On October 7, 2023, California Governor Newsom signed two landmark bills into law, Senate Bill (SB) 253 and SB-261, imposing new requirements on large companies doing business in California to publicly report their annual greenhouse gas (GHG) emissions and climate-related risks. These laws apply to both publicly traded and privately held companies, exceeding the scope of the climate disclosure rule proposed by the U.S. Securities and Exchange Commission (SEC) in March 2022. Our professionals have prepared a more detailed summary here; some key highlights are included below.
SB-253: Climate Corporate Data Accountability Act
SB-253 requires entities with total annual revenues of $1 billion or more that “do business in California” to report their GHG emissions annually. The bill does not define “doing business in California,” but it is understood to mean engaging in any transaction for financial gain within California, being organized or commercially domiciled in California, or having California sales, property, or payroll exceeding specified amounts.
Companies will report direct “Scope 1 emissions” and indirect “Scope 2 emissions” to the California Air Resources Board (CARB) starting in 2026. Beginning in 2027, companies will report their indirect upstream and downstream “Scope 3 emissions.” Companies must also engage an independent third-party assurance provider to substantiate their emissions reports. Penalties for violating SB-253 can reach up to $500,000 per year.
SB-261: Climate-Related Financial Risks Act
SB-261 is the first state-level law requiring companies to publicly report their “climate-related financial risks” and the measures they will take to reduce such risks. This law applies to any company with total annual revenues over $500 million “doing business in California.” Climate-related financial risk reports must be posted on companies’ websites beginning January 1, 2026, and every two years thereafter. Penalties under SB-261 are significantly lower than those under SB-253, maxing out at $50,000 per entity per year.
What’s Next?
Stakeholders will have opportunities to engage with CARB in the coming months and throughout 2024 as CARB undertakes rulemaking to implement the new laws. The ultimate fate of the new requirements will likely lie with the courts, as the new laws will undoubtedly be subject to litigation.