This article was written by Jess LeDonne, Director, Policy and Legislative Affairs & Chad V. Scott, Consulting Manager.
On October 7, 2023, two California bills were signed into law that will require certain companies operating in California to provide both quantitative and qualitative climate disclosures:
- SB 253: Climate Corporate Data Accountability Act (CCDA)
- SB 261: Greenhouse Gases: Climate-Related Financial Risk (CRFRA)
Public and private companies doing business in California with annual gross revenues over $1 billion must report their global greenhouse gas emissions beginning in 2026. Specifically, these companies must disclose:
- Scope 1 emissions: Those resulting directly from a company’s activities (including, but not limited to, fuel combustion activities)
- Scope 2 emissions: Those indirectly released by the company, such as electricity, steam, heating, or cooling purchased or acquired by the company
- Scope 3 emissions: All indirect upstream and downstream greenhouse gas emissions from the company's supply chain (including, but not limited to, purchased goods and services, business travel, employee commutes, and processing and use of sold products)
The reporting will be done in accordance with the standards established by the Greenhouse Gas Protocol, which provides measuring and reporting frameworks.
The CCDA reporting will be required annually, and third-party assurance of the disclosures will also be required. There are hefty noncompliance penalties attached to failing to report including maximum fines of $500,000.
Public and private companies doing business in California with annual gross revenues over $500 million must report their climate-related financial risk reports to the California Air Resources Board every two years beginning in 2026. These companies will also need to make the reports available publicly, on their websites.
Of course, if you meet the definition of a company “doing business” in California, meaning that you actively engage in any transaction for the purpose of financial gain in the state, then you will need to review prior fiscal year revenue to determine if either or both of these new reporting requirements will apply to your organization. If the definition and the revenue threshold are met, you should engage a trusted and knowledgeable professional to assist with compliance for these new environmental reporting laws.
However, even companies that do not meet the definition and threshold for these requirements to apply to them directly, should take notice of these news state reporting requirements. As we've indicated in our other recent articles, ESG reporting is on the way - both at the state and federal level. California pioneering these legislative changes serves as a model for what we can expect from other states before too long. These environmental-related disclosures have been backed by far too many stakeholders, large investors, and government and regulatory agencies around the world to simply disappear, so it would serve us all well to understand the nuances and required compliance efforts tied to California's recently passed laws. Companies should understand their upcoming disclosure responsibilities both directly and throughout their supply chain.
If you need further guidance or have any questions on climate related disclosures, The Bonadio Group is here to help. We look forward to working with you to ensure you are prepared in advance of deadlines and without worry for potential noncompliance penalties. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.