California is making strides in climate disclosure regulation with the reintroduction of the Climate Corporate Data Accountability Act (SB 253) and the Greenhouse gases: climate-related financial risk bill (SB 261) as part of California’s Climate Accountability Package. SB 253 would require all US business entities with over $1 billion in annual revenue that do business in California to disclose their GHG emissions data (Scopes 1, 2, and 3) to a nonprofit emissions reporting organization. SB 261, with a lower reporting threshold of $500 million, would require companies to prepare reports on climate-related financial risk and describe measures taken to reduce and adapt to that risk. If signed into law, these bills would apply to over 5,300 and over 10,000 companies, respectively.
Despite failing last year, these bills have gained corporate support and have passed in the California Senate. Negotiations have resulted in significant changes to the bills, including pushing the required disclosure of Scopes 1 and 2 emissions to 2026 and Scope 3 emissions to 2027. The bills also allow the use of guidance under the GHG Protocol for calculating scope 3 emissions. The California Air Resources Board would contract with an academic institution to prepare a report on the disclosures made by reporting entities, and disclosures would need to be independently verified by a third-party auditor.
These bills go beyond the proposed SEC climate disclosure rules by applying to private entities as well as public companies and not having a materiality threshold for Scope 3 emissions. The California requirements for assurance are also more extensive.
However, the SEC’s proposal is more extensive in requiring climate-related financial statement metrics and related disclosures in audited financial statements. The bills are expected to come up for approval in the Assembly before the end of the legislative session on September 14.
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