California Gov. Gavin Newsom signed two new climate bills into law that will require companies to report carbon emissions and climate-related financial risks, one of the first states in the nation to pass such laws.
The Climate Corporate Data Accountability Act (SB-253) and the Greenhouse Gases: Climate-Related Financial Risk bill (SB 261) aim to provide investors with transparency into companies' climate risks and carbon emissions data, something that's currently not required of businesses. The U.S. Securities and Exchange Commission is working on a federal rule that would make similar requirements of public companies but has not yet been finalized.
"They will allow investors, employees, suppliers, directors and other stakeholders to understand what are the climate risks and climate opportunities in those companies," said Steven Rothstein, managing director of nonprofit sustainability organization Ceres' Accelerator for Sustainable Capital Markets, of the California climate laws.
Steven Rothstein Managing director, Ceres
The following are three things businesses should know about California's new climate laws:
1. SB 253 makes carbon emissions reporting mandatory starting in 2026.
Businesses earning $1 billion or more annually that do business in California will be required to report Scope 1 and 2 emissions yearly, starting in 2026. Scope 1 emissions occur from sources directly controlled or owned by a business, while Scope 2 emissions occur indirectly, through purchasing electricity, for example. Starting in 2027, companies will have to start reporting Scope 3 emissions, which occur indirectly through other businesses in the supply chain or employee travel.
2. SB 261 makes climate-related financial risk reporting mandatory starting in 2026.
Any business earning $500 million or more annually that engages in transactions for financial gains in California will need to file reports on climate-related financial risk starting in 2026. Climate risk reports will be required biennially after that. Climate risks include threats to business operations, such as wildfires, flooding and other virulent weather activities due to climate change. The law requires companies to report climate-related financial risks affecting corporate operations, supply chains, employee health and safety, capital and financial investments. and economic health.
3. Both laws apply to private and public companies.
While the proposed SEC rule would apply to only public companies that make SEC filings, California's climate rules apply to private and public companies meeting the revenue threshold. The laws will affect roughly 15,300 companies, according to Ceres.
Enterprise businesses will face challenges with climate rules
Collecting both carbon emissions data and climate risk information will challenge enterprise businesses, said Gartner analyst Melanie O'Brien.
Managing the data governance and corporate oversight needed to demonstrate that the companies' reporting shows progress against climate targets "will cause anxiety from leaders of these companies."
"Reporting both emissions data and climate-related financial risk information requires cross-functional collaboration, and many organizations are only just beginning to develop the calculation methods and internal capacity, from operations to leadership, to collect and analyze this data," she said.
While many companies might start seeking the experience of software firms to assist with decarbonization strategies, data collection and planning for future risk, O'Brien said businesses first need a firm grasp on their financial impact, as well as positive and negative impacts on people, the environment and society before engaging with vendors.
"This will help to determine the level of data granularity required and the system capabilities necessary to ensure data collection at that level for effective disclosure," she said.
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.