As Climate Week winds down in New York, the most populous state in the U.S. and the fifth largest economy in the world, is poised to push both the country and the world towards a greener future thanks to SB 253.
The state law will require more than 5,000 companies to publicly disclose their greenhouse gas emissions.
California Governor Gavin Newsom announced that he plans to sign the landmark Climate Corporate Data Accountability Act (CCAA) at the opening of Climate Week this week. SB 253, passed alongside SB 261, a bill known as the Climate-Related Financial Risk Act, requires businesses with total annual revenues above $500 million who do business in the state to prepare climate-related financial risk reports.
Initially, there was some concern that Newsom might not sign the climate bill, but late last week, tech giants like Apple and Salesforce both endorsed it. Several other large employers in the state, including REI Co-Op, Microsoft, IKEA, Patagonia, Adobe, Atlassian, and others, had all previously sent letters supporting the legislation. Here are the highlights of the bill and what it could mean for both the future of the climate and climate tech.
The Climate Corporate Data Accountability Act, or CCAA, is one of two parts of the Climate Accountability Package.
Together, the two bills address Scope 1, Scope 2, and Scope 3 emissions created by public and private businesses. Greenhouse gases are divided into these different scopes, outlined in the Greenhouse Gas Protocol (GHG Protocol).
Scope 1 emissions are those that are directly emitted by things that a company owns and/or controls.
Scope 2 emissions are “indirect” emissions: Those created by the production of the energy that an organization buys: So those emissions that result “from purchased or acquired electricity, steam, heat and cooling,” according to the GHG Protocol.
Scope 3 emissions are those that generally fall into the emissions created by the supply chain that a company relies on.The EPA notes that "Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain." Essentially, this translates to what are known as "upstream" and "downstream" activities. If you read our newsletter about Lifecycle Assessments (What are LCAs) from a few weeks ago, you know that these are tools that can be used to get a good idea of Scope 1, 2, and 3 emissions.
SB 253, or the Climate Corporate Data Accountability Act, is the second part of the package. Proposed by Senator Scott Weiner (D-San Francisco), the bill requires public and private businesses that make more than $1 billion annually and operate in California to report emissions that is both directly and indirectly emitted by their operations. Indirect emissions include everything from employee travel to waste disposal and supply chains, which all fall into Scope 3 emissions. Scope 3 emissions could also include everything from employee commutes and wastewater disposal as well, regardless of location.
It's not the first time the State Senator from San Francisco tried to get this kind of bill through. A similar bill was killed last year (SB 260) when the California Chamber of Commerce and other business groups argued that Scope 3 emissions reporting was unreliable and that California should not regulate out-of-state emissions.
Businesses that fail to comply with SB 253 will be subject to administrative penalties that can go up to $500,000 per year per company, according to this law firm specializing in environmental and energy law. A phasing-in period stretching through 2030 means that companies are only subject to Scope 3 reporting penalties if they don’t file a report at all.
SB 261, proposed by Senator Harry Stern, was passed alongside SB 253, requiring companies with revenue above $500 million to submit climate-financial risk reports every two years using the parameters outlined by the Task Force on Climate-Related Financial Disclosures (TCFD).
SB 261 also says that if emissions data is included in the report, a third party must verify that data, and the reports must be publicly posted on company websites. Companies that don't comply will be fined as much as $50,000 per year, according to a law firm specializing in energy and environmental law.
It wasn't completely smooth sailing for the bill as quite a number of businesses opposed it, including a lot of agriculture and hospital groups in California, as well as the California Air Resources Board (CARB) (as reported by Politico) and the California Chamber of Commerce. Newsom did tell the New York Times that he does want to see "some language" cleaned up in the bills before signing but indicated that he will approve them. Both bills, once signed, take effect starting in 2026.
Given the size of California’s economy and its tremendous appeal as a major market for any number of highly valuable industries, proponents of the bill say that it could significantly “expediate global climate disclosure reporting beyond what is being proposed by the the SEC and CSRD.”
Currently, the SEC has proposed rules for disclosing Scope 1 and Scope 2 emissions. It also includes Scope 3 provisions, but, as Politico points out in this July story, the longer that the SEC sits on the rules, the more likely it is that Scope 3 emissions will be cut out. The SEC rules under discussion only apply to publicly traded companies, while the CCAA applies to public and private companies.
CSRD, or Corporate Sustainability Reporting Directive, is a set of EU rules that require companies to publish “reports on the social and environmental risks they face, and on how their activities impact people and the environment.” The Wall Street Journal reported that these rules alone could affect more than 10,000 companies outside the EU. It's believed that the CCAA could impact more than 5,000 companies, according to the New York Times.
All of this takes place against the backdrop of the first climate report card coming out of the United Nations last week that gave the globe a failing grade in its efforts to staunch the deadly effects of global warming. While many of the most dire outcomes of climate change that were feared in the early 2010s have not come to pass, the report indicates that “much more needs to be done.”
Getting international companies to publicly disclose emissions for an entire supply chain (and their employees) is a massive undertaking that will cost millions for public and private businesses, but the long-term effects of increased corporate accountability is vital. As the saying goes, where California goes, so goes the nation, and in this case, potentially the world.
The bottom line is the impact of this sweeping legislation will remain to be seen since there may be some "clean up" that follows it. We'll continue to keep an eye on the SEC regulations, CSRD, and what happens in California to keep you updated.
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