California Climate Reporting Regulations Are Impacting Many U.S. Companies

Authored by Mallory Thomas, Srinand Yalamanchili, Brianna Hardy

California is a global leader in addressing climate risk through state policy. The state is now setting the precedent for climate reporting in the U.S. by passing the Climate Accountability Package on Oct. 7, 2023. Comprehensively, the package will require many middle market companies to disclose greenhouse gas (GHG) emissions and climate-related financial risks, which is a major step towards increased transparency and accountability. Failing to prepare and report could result in financial penalties, profitability issues and compliance risks.

What is the California Climate Accountability package?

California’s Climate Accountability Package includes two pieces of regulations, SB 253 and SB 261, that require U.S.-based public and private companies that do business in California to report their GHG emissions (SB 253) and disclose their climate-related financial risk (SB 261). Reporting would begin in 2026 for 2025 reporting, including assurance over reported GHG emission data.

Even if your company is under the revenue threshold, the trickle-down need for information to be provided to your customers and clients is evident. Companies that meet the threshold will likely require climate-related information from companies in their supply chain, particularly regarding GHG emissions.

1. SB 253 California Climate Corporate Data Accountability Act

Senate Bill 253 applies to U.S. businesses with over $1 billion in revenue that conduct business in California (reporting entities [1]). These entities will be required to annually report their GHG emission inventories (scope 1, 2 and 3 emissions) in line with the GHG Protocol Corporate Accounting and Reporting Standard and Corporate Value Chain (scope 3) standard. The act requires gradual increases in the level of assurance to ensure the credibility of information. Additionally, to ensure transparency, the act requires reporting entities to provide a copy of the completed assurance provider’s report and the provider’s name to the digital platform that will be utilized, ensuring public access to the data.

Reporting and assurance timeline for SB 253

GHG emission inventories of scope 1 and 2

• Beginning in 2026, reporting entities will need to obtain limited assurance of their GHG emission inventories.
• Beginning in 2030, reporting entities will need to obtain reasonable assurance of their GHG emission inventories.

GHG emission inventories of scope 3

• Beginning in 2027, reporting entities will need to publicly disclose their GHG emission inventories.
• Beginning in 2030, reporting entities will need to obtain limited assurance of their GHG emission inventories.

*The above information details reporting requirements for the prior fiscal year-end reporting period.

2. SB 261 Greenhouse gasses: climate-related risk

Senate Bill 261 applies to U.S. businesses with over $500 million in revenue that conduct business in California (covered entities [2]). Beginning on or before January 1, 2026, these entities will be required to prepare a climate-related financial risk report disclosing:

• Climate-related financial risk, aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) framework.
• Measures adopted to reduce and adapt to climate-related financial risk. Reporting and disclosure must align with the Task Force on Climate-Related Financial Disclosures (TCFD).

Covered entities are required to report biennially and make a copy of the report available to the public via their website. If a covered entity does not complete a report consistent with all required disclosures, the entity will need to provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps and describe steps it will take to prepare complete disclosures.

What happens if a company doesn’t comply?

For companies that do not comply with the California Climate Corporate Data Accountability Act or Greenhouse gasses: climate-related risk, penalties of up to $500,000 and $50,000, respectively, can be imposed. Penalties assessed on scope 3 reporting, between 2027 and 2030, will only occur for non-filing. In addition to penalties, companies that do not report may experience reputational risks, which can have financial impacts.

Is your company prepared?

• Are you currently reporting on climate-related data or scopes 1, 2 and 3 emissions
• Are you aware of the recent California regulations, and are you prepared for GHG and climate-related risk and reporting requirements?
• Do you need to provide your customers with climate-related information, including GHG emissions, to support their reporting requirements?
• Do you know what data is needed and where to collect it within your company to prepare for disclosure?
• Have you defined your reporting goals and objectives?
• Have you established a team to support reporting efforts?
• Have you established risk management processes and integrated climate-related risks?

Take action

It is no longer a waiting game. Companies impacted, both directly and indirectly, by the California Climate Accountability package will be subject to disclosures as early as 2025. Get started with these 3 steps.

Identify: Determine who will lead this effort at your company, identify the resources needed to support the reporting effort and consider the stakeholders across your company that will need to support this effort. Then, assemble a cross-functional team to support your initiatives and reporting, leverage existing enterprise risk management steering committees, protocols, reporting and communication processes, as applicable.

Educate: Understand the standards, which include GHG Protocol Corporate Accounting and Reporting Standard, GHG Protocol Corporate Value Chain (Scope 3) and TCFD.

Evaluate: Review current reporting performed to date, requests from third parties and applicability of forthcoming regulatory reporting requirements.

The announcement of the California climate-related regulation and related requirements for your company may feel overwhelming. But by taking action today, your company can strategically prepare. Lean on our specialists to meet you where you are, help navigate reporting requirements one step at a time, and turn compliance activities into business opportunities. Get started today.

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Footnotes

[1] Reporting entity refers to a corporation, partnership, limited liability company or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia or under an act of the Congress of the United States with total annual revenues in excess of one billion United States dollars ($1 billion) (SB 253).

[2] Covered entity refers to a corporation, partnership, limited liability company or other business entity formed under the laws of the state, the laws of any other state of the United States or the District of Columbia or under an act of the Congress of the United States with total annual revenues in excess of five hundred million United States dollars ($500 million) (SB 261).