November 13, 2023
You’ve heard the statistic. If California were a country, it would have the fifth-largest economy in the world, trailing only the U.S., China, Japan, and Germany. In other words, California has clout and obviously isn’t afraid to use it.
Case in point, two critical pieces of climate reporting legislation are now the law of the land, and they’re going to be a big deal for many companies doing business in the Golden State. But what, exactly, lies at the heart of the state’s Climate Accountability Package – specifically, CA Senate Bill (SB) 253 and SB 261 signed last month and, more importantly, what could it possibly mean for organizations and sustainability reporting?
SB 253 Requirements
SB 253 introduces several critical requirements for public and private U.S. companies conducting business in California with global annual revenue exceeding $1 billion in the previous fiscal year. By early estimations, the legislation will impact over 5,000 organizations.
Businesses in scope must disclose their annual greenhouse gas emissions – GHG – data for all three scopes in accordance with the GHG Protocol. These include:
- Scope 1 – Direct emissions from a company’s owned operations
- Scope 2 – Indirect emissions associated with purchased electricity, heating, and cooling
- Scope 3 – Indirect GHG emissions across the company’s value chain, including supply chains, business travel, employee commuting, procurement, waste, and water usage
Amplifying an already heightened sense of urgency, impacted companies must start reporting their Scope 1 and Scope 2 emissions in 2025 – with reporting due in 2026 – and Scope 3 emissions beginning in 2026, with reporting due in 2027. The California Air Resources Board (CARB) is tasked with adopting regulations to implement the requirements of SB-253 by January 1, 2025.
Implications of SB 253
Zooming out a bit, SB 253 can wield a mighty sword for companies falling in scope, exacting a wide range of effects on businesses, stakeholders, and the broader landscape of sustainability reporting and practices.
- It greatly enhances transparency into corporate emissions, allowing stakeholders to better assess a company’s environmental impact while also promoting a sense of accountability and encouraging businesses to actively monitor and manage their emissions.
- The law puts pressure on companies to address emissions within their direct operations, supply chains, and product lifecycles. Thus, it encourages businesses to adopt sustainable practices, reduce emissions, and promote environmental responsibility across their entire value chain.
- California will make data from SB 253 emissions publicly accessible via a digital platform, providing insight and transparency into a company’s carbon footprint. This will help stakeholders make better-informed decisions and facilitate comparisons across industries and companies.
SB 261 Requirements
SB 261 focuses on climate-related financial risks and similarly applies to companies doing business in the state that exceed an annual global revenue threshold. The revenue threshold for SB 261 is half that of SB 253 – or $500 million – putting the estimated number of entities impacted by the bill at over 10,000.
Further, impacted companies must disclose climate-related information biennially on their website in accordance with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), as well as any measures adopted to reduce and adapt to the climate-related risks disclosed under those recommendations.
Comparison to the SEC Proposed Climate Rule
Given the publicity the proposed SEC rule on climate change disclosures has garnered recently, many companies are drawing comparisons between the SEC and CA rules. While several similarities exist, there are some critical differences as well:
- The SEC rule is only applicable to registrants, not private companies
- SB 253 requires GHG protocol whereas the SEC does not, potentially causing organizational boundary differences in reporting emissions.
- The SEC rule only requires Scope 3 emissions when material or used as part of a registrant’s reduction targets or goals.
- The SEC proposal does not require assurance on Scope 3 emissions
“Doing Business” in the State of California
One thing to note about both SB 253 and 261 is what it means to “do business” in California, a concept that applies to the scoping criteria for both laws.
In this case, an entity is “doing business” if it meets any of the following criteria:
- Engages in any transaction for the purpose of financial gain within California,
- Organized or commercially domiciled in California
- Exceeds specified amounts of California sales, property, or payroll
Risk of Penalties and Reputational Damage
Failure to comply with SB 253 and SB 261 puts companies at risk of civil penalties imposed by the state. Perhaps even worse, non-compliance can also result in reputational damage that kneecaps credibility, stakeholder trust, and market standing for an organization. Note, however, that SB 253 does provide a safe harbor from penalties for reporting Scope 3 emissions if the disclosures are provided in good faith and with a reasonable basis.
Ultimately, the timeline for implementing and complying with the laws may present challenges for some companies. Coordinating data collection, implementing robust reporting systems, integrating sustainability practices, and documenting risk factors and processes within such a short timeframe may require substantial effort and resources. As such, companies should carefully plan and allocate resources to meet the reporting deadlines effectively.
Adam Olsen is a Managing Director and Embark National Quality Leader at Embark.
Robby Sundberg is a Managing Director and Nashville Market Leader at Embark.
This article was originally published by RealClearEnergy and made available via RealClearWire.
Move to Texas close all California business, If the residents of California want your product or services leave the state
That Psycho is coming to America.
Any psycho coming to America will find plenty of company already established but what does that have to do with abandoning CA?
Sorry, I should have explained that Gavin Newsom is a California psycho, but he could become the next American Psycho, thus reducing options for places to escape.
I got that immediately, sometimes I wonder about the comprehension of some of the commenters here.
I might have got it except that I assumed California was already in America. If Scissor had put “That Psycho is coming to the rest of America” then it might have been clear exactly what he meant.
Newsom is a lightweight Machiavelli
This government dictated action is complete garbage driven by totally incompetent California Democrat politicians that are completely ignorant of both climate science and global emissions reality. The only thing the state idiot Democrat politicians accomplished is to enormously increase California energy costs while destroying its energy reliability while pompously patting themselves on the back for their incompetence. Absolutely pathetic.
Not the only thing. There are no doubt billions of $ costs in compliance.
And I thought the constitution prohibited the government from installing and promoting a religion
The law puts pressure on companies to
address emissions within their direct operations, supply chains, and product lifecycles, explain to their stockholders “why are you staying in Cali?”Question, who gets blamed for follow up for gasoline & electric power? The guys making it or the guys using it?
Or corporations could decide that California is only 5% of world GDP and stop doing business here altogether.
Pass a federal law based on the interstate commerce clause that requires corporations to increase costs and fees for operating in any state that requires excess expenses due to really stupid regulations.
Just think when residents of conservative states finally get lower prices instead of funding stupid expenses caused by leftist lunatic states.
I think they will naturally increase their charges in California and not suffer any competitive disadvantage since all companies will do it.
Will the last person to leave California please remember to turn off the lights? Thank you.
The lights will be off long before the last person leaves
It’s funny. That’s what everyone in Washington State said when the Boeing SST was canceled back in the ’70s.
That funny Boeing is no longer a Washington state company. Of course the idiots moved to Illinois.
I know. They had a better deal moving the headquarters to Texas (or Colorado). But Stonecipher wanted to retire in Illinois. He went the same way as Condit–they couldn’t keep their hands off their secretaries. Stonecipher came in with the McDonnell-Douglas deal. You buy a failing company, and then let the failing company’s management take over your company. It was complete stupidity. Usually you fire the failing company’s management and insert your own. I think United went through the same thing when they bought Continental.
Continental bought United but kept the name as it was a more recognized brand than Continental. None of the airlines are doing well, so mergers occur to cut costs where they can. But fuel is still 50% of OpCosts.
Well, my United pilot friend disagrees with you. We compared notes with our two companies and lamented about how similar our situations were.
That probably won’t be necessary since the electrical grid will likely have crashed for the final time be the time these laws are implemented.
CD:
Noooooooooo….!
As it is, to many have already arrived here in Arizona.
The problem, of course, is they vote like they are still in California.
But yes, blow out your candles before you leave California. LOL
It would have to be windy and/or sunny for the lights to work in the first place.
I’m looking forward to the point when CA discovers that they need the rest of the world much more than the rest of the world needs CA.
CA is in rapid decline since China is in rapid decline and all the CA companies that built their fortunes of the back of Chines cheap labor are now screwed. Also since the state in reality no longer produces much other than software and product design all of which can flee with not much cost. The state that winning is of course Texas.
I wonder if Newsom knows that when he outlaws oil, he won’t have anything to grease his hair.
Purely synthetic and greasy.
He’s “Purely synthetic and greasy.”
olive oil?
I stand corrected. Oh, but aren’t they also attacking farmers for using water? No olive trees, no olive oil.
The issue, as I see it, is whether the Supreme Court will have the courage to invoke the Dormant Commerce Clause. Roberts is enough of a wimp to punt, and the Democrat appointees would probably find it just fine.
California is clearly trying to regulate interstate commerce again, but has gotten away with doing so rather too often.
Unfortunately some states, like my People’s Republic of Washington State, pass laws that emulate California’s.
I doubt if the Supreme Court or anyone else even remembers the Dormant Commerce Clause. I had never heard of it, and I’m almost 70 years old. The most obvious application of it would be to get rid of the practice of states barring out of state health insurance providers, which has been proposed numerous times in the past 30 years. But no one has been smart enough to make a federal case out it, easy though that would be.
It came up last year with California’s pig farm regulations extending to out of state pork producers. The Supreme Court did not find the proposition a violation of the Commerce clause, despite California regulating interstate commerce.
SB 253 introduces several critical requirements for public and private U.S. companies conducting business in California
To an old Californian, this is a reminder of other California SB bills which load their business victims up with expensive research, reporting and record-keeping burdens. To mention just one, SB 88, those burdens land on any farmer who irrigates a farm with water diverted by water right from local streams – it forces each farmer to act as a municipal utility department through installation, operation and maintenance of measuring devices, and the keeping of reporting records for ten years following each measurement.
That bill was a top-down diktat from the Governor, under a declaration of ’emergency’. The elected legislature, the farmers’ representatives, had no input into it. Does this SB 253 act any more democratically than SB 88, or is it just another such imperial decree?
A lot of businesses will have to hire “consultants” to work out the numbers and fill in the forms, and hire other companies to take instrument readings. And they will have to resubmit annually…and they’ll have to get it certified as correct by professional environmentalists. These people will all be “believers” and converts to the green cause.….. ‘Cuz its hard for someone to deny that for which they receive a paycheck.
It will create a huge false economy that is only false if you don’t believe in it, and non-compliance will result in prison or fines.
It took Britain until mid-1954 to end their wartime rationing because so many people had jobs making sure everyone else had enough.
DM:
Yes, full employment for both public & private bureaucrats – both shuffling useless papers
or databases around but costing millions. Guess who pays?
As always: The consumer and the taxpayer. [there is an Iron Law in there somewhere]
And about as productive as digging holes then filling them up again.
But the real purpose is further control of the market system – top-down, as all socialist/fascist governing systems operate.
The newly elected President of Argentina says it well:
Javier Milei interview: https://twitter.com/i/status/1726799232479150479
another lawyers’ jobs bill?
and, just noticed that the names of the authors of this article- they seem to be links- but the links don’t work- not important- just curious
Will government entities such as the city of Los Angeles and UCLA be required to make the same reports? And if so, what is the expected cost and where will the money come from? If not, why not?
Brown shirts on the march in California!
Other states need to pass consumer protection laws that identify companies doing $1 billion or more business in California as predators of their residents and enablers of Chinese and Indian coal powered exporters.
Seems like a good opportunity for new small companies in Nevada and Arizona to purchase products for resale into CA. Sort of like turning “new cars” into “used cars” to avoid the CA ban on “new ICE car sales”.
This idiotic law will implement huge reporting costs on the entire supply chain. Theoretically, this would provide the information which would show the greens how much GHG emissions their beloved wind and solar actually produce. However, this will rely on getting complete and honest supply chain emissions data from the country that is commissioning two coal fired power plants every day. This is the same country that Gavin believes is the world’s environmental champion.
A massive lawsuit or two making CA prove adverse climate change and related monetary impacts based on existing climatic and economic recordkeeping is in order. IRRC, all of the climate lawsuits against FF companies by U.S. localities and States have either failed or are in the process of failing.
So what will happen in years to come we they see that the Keeling curve continues its trajectory ? that is s going to be one big blame game
Let’s see how far this nonsense goes before the governed revolt against their government’s stupidity when the economic and social organization of society begins to implode. People will tolerate stupid politicians up to the point where they start to erode access to the necessities of safe, comfortable life. After that there will be nowhere to hide for the political saboteurs.