California’s latest climate disclosure bills (SB 253 and SB261)

Visit BSI's Experts Corner: Home for insights from BSI’s practice directors and industry experts on digital trust, environmental, health, safety, security, and sustainability.

October 5, 2023 - The California State Senate and State Assembly recently approved two bills, Climate Corporate Data Accountability Act-SB-253 and Greenhouse Gases: Climate-related Financial Risk-SB-261, that could require thousands of companies doing business in California to disclose greenhouse gas (GHG) emissions and climate-related financial risks, with reporting beginning in 2026.

California Governor Gavin Newsom has also announced that he plans to sign these bills into law before October 14, 2023. Once these bills are enacted into law, companies with significant revenue in California will be required to report their GHG emissions and publish a climate-related financial risk report.

SB 253 and SB 261 could potentially affect both public and private companies, as California considers the following actions as "doing business" in the state:

  • Conducting any financial transactions within California for the purpose of gaining profit,
  • Being commercially based or established in California,
  • Or having sales, property, or payroll in California surpassing specific thresholds.

Key provisions of SB 253 bill

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. Starting in year one of disclosure, companies must get independent verification of their GHG emissions disclosures.

Reports must be publicly filed on a digital registry administered by the California State Air Resources Board (CARB). 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. Companies mandated to disclose under this law 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. Companies will be required to pay a fee to the state board.

Key provisions of SB 261 bill

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. (Read TCFD: Beyond regulatory compliance.)

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 $500M in revenue to report emissions) than SB 253 (which applies to companies with revenue over $1B). 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 submitted to the California State Air Resources Board and made available on the companies' websites. Businesses regulated by the California Department of Insurance or involved in insurance in another state are exempt. Failure to comply and disclose climate-related financial risk reports may result in a fine of up to $50,000 for companies required to report under this law. Companies will also be required to pay a fee to the state board.

How should you prepare?

To kick off your journey towards sustainability, it's important for your organization to assess the sources of GHG emissions and climate risks across your operations and value chain.

Read more from other BSI sustainability experts in Future of work: The role of ESG regulations and LCA and its role in sustainability. Follow along with more sustainability-focused content and other digital trust, EHS, and supply chain topics that should be at the top of your list at BSI’s Experts Corner.