On Oct. 7, California Gov. Gavin Newsom signed two bills into law that aim to address climate concerns through corporate emissions reporting requirements.
The Climate Corporate Data Accountability Act, Senate Bill (SB) 253, requires certain partnerships, corporations, limited liability companies or other businesses that do business in California with revenues in excess of $1 billion (based on revenue for the prior fiscal year) to annually disclose their so-called Scope 1 and Scope 2 greenhouse gas emissions for the prior fiscal year starting in 2026. Starting in 2027, reporting entities must also annually disclose Scope 3 emissions for the prior fiscal year. Failure to meet the law's requirements could result in administrative penalties of up to $500,000 in any reporting year.
SB 261, the Climate-Related Financial Risk Act, requires certain entities to prepare and submit a climate-related financial risk report. SB 261 is applicable to entities that do business in California with total annual revenue of at least $500M.
Notably, SB 253 and SB 261 apply to client-based businesses, such as insurers, financial companies, law firms, consultancies and other professional services companies. As such, these companies seemingly would be required to disclose the emissions of its clients, borrowers, etc. starting with the 2027 Scope 3 requirements. As the regulations are not expected to be issued until on or before Jan. 1, 2025, it is not clear as to the level of detail that will be required in making such disclosures.
SB 253 closely mirrors similar proposed rules issued by the United States Securities and Exchange Commission (SEC) in March 2022. The SEC Rules received significant industry pushback.
In signing SB 253, Gov. Newsom noted that the "implementation deadlines ... are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure."