In 2023, California passed two important laws - the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). Together, they make up the Climate Accountability Package. The laws set new standards for Climate reporting and require large companies that do business in California to disclose more information than ever before.

SB 253 and SB 261 affect both public and private companies. Companies with significant revenue in California will be required to report their greenhouse gas emissions and publish a climate-related financial risk report starting in 2026.

SB 253 - Climate Corporate Data Accountability Act

Any company with total annual revenues of $1 billion or more and conducts business in California will be required to disclose annually:

Scope 1 and Scope 2 GHG emissions for the prior fiscal year, starting in 2026.
Scope 3 GHG emissions for the prior fiscal year, starting in 2027.

Reporting companies’ GHG inventories will be required to be aligned to the Greenhouse Gas Protocol standards and guidance and publicly disclosed and filed. Independent third-party assurance of Scope 1 and 2 emissions will be required at a limited assurance level in 2026, while Scope 3 assurance may be phased in until 2030. In year one of disclosure, companies must get independent verification of their GHG emissions disclosures.

The aim is to provide transparency and encourage companies to reduce their environmental impact.

Scope 1 and 2 emissions require limited assurance by 2030.
Scope 3 disclosures require CARB review in 2027 and limited assurance by 2030.

SB 261 - Climate-Related Financial Risk Act

The Climate-Related Financial Risk Act, or SB 261, requires entities doing business in California to prepare and submit climate-related financial risk reports that cover climate-related financial risks consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework.

Any entity doing business in California with total annual revenues of $500 million will be required to biennially disclose a climate-related financial risk report that include:

The company’s climate-related financial risk, starting in 2026, and
The company’s plan and adopted measures to reduce and adapt to climate-related financial risk, starting in 2026.

It's worth noting that SB 261 has a lower financial threshold (requiring companies with $500 million in revenue to report emissions) than SB 253 (which applies to companies with revenue over $1 billion). This means that some companies not subject to emission reporting under SB 253 will still need to report climate-related financial risk under SB 261.

These reports must be publicly filed and submitted to the California State Air Resources Board (CARB). Companies mandated to disclose under one or both of these laws will face a potential fine of up to $500,000 in a reporting year for failure to comply and publicly disclose their annual GHG inventory.

Who is impacted?

Over 5,000 companies doing business in California, with annual revenue exceeding $1B and $500M, will be required to comply with SB 253 and SB 261, respectively.

Why does it matter?

Global impact: California’s economy ranks fifth globally and is projected to become the fourth. Compliance here reverberates worldwide.
Transparency: These bills emphasize transparency in carbon emissions and climate risks. Greenwashing won’t cut it.
Investor confidence: Investors increasingly seek climate-conscious companies. Compliance enhances your reputation.

What can you do?

Assess your emissions: Understand your scope 1, 2, and 3 emissions. Seek expert guidance if needed.
Prepare for reporting: Start collecting data. Consider independent verification.
Climate risk assessment: Evaluate financial risks related to climate change.
Communicate: Share your commitment with stakeholders.

Stay ahead of the curve

No matter where your organization is on its sustainability journey, it's essential to evaluate the sources of greenhouse gas (GHG) emissions and climate risks throughout your operations and value chain.

At BSI, our team of experts can assist your organization in efficiently tracking and managing your GHG accounting program. We work to identify and mitigate any potential climate-related financial risks and can help you prepare disclosures and reports, validate data, and establish emission reduction targets.

With our support, you can meet regulatory requirements and make progress towards sustainability. For more information, visit our website or contact our sustainability team.

SB 253 and SB 261 - Increasing climate disclosure in California