In October 2023, California Governor Gavin Newsom signed three climate disclosure bills into law. For organizations doing business in the state, this legislative update outlines the nature of these laws and the penalties associated with not following them. With compliance deadlines fast approaching, it also clarifies the required reporting obligations that your organization should be prepared to support.
SB-253, Climate Corporate Data Accountability Act
SB-261, Greenhouse Gases: Climate-Related Financial Risks
AB-1305, Voluntary Carbon Market Disclosures
Scoping Considerations for SB-253 and SB-261
California Air Resources Board
Penalties
Frequently Asked Questions
SB-253, Climate Corporate Data Accountability Act
Business entities with an annual revenue of over $1 billion in the previous fiscal year and doing business in California are required to annually disclose Scope One, Scope Two and Scope Three emissions in accordance with the Greenhouse Gas Protocol.
Scope One and Two greenhouse gas emissions are required to be reported in 2026 on the prior fiscal year (2025), while Scope Three emissions reporting starts in 2027 (on prior fiscal year 2026) on a publicly accessible digital platform. The deadline for reporting will be determined by the California Air Resources Board and phased-in assurance requirements will begin in 2026, with limited assurance, on 2025 data and reasonable assurance from 2030. A copy of the assurance report and the name of the assurance provider will also need to be provided.
SB-261, Greenhouse Gases: Climate-Related Financial Risks
Business entities with annual revenue over $500 million in the previous fiscal year and doing business in California are required to disclose biennially the following on their website:
a. Climate related information in accordance with the Taskforce on Climate Financial Disclosures.
b. Measures they have adopted to reduce and adapt to the climate-related risks disclosed under TCFD.
The bill says that if entities are unable to fully comply with the TCFD requirements, they may complete the disclosures to the best of their ability and provide a detailed explanation of any reporting gaps with the steps they will take to prepare complete disclosures. However, there is no similar relief for the requirements to disclose the measures to reduce and adapt to climate-related financial risks. Compliance is required on or before January 1, 2026, and there are no assurance requirements.
AB-1305, Voluntary Carbon Market Disclosures
This bill requires entities operating in California that make emissions claims in California to disclose information about how the claim was determined, and how interim progress toward the goal is being measured. It also requires certain disclosures related to any voluntary carbon offsets purchased or used in California.
Reporting began on January 1, 2024, with information required to be updated at least annually. There are no assurance requirements; however, disclosure is required if any independent third-party verification is obtained.
Scoping Considerations for SB-253 and SB-261
Entities in Scope
This includes partnerships, corporations, limited liability companies and other business entities (public and private) formed under the laws of any state in the U.S. (or District of Columbia) or under any Act of Congress.
Revenue Threshold:
This applies to the entity’s total revenue from the prior fiscal year. It’s not only revenue generated in California, but also includes other revenue generated in the U.S. and outside of it.
Doing Business:
The climate-related laws do not define the term doing business in California. However, the California Franchise Tax Board defines doing business in California as meeting any of the following:
a. Engages in any transactions for the purpose of financial gain within California
b. Are organized or commercially domiciled in California
c. California sales, property or payroll exceed the following amounts (adjusted annually):
- 2023: Sales $711,538
- 2023: Total property $71,154
- 2023: Total payroll $71,154
Reporting Entity:
Under SB-261 a subsidiary that is included in a consolidated report of a parent entity does not have to provide a separate climate-related financial risk report. A similar exemption was provided for SB-253 under the amendments in bill, SB-219, Final Amendments which became law on September 27, 2024.
California Air Resources Board
Bill SB-219 amends SB-253, extending the timeline for the California Air Resources Board to develop and adopt the regulations that require companies to report on their Scope One, Two and Three emissions by six months to July 1, 2025, while leaving the 2026 reporting date in place.
Penalties
Penalties may be imposed for late filings, non-filings and other failures to meet the requirements of SB-253 and SB-261. Penalties may not exceed $500,000 for SB-253 and $50,000 for SB-261 in any given year. For AB-1305 penalties of $2,500 may be assessed for each day that information is inaccurate or not available, up to $500,000 in total.
Contact Us Today
For more information on California’s new climate disclosure bills or to learn more about MorganFranklin Consulting’s Environmental, Social and Governance team, contact us today.
Frequently Asked Questions
Q: What are the key requirements of SB-253, the Climate Corporate Data Accountability Act?
A: Businesses with annual revenue over $1 billion and doing business in California must disclose Scope One, Scope Two and Scope Three greenhouse gas emissions annually, following the Greenhouse Gas Protocol. Reporting for Scope One and Two emissions begins in 2026 (based on 2025 data), while Scope Three emissions reporting starts in 2027 (based on 2026 data). The CARB oversees the regulations, and phased-in assurance requirements will begin in 2026.
Q: What are the compliance deadlines for SB-261, Greenhouse Gases: Climate-Related Financial Risks?
A: Entities with annual revenue over $500 million in California must disclose climate-related information in accordance with the TCFD by January 1, 2026. The disclosure includes measures adopted to reduce and adapt to climate risks. There are no assurance requirements for SB-261, but businesses must provide detailed explanations of any reporting gaps.
Q: What penalties apply for non-compliance with California’s new climate disclosure laws?
A: Penalties for SB-253 non-compliance can reach up to $500,000 annually, while SB-261 carries penalties of up to $50,000 per year. Under AB-1305, penalties of $2,500 per day may be assessed for inaccurate or missing information, with a maximum of $500,000 per year. These fines apply to late filings, non-filings and other failures to meet the reporting requirements.
