The California Climate Corporate Data Accountability Act (“SB 253”) was recently introduced and passed the state’s Senate Environmental Quality Committee on March 15, 2023. SB 253 aims to broaden Environmental, Social, and Governance (“ESG”) state disclosure requirements, targeting high earning companies. A similar emissions disclosure bill, the Climate Corporate Accountability Act, failed to pass the Assembly last year by just one vote. Proponents of SB 253 feel that the legislation has a higher likelihood of passing this year.
SB 253 would mandate all companies earning at least $1 billion in annual revenue and doing business in California to disclose:
- Direct emissions (Scope 1);
- Indirect emissions, like those from the generation of electricity consumed by the company (Scope 2); and
- All other indirect emissions not accounted for in Scope 2 (Scope 3).
Scope 3 emissions are more controversial in that they include “full value chain emissions,” which stem from entities not owned or controlled by the reporting company, making them more difficult to calculate. The current U.S. Securities and Exchange Commission (“SEC”) proposed rules (released in March of 2022 and not yet finalized) only mandate the disclosure of Scope 3 emissions where material or where the company has set a greenhouse gas emissions reduction target that includes Scope 3 emissions. However, SB 253 would mandate Scope 3 emissions disclosures for all companies meeting the revenue threshold in California, regardless of their materiality or the company’s goals.
California operates one of the world’s largest economies with nearly every U.S. corporation conducting business within its borders. Even if the SEC does not fully mandate Scope 3 emissions disclosures, most companies will still be obligated to report to the state of California. If passed, SB 253 reporting obligations would begin in 2026. Scope 3 emissions disclosures must be made no later than 180 days from the date Scope 1 and Scope 2 emissions information is provided. Disclosures would be made annually to the California Air Resources Board, which would manage the information in a public database.
We are monitoring SB 253 as it proceeds through the state legislature, along with other ESG initiatives across the globe and U.S. Future updates will be provided as we analyze SB 253’s significance for California businesses and other stakeholders.