What Companies Should Know About California’s New Climate Accountability Package
California lawmakers recently passed two senate bills, SB-253 and SB-261, that comprise the state’s Climate Accountability Package. In addition, the state passed the assembly bill AB-1305. These bills have the potential to reshape climate reporting practices in the U.S.
SB-253, known as the Climate Corporate Data Accountability Act, mandates greenhouse gas (GHG) emissions reporting in alignment with GHG Protocol standards. The Act requires public and private companies that do business in California, with revenues greater than $1 billion, to report annually on their Scope 1, 2, and 3 emissions. Companies must begin reporting Scope 1 and 2 emissions in 2026 for fiscal year 2025 and Scope 3 emissions in 2027 for fiscal year 2026. The California State Resources Board (CARB) has until January 1, 2025, to issue detailed regulations to implement the standards. More information about Scope 1, 2, and 3 emissions is detailed below.
- Scope 1: Covers emissions that the company produces directly (e.g., if the company has a vehicle fleet, the fuel consumption would be covered by Scope 1).
- Scope 2: Covers emissions that the company produces indirectly through energy that it buys (e.g., the emissions produced by electricity that the company purchases).
- Scope 3: Covers all other emissions associated with the company’s value chain that are not covered by Scope 1 and 2 (e.g., emissions from supplier-generated waste).
SB-261, known as the Climate-Related Financial Risk Act, aligns with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. The Act requires public and private companies that do business in California, generating at least $500 million in total revenue, to prepare a climate-related financial risk report every two years, beginning in 2026.
AB-1305, known as the Voluntary Carbon Market Disclosures Act (VCMDA), requires public and private companies operating in California with revenues greater than $1 billion and make net-zero claims about their company or products, to disclose certain information on their website, including progress towards those goals, data verification, and the type of offsets used. In addition, offset sellers must provide disclosures on carbon offset project details and accountability measures. The disclosure requirements are expected to take effect on January 1, 2025, and must be updated at least annually. The penalty for noncompliance is $2,500 a day for every day that the information is not available, up to a maximum of $500,000.
How Companies Will Be Impacted
At approximately $3.6 trillion gross state product (GSP), California’s economy is kept afloat by millions of businesses that operate within the state. According to the Senate floor analyses, the new laws will impact over 5,000 (SB-253) and 10,000 (SB-261) companies.
Based on the California laws, public companies listed on any U.S. exchange and private companies will need to disclose their full value chain GHG emissions, including emissions from their supply chain. They will also be required to obtain third-party assurance for their Scope 1 and 2 emissions reporting to ensure accuracy and reliability. While Scope 3 is initially not subject to third-party assurance, companies may need assurance starting in 2030, depending on CARB’s review and evaluation in 2026. This could increase the expense and time needed to ensure compliance with the disclosure requirements.
Preparing for New Legislations
For companies looking to get in front of this and help minimize costs with surge pricing or last-minute implementations, consider preparing by:
- Staying informed. Keep abreast of the sustainability and climate-focused business landscape by paying attention to trusted sources of information. Being on top of the latest trends in sustainability data management will prepare your company for disclosure. Nasdaq has a series of newsletters with pertinent and up-to-date information that can help inform your company’s data management strategy.
- Assessing readiness early. Evaluate data pipelines and management strategies early and engage with a partner to plan and ensure your company has a clear strategy to manage the regulatory environment. Having an ESG reporting strategy in place can help your company identify relevant metrics, data points, pipelines, and priorities that ensure robust compliance with new legislations while also preparing your company for further climate and sustainability-related legislation.
- Investing in ESG data management tools. ESG data management tools can help your company save valuable time and money when collecting, measuring, and reporting ESG data. An end-to-end solution like Nasdaq Metrio can add value to companies at all maturity levels. Nasdaq Metrio is optimized to deduplicate ESG reporting efforts and can help prepare for global regulatory reporting requirements in the EU, U.S. (including CA), and globally.
Not certain where to start your education and strategy development? Depending on where your business is in its ESG maturity, Nasdaq supports companies of all sizes with everything from initial materiality assessments and peer-to-peer benchmarking to carbon accounting and decarbonization strategies via carbon markets.
The Nasdaq ESG Advisory team and Nasdaq Metrio end-to-end SaaS solution support companies planning for both current and future voluntary and regulatory ESG reporting requirements. Nasdaq brings a unique approach to the ESG reporting ecosystem with a dedicated team of experts and a technology solution that support robust ESG data collection and analysis and cross-referencing various voluntary and regulatory ESG standards and frameworks. To understand where your company is on its journey, get in touch with Nasdaq’s team and find out how we can best support you with tools and insights.
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