Understanding Senate Bill 253: Impacts on Corporate Climate Reporting
Introduction to Climate Corporate Data Accountability
The Climate Corporate Data Accountability Act, also known as SB 253, is a California law that requires large organizations to report their greenhouse gas emissions. The law mandates the reporting entity’s public disclosure of greenhouse gas emissions, ensuring transparency and accountability.
The law applies to businesses operating in California with at least $1 billion in annual revenue, focusing on climate related financial disclosures and climate related financial risks.
SB 253 aims to increase transparency and accountability in corporate climate reporting, driving greenhouse gas emissions reductions and promoting a net zero carbon economy.
The laws will require large organizations to report their greenhouse gas emissions annually.
The Climate Corporate Data Accountability Act passed the California Assembly in September 2023 in a 49-20 vote.
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Background and Context of SB 253
California’s climate laws, including SB 253, are part of a broader effort to address climate change and reduce greenhouse gas emissions.
The California Air Resources Board (CARB) plays a crucial role in implementing and enforcing these laws, including the development of a reporting program for greenhouse gas emissions. An emissions reporting organization will be designated to oversee the detailed data submissions from businesses, ensuring adherence to specific protocols and timelines.
SB 253 is part of a package of bills aimed at increasing climate related financial risk reporting and disclosure, promoting corporate data accountability and transparency.
California’s new laws represent a shift from voluntary climate reporting to mandatory reporting.
The laws empower consumers and regulators to identify companies lagging in climate action more easily.
The California Air Resources Board (CARB) has until July 1, 2025, to publish the official disclosure requirements for SB 253.
Emissions Reporting Requirements
SB 253 requires reporting entities to disclose their greenhouse gas emissions, including direct and indirect emissions, using the Greenhouse Gas Protocol standards.
The law applies to public and private companies, limited liability companies, partnerships, and any covered entity with total annual revenues exceeding $1 billion.
Companies must report their scope 1 and scope 2 emissions starting in 2026. Accurate emissions calculations are crucial for compliance, requiring rigorous data collection and precise reporting.
Reporting entities must submit their emissions data to the California Air Resources Board, which will oversee the reporting program and enforce compliance.
The effective date for SB 253’s emissions reporting requirements is January 1, 2026.
Scope 3 Emissions and Disclosure
Scope 3 emissions, which include indirect greenhouse gas emissions across a company’s value chain, are a key component of SB 253 reporting requirements. This includes downstream greenhouse gas emissions from activities such as purchased goods and services, employee travel, and the use of sold products.
Companies must disclose their scope 3 emissions, using industry average data and other relevant circumstances, to provide a comprehensive picture of their greenhouse gas footprint.
The disclosure of scope 3 emissions will help to identify areas for emissions reductions and promote more sustainable practices throughout the value chain.
Audits of scope 1 and scope 2 emissions will require independent third-party verification.
Scope 3 emissions often account for more than 90% of an organization’s climate impact.
Greenhouse Gases and Climate Change
Greenhouse gases, including carbon dioxide, methane, and other gases, contribute to climate change and global warming.
The reduction of greenhouse gas emissions is critical to mitigating the impacts of climate change, and SB 253 is an important step towards achieving this goal.
By promoting transparency and accountability in corporate climate reporting, SB 253 will help to drive emissions reductions and support a low-carbon economy.
California’s laws reflect a global trend toward increased transparency in corporate emissions reporting. Companies must also consider international reporting requirements to ensure their disclosures align with global standards.
A company’s climate data increasingly affects its access to capital.
The Climate-Related Financial Risk Act aims to safeguard consumers and investors from losses due to climate-related disruptions.
Gases Climate Related Financial Risks
Climate related financial risks, including the risks associated with greenhouse gas emissions, are a growing concern for businesses and investors.
SB 253 requires companies to disclose their climate related financial risks, including the potential impacts of climate risks on their operations and financial performance.
The disclosure of climate related financial risks will help investors and other stakeholders to make informed decisions and promote more sustainable business practices.
Enhanced transparency will enable investors to assess whether companies are greenwashing or genuinely making progress toward climate commitments.
The implementation of these laws is seen as a response to demand from investors for consistent and reliable climate-related information.
The Climate-Related Financial Risk Act requires large businesses to prepare and submit a biannual climate-related financial risk report.
Emissions Disclosures and Transparency
Emissions disclosures and transparency are critical components of SB 253, promoting accountability and driving greenhouse gas emissions disclosure.
The law requires reporting entities to disclose their greenhouse gas emissions and climate related financial risks, using standardized reporting formats and protocols.
Companies will be required to hire independent auditors to verify their reported emissions data.
The California Air Resources Board will oversee the reporting program, ensuring that emissions disclosures are accurate, complete, and transparent.
Reporting entities must disclose their greenhouse gas emissions publicly to ensure transparency and accessibility for stakeholders.
Business Implications in California
- SB 253 has significant implications for business in California, particularly those with total annual revenues exceeding $1 billion.
- Companies must comply with the law’s reporting requirements, disclosing their greenhouse gas emissions and climate-related financial risks.
- Large organizations must begin gathering emissions data by fiscal year 2025.
- The law will drive emissions reductions and promote more sustainable business practices, supporting California’s goal of achieving a net zero carbon economy.
- Businesses must begin gathering emissions data in 2025 to meet reporting requirements in 2026.
Compliance and Enforcement
The California Air Resources Board is responsible for enforcing SB 253, ensuring that reporting entities comply with the law’s reporting requirements.
Administrative penalties, including fines and other sanctions, may be imposed on companies that fail to comply with the law.
Companies that fail to comply with SB 253 may face civil penalties from the state’s attorney general.
The law also provides for administrative hearings and other procedures to ensure that companies have an opportunity to respond to any allegations of non-compliance.
Administrative penalties imposed can reach up to $500,000, depending on the entity’s compliance history.
Submissions to the Climate-Related Risk Disclosure Advisory Group will be reviewed for adequacy and best practices.
Corporate Data Accountability Act
The Corporate Data Accountability Act, also known as SB 253, is a landmark legislation in California that aims to promote transparency and accountability in corporate climate reporting. This act requires large businesses operating in California to disclose their greenhouse gas emissions, including scope 1, 2, and 3 emissions, on an annual basis. The reported data must be made publicly accessible to meet transparency requirements, and the California Air Resources Board (CARB) will oversee the reporting and verification process. By mandating the disclosure of climate-related financial risks and greenhouse gas emissions, the Corporate Data Accountability Act seeks to mitigate the impacts of climate change and promote a more sustainable future.
The act applies to US-based corporations, limited liability companies, and partnerships with annual gross revenues exceeding $1 billion, and it requires these entities to report their emissions data in accordance with the Greenhouse Gas Protocol (GHGP) standards. The GHGP is a widely recognized standard for measuring and managing greenhouse gas emissions, and it provides a framework for organizations to track and report their emissions in a consistent and transparent manner. By adopting the GHGP standards, the Corporate Data Accountability Act ensures that emissions reporting is accurate, reliable, and comparable across different organizations and industries.
The Corporate Data Accountability Act
also requires reporting entities to submit their emissions data to a digital reporting platform, which will be overseen by the CARB. This platform will provide a centralized repository for emissions data, enabling stakeholders to access and analyze the information easily. The act also mandates that reporting entities make their emissions data publicly accessible, which will facilitate transparency and accountability in corporate climate reporting.
In addition to promoting transparency and accountability, the Corporate Data Accountability Act aims to reduce greenhouse gas emissions and mitigate the impacts of climate change. By requiring organizations to disclose their emissions data, the act encourages them to adopt more sustainable practices and reduce their carbon footprint. The act also promotes the development of a voluntary carbon market, which will enable organizations to offset their emissions by investing in carbon reduction projects.
Overall, the Corporate Data Accountability Act is a significant step towards promoting corporate sustainability and reducing greenhouse gas emissions in California. By mandating the disclosure of climate-related financial risks and greenhouse gas emissions, the act encourages organizations to adopt more sustainable practices and reduces the risks associated with climate change.
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Impact on Smaller Companies
- While SB 253 applies to companies with total annual revenues exceeding $1 billion, smaller companies may also be impacted by the law.
- Suppliers and other businesses that work with larger companies may be required to provide emissions data and other information to support their clients’ reporting requirements.
- Organizations subject to SB 253 must pay an annual fee that may not exceed the reasonable regulatory costs of the state board for the administration of this law.
- Smaller companies may also benefit from the law’s emphasis on sustainability and emissions reductions, promoting more environmentally friendly business practices.
- Entities that do not meet the $1 billion revenue threshold will not be directly subject to SB 253 but will still feel pressure for disclosures due to scope 3 reporting.
Conclusion and Next Steps
In conclusion, the California Climate Reporting Bills, including SB 253 and SB 261, mark a significant shift in corporate climate disclosure in the US. These bills require large businesses operating in California to disclose their greenhouse gas emissions and climate-related financial risks, promoting transparency and accountability in corporate climate reporting. To comply with these regulations, organizations must invest in better emissions tracking, improve supplier engagement, and prepare for external audits.
The next steps
for organizations subject to these regulations include developing a comprehensive climate reporting strategy, investing in data collection and AI-powered tracking, and securing third-party assurance early. Organizations should also align their reporting with other regulations, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) or the SEC’s climate disclosure rules, to reduce duplication and simplify compliance.
Furthermore, organizations should consider the following best practices to ensure compliance with the California Climate Reporting Bills:
- Invest in data collection and AI-powered tracking: Implement GHG data management platforms to centralize emissions reporting and ensure accuracy.
- Secure third-party assurance early: Identify and contract with GHG assurance providers well before reporting deadlines to avoid bottlenecks and ensure compliance.
- Align reporting with other regulations: Integrate SB 253 reporting with existing regulatory frameworks to reduce duplication and simplify compliance.
- Develop a comprehensive climate reporting strategy: Establish a clear plan for climate reporting, including data collection, verification, and disclosure.
- Improve supplier engagement: Engage with suppliers and partners to gather accurate emissions data and ensure compliance with reporting requirements.
By following these best practices and complying with the California Climate Reporting Bills, organizations can reduce their climate-related financial risks, improve their sustainability performance, and contribute to a more sustainable future. As the regulatory landscape continues to evolve, organizations must stay proactive and adapt to new requirements, ensuring that they remain compliant and competitive in a rapidly changing environment.
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