The recent California legislative session saw the enactment of three pieces of climate legislation that are expected to have a significant impact on companies doing business in California, whether public or private.
Senate Bill 253: The Climate Corporate Data Accountability Act
SB 253 represents the first concrete climate emissions disclosure requirement in the US. The law applies to companies doing business in California with $1 billion or more in annual revenue worldwide—not just $1 billion in California. This includes public and private companies. “Doing business in California” is a phrase defined in the California Revenue and Taxation Code; there are several tests that may need specific evaluation depending upon a company’s operations.
Covered entities will need to report annually their climate emissions in accordance with the Greenhouse Gas Protocols. Scope 1 and Scope 2 emissions reports will first be due starting in 2026, using 2025 as the reference year. Scope 3 emissions will need to be added to the reports starting in 2027.
SB 253 directs the California Air Resources Board to issue implementing regulations by January 1, 2025, as well as authorizing CARB to enforce the law. Failure to comply subjects an entity to administrative penalties of up to $500,000 per reporting year.
Senate Bill 261: Climate-related risk disclosures
SB 261 requires public and private companies doing business in California with $500 million in annual revenue or more worldwide to issue biennial climate risk disclosure reports adhering to the most current Task Force on Climate-Related Financial Disclosures (TCFD) framework. The first disclosure report must be issued by January 1, 2026. Failure to comply subjects an entity to administrative penalties of up to $50,000 per reporting year.
Assembly Bill 1305: Disclosures regarding voluntary carbon offsets, net zero, and carbon neutrality claims
AB 1305 establishes public disclosure criteria for the following entities operating in, or making claims in, California:
- entities making net zero, carbon neutral, or emission reduction claims in connection with the entity or its products;
- entities that purchase voluntary carbon offsets and make claims that the entity is net zero, carbon neutral, or something substantially similar.
AB 1305 also establishes public disclosure criteria for entities marketing or selling voluntary carbon offsets within California.
While the specific disclosures differ based on the category, in general, they require the entity to provide the basis for the claim or offset and whether it has been verified independently. Entities must publish the disclosures on the entity’s public website. Failure to comply subjects an entity to civil penalties of up to $2,500 per day capped at $500,000.
Overall, the three laws impose onerous and challenging demands on entities doing business in California but are very lean on implementation details. While SB 253 directs CARB to issue regulations that presumably will address the finer points, based on the law’s timeline, entities should not wait for these clarifications. The GHG Protocols already provide guidance on recording, calculating, and reporting emissions. SB 261 and AB 1305 do not contemplate agency oversight or implementing regulations. As SB 261 is tethered to the TCFD recommendations, companies should look there for guidance.
Finally, these laws complement a growing body of California law and regulations focused on greenwashing and other ESG disclosures. California has a long history of being an active and engaged enforcer of regulatory regimes, including those that complement or overlap with federal law. We expect that even if the SEC does finalize its proposed rules on climate disclosures, or other federal ESG laws or regulations are enacted in the coming years, California will seek to maintain enforcement authority. Covered entities that have not already begun to assess their approach to climate emissions should consider doing so quickly; those that have already been doing so voluntarily should consider whether their policies and procedures are effective and their data accurate.