California is leading the charge in climate-related disclosures, with two significant bills recently passed by the state legislature. These bills will impose substantial disclosure obligations on companies with ties to California. Let's take a closer look at what these laws entail:
1. Climate Corporate Data Accountability Act (SB-253)
Summary:
Requirements: Publicly disclose and verify Scope 1, 2, and 3 greenhouse gas (GHG) emissions annually.
Scope: Public and private U.S. companies that "do business in California" and have over $1 billion in total annual revenue.
First Report: Due in 2026 (for information from FY 2025).
2. Climate-Related Financial Risk Act (SB-261)
Summary:
Requirements: Prepare and publicly disclose a climate-related risk report every other year, aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations or equivalent disclosure standards.
Scope: Public and private U.S. companies that "do business in California" and have over $500 million in annual revenue (excluding insurers).
First Report: Due on or before January 1, 2026.
CCDAA: Emissions Reporting
The CCDAA mandates that U.S. entities "doing business in California" and generating annual revenues exceeding $1 billion must calculate, independently verify, and publicly disclose their Scope 1, 2, and 3 emissions to a state-administered nonprofit reporting organization. Reporting for Scope 1 and 2 emissions begins in 2026, as determined by the California Air Resources Board (CARB). Scope 3 emissions reporting will follow, no earlier than 2027.
CFRA Reporting
The CFRA requires U.S. entities "doing business in California" with annual revenues surpassing $500 million to prepare a climate-related financial risk report by January 1, 2026, and biennially thereafter. This report should disclose climate-related financial risks in line with the TCFD recommendations or equivalent standards and outline measures adopted to mitigate these risks.
Key Implications
Once these bills are signed into law, they will establish the first broadly applicable climate disclosure requirements in the U.S., encompassing both public and private entities. Notably, the CCDAA mandates the disclosure of Scope 3 GHG emissions, a requirement that exceeds the current Proposed SEC Rule. While the bills have garnered support from major companies and investor groups like Ceres, some opposition, especially concerning the CCDAA's Scope 3 disclosure, has emerged.
What's Next?
Companies falling under the purview of these bills should prepare by conducting a comprehensive GHG inventory across their Scope 1, 2, and 3 emissions. Specific implementation details and timelines are yet to be finalized, as CARB will need to create regulations and penalty provisions, allowing for public input. Therefore, monitoring or participating in the rulemaking process may be advisable as it unfolds.