California Governor, Gavin Newsom, recently signed California Senate Bill 253, known as the Climate Corporate Data Accountability Act, and California Senate Bill 261, referred to as the Climate-Related Financial Risk Act, into law. Both bills were part of the Climate Accountability Package, a collection of bills aiming to enhance corporate climate action by improving transparency, standardizing disclosures, and aligning public investments with climate goals.
Background:
The Climate Accountability Package is a part of the broader global movement in which policymakers are increasingly regulating how the private sector addresses climate risks intrinsic to its businesses. This shift is driven, in part, by investors’ pressure and demands for climate-related information concerning their investments. Several major institutional investors have begun incorporating climate risk considerations into their portfolio selection process. They are demanding more disclosure from companies and from regulators in order to stop or prevent unavailable, incomplete, and misleading information regarding climate-related risks.
Europe and the UK have introduced some of the most recent and innovative mandatory disclosure requirements. In the United States, the Securities and Exchange Commission (SEC) proposed rules that enhance and standardize climate-related disclosures for investors, but these measures have not yet been approved.
Senate Bills 253 and 261 emerged in this context and represent significant steps forward in regulating carbon footprint and climate risk disclosures.
Climate Corporate Data Accountability Act (Senate Bill 253):
Senate Bill 253 requires all large corporations conducting business in California to publicly disclose their carbon footprint according to the Greenhouse Gas Protocol (“GHG Protocol”). GHG Protocol is a global initiative that establishes standardized frameworks to measure and manage greenhouse gas emissions from private and public business. The GHG Protocol classifies greenhouse gas emissions into three scopes: direct emissions (Scope 1), indirect emissions from consumed electricity (Scope 2), and indirect upstream and downstream emissions such as purchased goods and services, business travel, employee commutes, and processing and use of sold products (Scope 3). Companies will have until 2026 to start annually disclosing their Scope 1 and 2 emissions and until 2027 to disclose their Scope 3 emissions.
Notably, Senate Bill 253 is significant for two key reasons, especially when compared to the SEC’s climate proposal. First, Senate Bill 253 applies to both public and private U.S. companies doing business in California with total annual revenues that exceed $1 billion, whereas the SEC’s regulatory authority is limited to public companies. Second, Senate Bill 253 mandates the disclosure of Scope 3 emissions, whereas under the SEC’s proposal, businesses would only report on Scope 3 emissions if they have set Scope 3 reduction targets or if the emissions are material. Having to disclose Scope 3 emissions is significant because they often constitute more than 90% of a corporation’s total emissions. This requirement presents a considerable challenge for companies to assess and report this information.
Climate-Related Financial Risk Act (Senate Bill 261):
Senate Bill 261, on the other hand, requires large corporations to prepare and report (i) their climate-related financial risks based on the recommendations of the internationally recognized Task Force on Climate-Related Financial Disclosures, which provides guidance on governance, metrics and targets, strategy, and risk management. The Bill also mandates large corporations to publish the measures they adopted to mitigate these risks. Senate Bill 261 applies to both public and private U.S. companies doing business in California with a yearly revenue of $500 million. The reporting must be done on a biannual basis starting in 2026.
Why These Laws Matter:
California has the largest economy in the United States in terms of GDPs, and these new rules are expected to impact nearly 10,000 companies. Some global corporations such as Apple, Google, Microsoft, Salesforce, and IKEA publicly supported these laws during the legislative approval process. On the other hand, companies with fossil fuel interests, notably Chevron, Marathon Petroleum, and Western States Petroleum, expressed significant opposition.
Both bills aim to not only promote accountability but also address the lack of standardized disclosure requirements and transparency around climate risks and impact. The private sector is one of the major emitters of greenhouse gases, and promoting accountability is key to reducing its carbon footprint. By making companies undertake self-examination and gather information about how they affect the environment, companies can create more resilient, efficient, and sustainable businesses. In addition, investors, regulators, and stakeholders will be able to properly identify and assess which companies are making progress toward their climate commitments.
These new regulations mark a significant milestone toward a cleaner global economy. Many stakeholders view them favorably, and they are expected to exert a substantial influence on the future of carbon accounting and reporting worldwide.