate Corporate Data Accountability Act and Climate-Related Financial Risk Disclosure Act compliance in order to be ready for upcoming reporting cycles.

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Climate Risk and Carbon Accounting Recommendations for California Companies

Your Next Steps With California Climate Corporate Accountability Act Risk and Emissions Reporting

Managing climate risk and reducing corporate emissions are essential for the long-term health and prosperity of California. By improving corporate awareness, accountability, and climate action, SB 253 and SB 261 can help to create new jobs, promote clean energy, improve public health, and position businesses to comply with state and federal regulations while enhancing their reputation, risk management, and competitiveness.

For organizations in the early stages of their climate risk and emissions reporting journey who may be subject to SB 253 and/or SB 261, we have a few general recommendations, additional reading, and suggested next steps:

Formalize your organization's sustainability and climate oversight - Formalize board, committee, and executive review of important climate issues and risks, and frame your company's ESG governance and climate strategy in terms of how it creates and preserves value for shareholders. Climate strategy isn't just a compliance and reporting exercise, it can also be an opportunity to strengthen your brand, engage employees, reduce costs, and promote business innovation.

Materiality assessment - Before collecting emissions data or thinking about preparing your first climate risk report, you should conduct a climate-focused “Materiality Assessment” to help determine what your business' largest climate risks and emissions areas are. Climate strategies, risk management, and data efforts become much clearer once you understand what to prioritize. When it comes to GHG emissions, for most companies that sell physical goods and services, the majority of your emissions will fall under the Scope 3 classification. At the same time, your GHG inventory will also likely include emissions from offices, sites, transportation and vehicles, purchased electricity, heat, and water, waste, and other areas across Scope 1 and Scope 2. Determine where your largest sources of GHG emissions come from, so you can prioritize measuring and reporting them. Start with Scope 1 and 2, then work your way across the more complex Scope 3.

Sustainability data systems and process - While this might go without saying, in order to disclose your organization's emissions and climate risk, you need to know what they are. Your materiality process can help guide you toward the main emissions areas you may need to focus on and collect data around. Is employee travel a big source of your organization's carbon footprint? Facilities? Manufacturing sites? Where does that data exist today, and how will you access or collect it? Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies. If you're an organization with a medium-to-large or complex environmental footprint, you likely need consulting help, as well as dedicated sustainability reporting and carbon data management software, like the kind we design here at Brightest to help organizations stay compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be reporting to California regulators every year.

Further reading - Our free guides to sustainability measurement and ESG reporting provide additional, detailed guidance and insights on how to measure and report your climate performance.