Navigating California’s Climate Corporate Data Accountability Act (SB 253)
Introduction
As the federal government grapples with climate disclosure regulations, California has taken decisive action to lead on corporate climate accountability. Through landmark legislation like SB 253, SB 261, and AB 1305, the state is setting a higher standard for transparency in greenhouse gas emissions, climate risk management, and the use of carbon offsets. These laws aim to ensure that companies operating in California not only disclose their environmental impacts but also take measurable steps toward sustainability.
SB 253 ushers in new standards for greenhouse gas (GHG) emissions reporting. This regulation requires large companies to publicly disclose their carbon footprints across Scope 1, 2, and 3 emissions. In this blog post, we dive into what SB 253 entails, who is affected, and the key steps businesses must take to comply.
What is SB 253 aspiring to do
SB 253 aims to increase transparency and accountability around greenhouse gas (GHG) emissions by requiring large businesses operating in California to publicly disclose their carbon footprint. The regulation seeks to help California achieve its ambitious climate goals by holding companies responsible for their environmental impact, while also providing investors and stakeholders with crucial information about the sustainability and risk profile of the businesses they support. By requiring detailed reporting on scopes 1, 2, and 3 emissions, the law promotes both financial materiality (how climate risks affect the company) and impact materiality (how the company affects the environment and society).
Who is impacted
SB 253 applies to public and private companies with annual revenues exceeding $1 billion that do any business in California.
What disclosures are required
SB 253 requires large businesses operating in California to publicly report their scopes 1, 2 and 3 GHG emissions. It takes into account two types of materiality
Financial materiality: Information of interest to investors that has been deemed to have a material impact on the financial condition or company performance
Impact materiality: Information of interest to a broader stakeholder group, a holistic view of a company’s impact to the environment and society.
The regulation will require annual disclosure of:
Scope 1 and Scope 2 emissions (direct and indirect emissions from energy use) must be publicly disclosed with limited assurance in the first year of reporting.
Scope 3 emissions (indirect emissions from the value chain) must be disclosed starting the year following Scope 1 and 2 requirements with assurance requirements to be determined in the first year of compliance.
Reasonable assurance on Scope 1 and Scope 2 information will be required 4 years into implementation.
Key deadlines
September 30, 2024: Governor Newsom has until this date to sign or veto SB 219, which proposes amendments to the Climate Accountability package, including an extension of the CARB’s timeline to finalize disclosure requirements under SB 253 from January 1, 2025 to July 1, 2025.
October 15, 2024: A critical date for litigation related to SB 253 and SB 261. Hearings will address constitutional challenges to these laws and potential outcomes that may require changes to reporting requirements.
January 1, 2025: Expected release of CARB guidelines on reporting. Potential shift to July 1, 2025 if SB 219 passes. Updates anticipated by end of September 2024.
January 1, 2026: As the legislation stands, this is the first year companies must begin disclosing Scope 1 and Scope 2 emissions with limited assurance.
January 1, 2027: As the legislation stands, companies must begin disclosing Scope 3 emissions at this time. Assurance requirements to be determined in the first year of compliance.
2030: Companies must receive reasonable assurance for Scope 1 & 2 emissions, as well. as limited assurance for Scope 3 emissions.
How to get started
Accurate emissions mapping: Ensure that you have clear data on Scopes 1 and 2 emissions—the emissions your company directly controls. Beyond that, begin strategizing how you will tackle Scope 3, which often represents the largest share of a company’s total emissions but can be the hardest to track.
Data processes and controls: Companies should invest in internal processes that ensure that data is consistent, verifiable, and auditable. With limited assurance required in year one, it’s important to get these systems in place early to avoid scrambling for accuracy down the line.
Materiality assessment: Scope 3 emissions will likely be subject to a materiality threshold (although this will be finalized by California Air and Resources Board’s (CARB) ). Companies may need to assess which scope 3 categories are material, based on their business model, industry, and value chain impact.
Engagement with stakeholders: Reporting on Scope 3 emissions requires collaboration with suppliers, partners, and other stakeholders in your value chain. Early engagement is key to ensuring you can gather the necessary data without disrupting operations.
Our recommendation
Focus on data integrity: Given the assurance requirements, companies need to prioritize high-quality data collection and verification processes to avoid complications within audits.
Start early: The timeline may seem generous, but Scope 3 emissions reporting in particular requires extensive preparation. Early action will reduce stress and ensure that your reporting is accurate and comprehensive.
Strategic compliance: Compliance with SB 253 should be seen not just as a regulatory hurdle but as an opportunity to gather insights that can improve efficiency and risk management. While this won’t eliminate the challenges of reporting, it can turn compliance into a more strategically beneficial process.
Where Bespoke ESG can support
We focus on practical steps that ensure compliance while adding value to your business. Here’s how we can help:
GHG expertise and upskilling your employees: Whether you're starting from scratch or refining existing processes, we offer comprehensive GHG emissions calculations for Scopes 1, 2, and 3, alongside developing inventory management plans and customized GHG workbooks. To ensure long-term compliance, we also provide training programs to equip your team with the skills to manage GHG reporting and adapt to evolving regulations.
Preparing for third-party assurance: Assurance is a significant part of the regulation, and we prepare you for it from day one by ensuring your data is reliable and your reporting is audit-ready.
Integration into business strategy: Beyond compliance, we help companies understand how emissions data can inform better business decisions—whether that’s improving operational efficiency, reducing costs, or identifying sustainability opportunities.
Disclaimer: The information provided in this document is for general informational purposes only and does not constitute legal advice. Regulatory advice is provided solely within the scope of contracts between Bespoke ESG and its clients.