In October, California established itself as a climate leader by passing two bills that require public and private companies operating in the state to disclose their greenhouse gas (GHG) emissions and the climate-related financial risks they face. As a state that has witnessed the physical and economic impacts of climate change, California is taking concrete steps toward greater corporate accountability.
California’s Climate Corporate Data Accountability Act, or SB 253, applies to companies that have annual revenue of at least $1 billion. Under this regulation, companies must disclose their Scope 1, Scope 2 and Scope 3—or value chain—emissions. According to Politico, approximately 5,400 companies will need to comply with SB 253.
Another bill—Greenhouse Gases: Climate-Related Financial Risk, or SB 261—will require climate risk reporting using the framework from the Task Force on Climate-related Financial Disclosures (TCFD). This act will apply to companies with at least $500 million in revenue. It’s estimated that 10,000 companies will fall within the scope of this rule.
Read on to learn more about the regulations and the tools and services that can support corporate sustainability reporting efforts.
The Key Points of SB 253
Here is what businesses need to know about California’s Climate Corporate Data Accountability Act:
- Private and public companies operating in California with more than $1 billion in annual revenue must comply with SB 253.
- Scope 1 and Scope 2 emissions disclosures are required annually, starting in 2026.
- Scope 3 emissions disclosures are required annually, beginning in 2027.
- Third-party assurance is required.
A Note on the SB 253 Scope 3 Requirements
The Scope 3 disclosure requirement means that businesses must measure and report the emissions tied to the entire life cycles of their products and services. In the case of products, for example, this covers how their materials are sourced and how the products are manufactured, packaged, distributed, sold, used and disposed of. Scope 3 emissions typically constitute the largest share of a company’s combined Scope 1, Scope 2 and Scope 3 emissions. In some industries, Scope 3 can represent as much as 90-95% of a business’ total GHG emissions.
Assurance Is Required Under SB 253
California’s SB 253 requires reporting companies to obtain an assurance conducted by an independent third-party assurance provider. The California Air Resources Board is responsible for ensuring that the state has enough assurance provider capacity to meet the needs of reporting businesses.
The Key Points of SB 261
Here is what businesses need to know about the Greenhouse Gases: Climate-Related Financial Risk act:
- SB 261 requires private and public companies with annual revenue of $500 million or more to report their climate-related financial risks and the measures they are taking to reduce and adapt to those risks.
- The regulation will apply to organizations formed under California’s laws or the laws of any other U.S. state or the District of Columbia that do business in California, including:
- Corporations.
- Partnerships.
- Limited liability companies.
- Other business entities.
- Company reports must be published annually from 2024 onward and be made available to the public on company websites.
- Reports should be based on the TCFD framework.
- Reporting businesses must also submit a statement to California’s secretary of state affirming that their report discloses their climate-related financial risks.
Possible Penalties for Noncompliance
Businesses that publish inadequate reports or fail to make their reports publicly available may face administrative penalties. The California Air Resources Board will be given the authority to impose these penalties.
How Sphera Can Help
Thousands of businesses worldwide turn to Sphera to help them meet their sustainability reporting requirements. With a comprehensive offering that includes software, data and consulting services built on decades of experience and rich industry knowledge, Sphera provides the guidance and tools companies need for compliance. Our award-winning solutions help organizations build their reports on auditable, traceable data to achieve the transparency that regulators and stakeholders demand.
Recognized in 2023 by independent analyst firm Verdantix as a market leader in ESG reporting and data management software, Sphera can support companies with mature reporting practices, as well as those that are new to climate-related reporting.
Sphera’s Market-Leading Software Supports Climate-Related Reporting
- The SpheraCloud Corporate Sustainability solution helps companies gather the data they need for sustainability and ESG reporting:
- SpheraCloud Environmental Accounting software enables companies to measure, monitor and report their air/GHG emissions and management of water and waste. This solution was recognized by Environment + Energy Leader as a 2023 Product of the Year.
- Sphera’s market-leading LCA automation solution allows companies to quantify the environmental impact of entire product portfolios in a fraction of the time it takes to conduct life cycle assessments (LCAs) product by product. It provides the most accurate, cost-effective way to generate the information needed to meet Scope 3 reporting requirements.
Sphera’s Sustainability Consulting Team Brings Decades of Expertise
- Sphera’s expert consultants help companies prepare for ESG and sustainability reporting by:
- Guiding them through materiality and double materiality assessments.
- Addressing their reporting challenges, including those around climate risk reporting.
- Helping them build ESG and sustainability strategies that manage risks and capitalize on opportunities.
- Sphera consultants can also guide businesses in identifying their climate risks specifically for TCFD reporting.
Climate-Related Reporting Is on the Rise
California is the first U.S. state to introduce climate-related reporting rules, but it won’t be the last: New York may soon follow with Senate Bill S897A. At the country level, the Securities and Exchange Commission (SEC) is due to release its long-awaited climate disclosure rules. And the EU’s Corporate Sustainability Reporting Directive (CSRD) will require at least 10,000 non-EU companies—of which one-third are U.S.-based, according to The Wall Street Journal—to disclose a wide range of ESG information, including Scope 1, 2 and 3 GHG emissions.
California’s inclusion of private companies goes beyond the SEC rules, which will apply only to publicly listed companies. Regardless of what the SEC decides, large, private companies are advised to prepare for climate-related reporting. With the evidence and impacts of climate change now harder to ignore, climate disclosure rules will only increase in number.
