A Global Game Changer: California’s Climate Accountability Legislation

January 5, 2024

California’s influence on climate action reverberates worldwide, with its economy ranking fifth globally and poised to ascend to the fourth position. Against this backdrop, the recent passage of corporate climate accountability legislation in the state has captured global attention.

The enactment of Senate Bills 253 and 261 marks a significant milestone, compelling companies operating in California to disclose their greenhouse gas emissions and climate-related financial risks. These bills, set to take effect in 2026, apply to a wide array of businesses, underscoring California’s commitment to combatting climate change on a broad scale.

Understanding Senate Bill 253: The Climate Corporate Data Accountability Act (CCDAA)

Under the CCDAA, large public and private enterprises with annual revenues exceeding $1 billion must disclose their scope 1, 2, and 3 emissions, with scope 3 reporting to commence in 2027. These disclosures, subject to independent verification, will be accessible to the public through a digital registry overseen by the California State Air Resources Board (CARB).

Implications of SB 253

Over 5,000 companies operating in California will be impacted by SB 253, with potential civil penalties of up to $500,000 for violations. Assurance on emissions will also be mandated, with varying levels of scrutiny over time.

Understanding Senate Bill 261: The Climate-Related Financial Risk Act (CRFRA)
SB 261 mandates certain entities with annual revenues of at least $500 million to prepare and submit climate-related financial risk reports, aligning with the Task Force on Climate-Related Financial Disclosure (TCFD) framework. These reports, due biennially from January 1, 2026, must detail budgeting for compliance and insurance costs, among other factors.

Implications of SB 261
Companies subject to SB 261 must make their climate-related financial risk reports available to the public, further enhancing transparency and accountability.

Navigating Compliance for Companies
With thousands of companies affected by these bills, understanding and fulfilling compliance obligations is paramount. Notably, the financial threshold for SB 261 is lower than that of SB 253, necessitating a nuanced approach to reporting for affected entities.

California’s climate accountability legislation sets a precedent for global climate action, signaling a shift towards greater transparency and responsibility in corporate practices. As businesses prepare to navigate these new requirements, collaboration and adherence to regulatory standards will be key to fostering a sustainable future for all.