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The California Accountability Package, enacted in 2023, includes two primary pieces of legislation: Senate Bill 253 (SB 253), known as the Climate Corporate Data Accountability Act, and Senate Bill 261 (SB 261), referred to as the Climate-Related Financial Risk Act. Together, these laws mandate extensive new climate-related disclosure obligations for a wide range of public and private U.S. companies operating in California, focusing on greenhouse gas emissions and climate-related financial risks.
As a non-US company, the California Accountability Package can affect you in two ways:
- You may have a reporting obligation under the California Accountability Package.
- You may be a supplier to a company that is subject to this requirement, and they may request information about your ESG performance to meet their own reporting requirements, particularly with respect to Scope 3 greenhouse gas (GHG) emissions.
1. Is your company in scope? What is your reporting deadline?
If you do business in California and meet certain revenue thresholds (over $1 billion annually for SB 253 and over $500 million for SB 261, excluding insurance companies), your company is within the scope of these regulations. It encompasses entities engaging in transactions within California for financial gain, those organized or commercially domiciled in the state, or having sales, property, or payroll in California exceeding certain amounts. This means that if your company has significant operations or revenue generation in California, you would need to comply with these disclosure requirements.
The reporting companies are required to start disclosing:
- All direct greenhouse gas emissions (Scope 1) beginning in 2026,
- All indirect greenhouse gas emissions (Scope 2) beginning in 2026,
- All greenhouse gas emissions from the supply chain (Scope 3) starting in 2027 based on 2026 data.
Additionally, companies with over $500 million in revenue must biennially report on climate-related financial risks and mitigation strategies.
2. What are your disclosure requirements?
2.1. Greenhouse gas emissions:
- Direct Emissions (Scope 1): Emissions resulting from operations you control or your own, such as fuel combustion, company vehicles, and any on-site manufacturing processes.
- Indirect Emissions (Scope 2): Emissions from the generation of purchased or acquired electricity, steam, heating, and cooling that you consume.
- Supply Chain Emissions (Scope 3): Emissions from activities you do not own or directly control but are part of your value chain, including upstream and downstream emissions. This covers a wide array of indirect activities, from the extraction and production of purchased materials to the use of sold products and services.
The disclosures must adhere to the standards set by the Greenhouse Gas Protocol, ensuring that the reporting follows internationally recognized guidelines for emissions accounting and reporting.
2.2. Climate-related financial risk reporting:
You need to evaluate and disclose climate-related financial risks based on standards set by the Task Force on Climate-Related Financial Disclosures.
- Both physical risks to company’s operations from climate change (like extreme weather events) and transition risks associated with the move to a lower-carbon economy (such as policy changes, legal risks, market trends, and reputational factors).
- The disclosure must outline the risks identified and the strategies or measures the company has adopted or plans to adopt to mitigate these risks.
Entities subject to the Climate-Related Financial Risk Act (companies with over $500 million in revenue) must submit a report every two years detailing the climate-related financial risks they face and their mitigation strategies
3. What are your formatting and assurance requirements?
You are required to adhere to the Greenhouse Gas Protocol for your emissions reporting. The disclosures must be independently verified by a third-party auditor.
