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California SB-253, the Climate Corporate Data Accountability Act, passed in both state houses and now sits on the desk of Governor Newsom for final action or inaction (in California, laws become final automatically if executive action is not taken within 12 days). It is a good bet the bill will become law either way. A multitude of companies (maybe more than you think) will have to report on GHG emissions regardless of what happens with the SEC’s climate proposal. Here is our short list of the “need to know now” provisions:

Who is subject to reporting? Any US company that does business in California and has total annual revenues greater than one billion dollars. The law’s applicability is not limited to California-based or publicly traded companies, the revenue threshold is company-wide and reporting is on the entity level, not just California operations.

Implementing regulations are to be adopted on or before January 1, 2025. Annual reporting is to begin in 2026 (or by a date to be determined by regulations) based on the company’s prior fiscal year data for Scope 1 and 2 emissions. Starting in 2027 and annually thereafter, scope 3 emissions must also be reported no later than 180 days after a company files its scope 1 and scope 2 emissions disclosure.

Emissions must be measured and reported in conformance with the Greenhouse Gas Protocol standards and guidance. For scope 3 emissions, the GHG protocol details acceptable use of both primary and secondary data sources, including the use of industry average data, proxy data, and other generic data in the calculations. The report must “maximize access” for consumers, investors, and other stakeholders to comprehensive and detailed greenhouse gas emissions data across scopes 1, 2, and 3 emissions, and is made in a manner that is easily understandable and accessible.

Third party assurance is required for the greenhouse gas emissions inventory as follows:

– Limited assurance for scope 1 and 2 emissions beginning in 2026, with reasonable assurance beginning in 2030.

– On or before January 1, 2027, requirements for assurance of scope 3 emissions may be established. 

– The name of the third-party assurance provider must be included in the report. That provider must have significant experience in measuring, analyzing, reporting, or attesting to the emission of greenhouse gasses and sufficient competence and capabilities necessary to perform engagements in accordance with professional standards and applicable legal and regulatory requirements. Expect interesting dynamics between financial auditors accustomed to conducting assurance engagements (but not emissions inventories) and technical consultants accustomed to developing technical emissions estimates (but not implementing assurance engagement standards).

Yes, there will be penalties. The law requires that regulations be adopted for administrative penalties for nonfiling, late filing, or other failure to meet the law’s requirements. Penalties are not to exceed $500,000 in a reporting year. There are two twists to the penalty clause:

– Penalties won’t be assessed for scope 3 emissions misstatements where such disclosure was made with a reasonable basis and disclosed in good faith, and

– Scope 3 reporting penalties between 2027 and 2030 will only apply to nonfiling.

This is pretty well aligned with SEC’s draft climate disclosure rule, except that SEC’s rule only applies to publicly-traded companies. Indeed, the California bill specifically allows reports prepared to meet other national and international reporting requirements, including any reports required by the federal government, as long as those reports satisfy all of California’s requirements.

This kind of disclosure requires a lot of data location, gathering, evaluation and preparation so if you haven’t already started, you should get going now. Our detailed and highly-annotated Sample Disclosure for SEC Climate Disclosure Proposal offers lots of guidance and insights into practicalities of emissions calculations and reporting that are applicable to the California mandate. If you’re not already a member with access to this, sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.

Don’t forget – in next week’s 2023 Annual Practical ESG Conference, Persefoni’s Kristina Wyatt will talk about this soon-to-be law, along other important climate reporting matters. If you haven’t already registered, you better hurry – the conference starts Tuesday morning.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile