Climate-Related Disclosure Bills SB 253 and SB 261: What They Mean for Companies in California and Beyond

October 7, 2023, California Governor Gavin Newsom signed two bills on climate-related disclosures, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261), into law. These bills are part of a larger climate accountability package, which aims to improve the transparency and accountability of companies’ greenhouse gas emissions.

Governor Newsom mentioned that “This policy will illustrate the real risks of climate change for businesses operating in California and will encourage them to adopt practices that seek to minimize and avoid these risks.” However, he expressed his concern “about the overall financial impact of this bill on
businesses,” and he instructed the California Air Resources Board (CARB) to “closely monitor the cost impacts as it implements this new bill and to make recommendations to streamline the program.”
These newly signed laws will have significant impacts for both public and private companies in California and beyond. 

Key Features of SB 253 and SB 261

The primary goal of bills SB 253 and SB 261 is to enhance the disclosure of companies’ climate-related information. This information include scope 1, 2, and 3 greenhouse gas emissions as well as climate-related financial risk information. 

These bills arrive ahead of the anticipated federal SEC Rule on Climate-Related Disclosures becoming law. Like the SEC rule, SB 253 and SB 261 align with established standards and frameworks. 

Key features include: 

Details of the Climate Corporate Data Accountability Act (SB 253)

The Climate Corporate Data Accountability Act (SB 253) requires both public and private companies doing business in California, whose annual revenue exceeds $1 billion, to report on their scope 1, 2, and 3 emissions. Disclosure of scope 1 and 2 emissions will be required beginning in 2026, while disclosure of scope 3 emissions will be required beginning in 2027 (on 2026 data). This would impact more than 5,000 companies doing business in California.

SB 253 will also require third-party verification of all disclosed emissions. Scope 1 and 2 emissions will require limited assurance beginning in 2026 and reasonable assurance beginning in 2030. Scope 3 disclosures will require limited assurance beginning in 2030. Verified and assured disclosures will be housed in a new digital registry that will be made available to the public. 

Failure to meet the requirements of SB 253 may leave companies liable for civil penalties with fines of up to $500,000. 

Details of the Climate-Related Financial Risk Act (SB 261)

The Climate-Related Financial Risk Act (SB 261) requires entities doing business in California, whose annual revenue exceeds $500M, to submit reports on their climate-related financial risks to the CARB. 

Under SB 261, a climate-related financial risk includes any “material risk of harm to immediate and long-term financial outcomes due to physical and transaction risks, including but not limited to, risks to corporate operations, provision of goods and services, supply chain, employee health and safety, capital and financial investments, institutional investments, financial standing of loan receipts and borrowers, shareholder value, consumer demand and financial markets and economic health.”¹ 

These climate-related financial risk reports must align with the TCFD reporting framework. The first report will be required by January 1, 2026. After that, reporting will occur biennially.

Failure to meet the requirements of SB 261 may leave companies liable for civil penalties with fines of up to $50,000.

Who SB 253 and 261 Affects 

SB 253 and SB 261 affect both public and private companies doing business in California. While this includes businesses located in California, it may also include other U.S. companies that do business in California, as well as EU and UK companies that transact in California. 

While SB 253 and 261 do not specifically define what it means to be “doing business in California,” the State of California Franchise Tax Board defines it as any entity which does the following:

• Engages in any transaction for the purpose of financial gain within California.
• Is organized or commercially domiciled in California.
• Has California sales, property or payroll that exceed the following amounts:

*From the State of California Franchise Tax Board

How to Prepare for SB 253 and SB 261

SB 253 and SB 261 require the disclosure of greenhouse gas emissions and climate-related financial risks. To prepare for these requirements, an organization should:

• Create a greenhouse gas inventory for operations, including baseline greenhouse gas emissions.
• Conduct a climate-related risk and opportunity assessment and identify the risks most material to business.
• Develop a strategic plan to address climate-related risks and reduce greenhouse gas emissions.

To gather more information on how SB 253 and 261 might affect your organization and how you can prepare for them, reach out to your trusted advisors. 

¹ SB 261 Section (2)(a)(2)