Five Ways to Prepare for California Climate Laws SB-253 and SB-261

It’s interesting, but not surprising, to see California jumping ahead of the federal government (with the SEC proposed climate disclosure rules still hung up) as California tends to try and manage climate through regulation.

The challenge now will be for companies working to comply with these climate-related regulations. As each new rule becomes law or is proposed, differences arise related to the boundary of reporting the scope of what must be disclosed.

What are SB-253 and SB-261

The California State Assembly is working to regulate corporate climate disclosure—they tried last year but failed. Their second go was successful in getting signed into law with SB-253, which requires disclosure of Scope 1, 2, and 3 emissions for companies that do business in California with at least $1B in revenue, and SB-261, which requires disclosure of climate-related risks for companies that do business in California with at least $500M in revenue. It’s estimated that SB-253 will impact over 5,300 companies, and SB-261 will impact over 10,000 companies.

The California State Assembly and Senate passed SB-253 and SB-261, and California Governor Gavin Newsom signed them into law on October 7th.

What’s next

The California Air Resources Board (CARB) must approve the rules by 2025. Companies will be required to report their disclosures starting in 2026.

Anyone with a stake in ESG reporting or data collection should monitor developments with SB-253 and SB-261 in California. It will be interesting to see how the SEC reacts or holds their position to see what happens with these new laws.

How should companies think about preparedness?

• To stay organized, identify gaps, and track current and future requirements, companies have started to leverage technology (even basic spreadsheets) to compare regulatory requirements and the data that must be disclosed
• Once gaps are identified in the reporting or data collection process, companies must work toward closing them as they look toward compliance with future deadlines
• At the same time, companies must reevaluate their ESG reporting processes to capture, review, and approve ESG data. It often comes from multiple sources, but it must be in a condition where it can be relied upon to align to multiple sets of requirements, standards, and frameworks while being efficiently reported to various stakeholders (e.g., regulators, employees, customers, raters/rankers)
• Engage with internal stakeholders that have lived with regulated reporting for years—think accounting, finance, risk management, and internal audit, among others. Leverage their expertise and learnings toward ESG compliance
• Engage external auditors in the process. As external assurance becomes regulated, external auditors have invaluable expertise to lend

Companies will continue to face challenges as climate and ESG-related regulations proliferate around separate but not always equal reporting requirements.

Learn more about how to transform your ESG reporting strategy.