Topic
- Sustainability
On October 7, California Governor Gavin Newsom signed into law two climate disclosure bills that will impose significant reporting obligations on thousands of companies doing business in California. Together, the bills comprise what Democratic lawmakers are calling California’s “Climate Accountability Package”. SB 253, the Climate Corporate Data Accountability Act, will require companies to annually disclose Scope 1, Scope 2, and Scope 3 emissions. SB 261, Greenhouse Gases: Climate-Related Financial Risk, will require biennial disclosure of a company’s financial risk caused by climate change.
These two laws are the most prescriptive state or federal climate disclosure legislation in the United States to date, including the proposed climate disclosure rule being considered by the U.S. Securities and Exchange Commission (SEC). Whatever rule is released by the SEC will face significant litigation challenges.
While there are many implementation details yet to be decided before the initial 2026 reporting deadline, it is not too early for agencies and their clients to begin evaluating the requirements of SB 253 and 261 and planning for compliance. Climate reporting and audits may result in additional opportunities for agencies to consult on advertisers’ new sustainability initiatives.
SB 253
SB 253 applies to both private and public companies with total annual revenues exceeding $1 billion in the prior fiscal year “that does business in California”. SB 253 does not define “doing business in California,” but the state’s Franchise Tax Board defines the term as (1) engaging in any transaction in the state for financial gain or (2) having sales, real and tangible property, or payroll in California that exceeds certain (relatively low) thresholds.
Per the new law, starting in 2026 (covering calendar year 2025), covered businesses will be required to report Scope 1 (direct emissions) and Scope 2 (emissions associated with electricity consumption). In 2027 (covering calendar year 2026), businesses will be required to disclose Scope 3 (indirect, value chain emissions). Reports must conform to the Greenhouse Gas Protocol standards and guidance developed by the World Resources Institute and the World Business Council for Sustainable Development. For data and reporting assurance, a covered entity must also must retain an independent and experienced third-party provider on all of the reporting entity’s Scope 1, Scope 2, and Scope 3 emissions. The disclosures must also incorporate information on acquisitions, divestments, mergers, and other structural changes that can affect greenhouse gas emissions reporting.
To minimize reporting obligations and reduce duplicity of efforts, SB 253 allows a reporting entity to “submit to the emissions reporting organization reports prepared to meet other national and international reporting requirements, including any reports required by the federal government, as long as those reports satisfy all of the requirements of this section.” Companies that report emissions data under the EU’s Corporate Sustainability Reporting Directive (CSRD) or another authority, such as the SEC’s proposed climate disclosure rule, may be able to present the same report to satisfy SB 253’s requirements.
The bill authorized the California Air Resources Board (CARB) to contract with a qualified “emissions reporting organization” and to adopt regulations to require a reporting entity to submit the annual emissions report to that emissions reporting organization. Rules must be promulgated by January 1, 2025.
Companies must pay an annual fee to submit their carbon emissions disclosures. CARB may impose an annual fine of $500,000 on covered businesses that do not comply with AB 253.
SB 261
SB 261 requires U.S.-based partnerships, corporations, limited liability companies, and other entities with $500 million or more in annual revenues that do business in California to prepare biennial reports disclosing climate-related financial risk and measures they have adopted to reduce and adapt to that risk. The first report will be due by January 1, 2026 and must disclose (1) the company’s climate-related financial risk in accordance with the recommended framework of the Task Force on Climate-Related Financial Disclosures (“TFCD”) and (2) measures the company has taken to reduce and adapt to the climate-related financial risks disclosed in the report. Applicability will be determined based on the entity’s revenue for the prior fiscal year. Submissions will then be reviewed by the Climate-Related Risk Disclosure Advisory Group, which will identify inadequate reports, as well as propose additional policy changes and best practices for disclosure. More than 10,000 other companies are expected to fall within the purview of SB 261
The 4As anticipates other states to begin introducing similar laws (at least blue states), hopefully with harmonization of requirements in mind. The most likely target for changes in future state legislation would seem to be lowering the revenue threshold of applicability to increase the number of companies required to report or changes to or elimination of Scope 3 reporting.
Regulators in the European Union, United Kingdom and Hong Kong are also in the process of writing their own rules for what companies have to tell investors about climate change.
Have questions about SB 253 and SB 261 and its impacts on advertisers? Contact Alison Pepper, 4As EVP of Government Relations & Sustainability.
