California enacts two new climate-related reporting laws

On October 7, 2023, California’s governor Gavin Newsom signed two important bills expanding climate-related reporting requirements for targeted organizations doing business in the state – SB 253 (Wiener) (Climate Corporate Data Accountability Act) and SB 261 (Stern). These requirements will be administered by the California Air Resources Board (ARB), which already includes most state greenhouse gas (GHG) regulatory requirements within its extensive air quality and climate authority (centered on the Global Warming Solutions Act of 2006 (AB 32). The remainder of these note discusses these new requirements.

SB 253 requires GHG emissions reports

SB 253 (Climate Corporate Data Accountability Act) will require the largest organizations that do business in California to provide extensive annual GHG emissions reports. ARB is to adopt regulations by January 1, 2025, in consultation with the public and interested stakeholders, detailing the following requirements.

What are “reporting entities” subject to these requirements?

SB 253 defines a “’Reporting entity’ means a partnership, corporation, limited liability company, or other business entity formed under the laws of [California, another state, or District of Columbia, or by an act of the US Congress] with total annual revenues exceeding $1 billion in its preceding fiscal year, and which does business in California.” The data management company Crunchbase estimates that more than 5,000 US entities meet these revenue thresholds; I have not found an estimate of how many do business in California, but assume that many do.

What GHG emissions reports must be prepared?

SB 253 requires ARB to contract with an “emissions reporting organization” to develop the GHG reporting program for use by reporting entities to comply with the following requirements. The regulatory requirements must conform with global Greenhouse Gas Protocol standards and guidance developed by the World Resources Institute and the World Business Council for Sustainable Development (WRI/WBCSD), including all of the following (compliance dates are below):

scope 1 emissions (entity’s direct emissions)
scope 2 emissions (emissions from entity’s energy use)
scope 3 emissions (emissions from upstream supply chain and downstream value chain)

The emissions reporting organization must be familiar with these standards, and have experience applying them in California.

ARB’s regulations are to require each reporting entity to annually disclose the following to the ARB-contracted emissions reporting organization:

report of all the entity’s scope 1, 2, and 3 GHG emissions
assurance engagement performed by an independent third-party assurance provider

Reporting entities are to report their scope 1 and 2 emission beginning in 2026, and add reporting of scope 3 emissions beginning in 2027. ARB’s regulations will establish reporting deadlines. During 2029 (complete by January 1, 2030), ARB is to review trends in scope 3 reporting and consider changes to state requirements and reporting deadlines. Beginning in 2033, ARB may review GHG reporting standards and make appropriate revisions to state requirements.

How is ARB to develop and administer the reporting program?

ARB is to consult widely while developing its regulations, including with state Attorney General, other government stakeholders, investors, stakeholders representing consumer and environmental justice interests, and reporting entities with demonstrated leadership in full-scope GHG emissions accounting, reductions and public disclosures. ARB is to adopt and assess annual fees to fund its administration of these requirements. ARB is also to adopt administrative penalty provisions (not exceeding $500,000) for violations.

SB 261 requires reporting of climate-related financial risk

SB 261 will require each “covered entity” to prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk and the measures it adopts to reduce and adapt to climate-related financial risk. Reports must be made available to the public.

What are “covered entities” subject to these requirements?

For purposes of SB 261, a “covered entity” means a partnership, corporation, limited liability company, or other business entity formed under the laws of [California, another state, or District of Columbia, or by an act of the US Congress] with total annual revenues exceeding $500 million in its preceding fiscal year, and which does business in California. This definition is essentially the same as that for a “reporting entity” under SB 251, but with half the revenue threshold.

What climate-related financial risk reports will be required?

Beginning by January 1, 2026, each covered entity must prepare a biennial “climate-related financial risk report” disclosing both of the following:

The entity’s climate-related financial risk, following the recommended framework and disclosures contained from the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (convened by the Financial Stability Board) (June 2017 or any successor) (I wrote about the Task Force and its recommendations HERE ), or pursuant to an acceptable equivalent (see below).
Its measures adopted to reduce and adapt to its disclosed climate-related financial risk.

The Task Force’s Recommendations provide detailed guidance (74 pages), organized to focus on Governance, Strategy, Risk Management, and Metrics and Targets. SB 261 allows an entity to substitute for this approach by using:

Disclosure of comparable information in compliance with disclosures required by any “regulated exchange, national government, or other governmental entity,” including the International Financial Reporting Standards Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). (I discussed the recent Securities and Exchange Commission (SEC) proposal for such disclosures HERE)
Voluntary disclosure that meets the Task Force or ISSB criteria.

Reports are due every two years beginning January 1, 2026, and must be posted on the entity’s Internet website for public access. Climate-related financial risk reports may be consolidated at the parent company level for subsidiaries and affiliated companies.

ARB is to contract with a climate reporting organization to prepare a biennial public report on these required disclosures, providing the following:

A review of the climate-related financial risks disclosed in a subset of publicly available climate-related financial risk reports by industry.
Analysis of the systemic and sector-wide climate-related financial risks facing the state based on the contents of these reports, including potential impacts on economically vulnerable communities.
Identification of inadequate or insufficient reports.

ARB is to adopt and assess annual fees to fund its administration of these requirements. ARB is also to adopt administrative penalty provisions (not exceeding $50,000) for violations.

What happens now?

ARB will now conduct the rulemakings required by the two new laws, to facilitate entity compliance beginning in 2026. Readers should note that the revenue thresholds for the two laws are very different, so many more companies will be required to prepare only the financial risk reports. In addition, other regulatory and informational entities (including the GHG Protocol, and the US SEC) are developing reporting methodologies, which may be available to substitute for specific provisions developed by ARB. Finally, of course, California hopes other states adopt its model.

Self-assessment checklist?

Does the organization do business in California?

If so, is its total annual revenue (not just in California) greater than $500 million?
If so, is its total annual revenue (not just in California) greater than $1 billion?

Do any of the organization’s activities involve GHG emissions?

If so, does the entity prepare GHG emission reports?
If so, do these reports distinguish among scope 1, 2 and 3 GHG emissions, consistent with GHG Protocol guidance?
Does the entity make its reports available to the public?

Has the entity evaluated whether any of its activities are susceptible to climate-related financial risk?

If so, has the entity evaluated such risks?
If so, has the entity applied the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures, or another methodology?
Does the entity make these evaluations available to the public?

Where can I go for more information?

About the Author

jon_f_elliott Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com

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