2023 is shaping up to be a banner year for climate and sustainability-related disclosures. There have been significant efforts towards standardization, interoperability, and integration in regulatory and financial reporting with the release of the Corporate Sustainability Reporting Directive (CSRD) in Europe, the UK’s push for credible transition plans, final global sustainability disclosure standards by the International Sustainability Standards Board (ISSB), and the release of the Taskforce on Nature-related Financial Disclosures (TNFD) framework.
Similarly, in September, the California State Senate signed two significant bills: the Climate Corporate Data Accountability Act (SB 253) around greenhouse gas emissions and the Climate-Related Financial Risk Act (SB 261). The emissions reporting requirement will apply to about 5,300 companies, while the climate-related financial risk disclosures will apply to more than 10,000 companies, covering U.S.-based private and public entities over a certain revenue threshold. At NY Climate Week, Governor Gavin Newsom signaled his intent to sign both bills into law by October 14, 2023.
SB 253: the Climate Corporate Data Accountability Act (CCDAA)
Starting in January 2026, SB 253 will mandate public disclosure of greenhouse gas (GHG) emissions for the preceding fiscal year in line with the GHG Protocol, the world's most widely used greenhouse gas accounting standards. Mandated GHG disclosure will apply to public and private U.S.-based corporations operating within California with annual global revenues surpassing $1 billion.
Covered entities will be required to report Scope 1 and 2 emissions with “limited assurance” for FY 2025 (filed in 2026) and improve to “reasonable assurance” by FY 2029 (filed in 2030) and annually thereafter. Scope 3 emissions, are to be reported without an assurance requirement by FY 2026 (filed in 2027), followed by limited assurance by FY 2029 (filed in 2030) and annually thereafter.
- "Scope 1 emissions" encompass all direct GHG emissions originating from sources owned or directly controlled by a company, irrespective of location. This includes activities such as fuel combustion or owned fleet emissions.
- "Scope 2 emissions" refer to indirect GHG emissions linked to consumed electricity, steam, heating, or cooling that a company purchases or acquires, regardless of where these sources are located.
- "Scope 3 emissions," often referred to as "full value chain emissions," involve indirect GHG emissions both upstream and downstream from sources not owned or directly controlled by the company.
SB 261: the Climate-Related Financial Risk Act (CRFRA)
Under SB 261, public and private U.S.-based corporations operating within California with annual revenues surpassing $500 million must prepare climate-related financial risk reports disclosing their climate-related financial risks, and measures to adapt and mitigate those risks, in line with the TCFD recommendations as incorporated in the ISSB standards. If the covered entity does not complete a report consistent with all required disclosures, disclosure of the reporting gaps and steps the entity will take to prepare complete disclosures are needed.
Covered entities are required to report their climate-related financial risks by FY 2025 (filed in 2026), with biennial reporting after that, with no external assurance necessary.
The act defines “climate-related financial risk” as:
“[the] material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.”
The time to act is now. Arcadis can help.
2026 implementation of SB 253 and SB 261 will be here before you know it and the effort to prepare will be significant for many companies in scope. Arcadis can help you understand and quantify GHG emissions in line with the GHG protocol, assess climate risks and integrate them into your risk management program, build your business resilience, and align your disclosures with TCFD recommendations and the ISSB standards.
Special thanks to Ridhima Chaudhuri for her contribution to this blog.
Boone Proffitt
Kaylee Shalett