With the introduction of SB 253 and SB 261, California is setting a new standard for corporate climate accountability. Companies must prepare to report their greenhouse gas emissions and climate-related risks, impacting operations, finances, and reputations.
While many are focused on federal ESG regulations, like the SEC’s Climate Disclosure and new international reporting requirements like the CSRD, few may know that individual states have begun enacting their own mandates.
While these individual mandates are technically on a state level, they have nationwide implications that organizations need to know. One of the more prominent state mandates comes from California's new legislation, Senate Bill 253 and Senate Bill 261.
California enacted these two landmark bills in 2023 to foster greater accountability and transparency among businesses regarding their environmental impact. Recently, the bills went through review, and their effective date for reporting is likely to be pushed. However, they still provide a roadmap of what state-level legislation could look like.
Together, these bills represent the most comprehensive climate disclosure requirements on a state level currently in the U.S., promoting corporate sustainability and transparency. Not only would they set a new standard for the nation, but they may also foreshadow states taking it upon themselves rather than waiting for federal regulations to emerge.
"Companies that have traditionally adopted the 'Wait and See' approach will soon find themselves significantly lagging behind their competitors."
"Companies that have traditionally adopted the 'Wait and See' approach will soon find themselves significantly lagging behind their competitors," said Mike York, Senior Manager in ESG Advisory at Clearview Group. "Even with the potential delay in when reporting will first be mandatory, it's no longer a matter of if your business will be asked for this type of information, but rather when."
These regulations apply to any company, public or private, doing business in California with over $1 billion in annual revenue for SB 253 and $500 million in annual revenue for SB 261.
Doing business in California encompasses several scenarios, including engaging in transactions for financial gain, being organized or domiciled in California, and/or meeting revenue, property, or payroll thresholds. Limited exemptions exist, so companies must assess their status and potential compliance obligations carefully.
“Companies hear California and automatically think it doesn’t apply to them.”
“Companies hear California and automatically think it doesn’t apply to them,” said York. “It isn’t that simple and is going to catch a lot of companies by surprise.”
SB 253 and SB 261 will require several adjustments for companies doing business in California. Here are just some of the areas that could be affected:
Companies must establish robust systems for monitoring and reporting GHGs, including tracking emissions from their direct operations (Scope 1 & 2) and those from their entire value chain (Scope 3).
Businesses can identify areas for improvement and set emission reduction targets by collecting and analyzing this data.
To effectively track and manage their GHG emissions, companies must invest in advanced data collection systems and adjust their reporting procedures. This includes implementing technology, such as automated monitoring tools and software like the Workiva platform, to ensure accurate and real-time data collection.
Additionally, companies should prioritize regular audits and reviews of their emission reporting processes to identify any areas for improvement and ensure transparency in their environmental impact assessments.
While compliance with GHG emissions reporting may come with costs, proactive companies prioritizing sustainability initiatives can reap long-term financial benefits. By demonstrating a commitment to reducing their environmental impact, businesses can enhance their existing investor relations and attract new socially responsible investors who value sustainability efforts.
Also, by implementing more efficient environmental best practices to reduce emissions, companies can improve operational efficiency to cut costs in the long run. Ultimately, investing in sustainability can contribute to a more robust bottom line for companies.
Maintaining transparency in climate disclosures can enhance a company's image and build trust with environmentally conscious stakeholders and customers. By openly sharing their GHG emissions data and sustainability efforts, companies can showcase their commitment to environmental responsibility and accountability.
This level of transparency can set them apart as leaders in their industry and attract like-minded partners and customers who prioritize sustainability. On the other hand, failing to comply with emission reporting regulations and hiding environmental impact can result in reputational damage and public scrutiny.
In today's increasingly environmentally conscious world, companies prioritizing transparency and sustainability are more likely to gain public trust and positive brand recognition.
While compliance may require initial effort, companies can reap long-term benefits like:
Transparency around climate impact builds trust and attracts environmentally conscious investors looking to align their investments with companies prioritizing sustainability. By openly sharing detailed information about their GHG emissions and sustainability initiatives, businesses can showcase their dedication to environmental responsibility and accountability.
This level of transparency demonstrates a commitment to combating climate change and signals to investors that the company is proactive in addressing environmental challenges. As a result, environmentally conscious investors are more likely to support and invest in companies that are transparent about their climate impact, leading to stronger financial backing for sustainable initiatives and long-term success.
Data collection can illuminate areas for improvement, leading to a more sustainable business model. By analyzing the detailed emissions data collected, companies can pinpoint specific sources of GHG emissions and identify opportunities for reducing their carbon footprint.
This insight allows businesses to implement targeted strategies and initiatives that help them meet their emission reduction targets and drive overall sustainability across their operations. From optimizing energy usage to sourcing materials from environmentally friendly suppliers, the data-driven approach to identifying areas for improvement paves the way for a more efficient and ESG-focused business model.
Showcasing a solid dedication to sustainability differentiates companies in a market that places a growing emphasis on ESG factors and gives them a distinct competitive advantage. By openly sharing their comprehensive GHG emissions data and outlining their robust sustainability initiatives, companies can position themselves as leaders in corporate responsibility and attract a discerning consumer base that values ethical practices.
Ultimately, companies prioritizing sustainability secure a competitive edge in a market where sustainability is increasingly becoming a key driver of success.
Proactive climate disclosures showcase a company's commitment to addressing climate change by aligning with global sustainability efforts and setting a precedent for transparency and accountability in the business world. By openly sharing detailed information about their GHG emissions and sustainability initiatives, companies demonstrate their dedication to environmental responsibility and inspire others to follow suit.
To make sure your company complies with SB 253 and SB 261, consider the following best practices:
California's SB 253 and SB 261 represent a significant step towards corporate climate accountability. While compliance requires adjustments, companies that embrace these regulations will be well-positioned for success in the future, increasingly focused on sustainability.
Whether these regulations will directly impact your company or not, understanding climate disclosure trends is essential for operating in today's business environment. Take proactive steps to assess your company's environmental footprint and develop a long-term sustainability strategy.
Our ESG and emissions reporting expertise can help align your organization with regulatory expectations.
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