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California Climate Reporting: A Guide for ESG and Sustainability Professionals

California Climate Reporting

California has emerged as a global leader in the fight against climate change. The state has set ambitious goals for reducing greenhouse gas (GHG) emissions and is taking concrete steps to achieve them. One crucial aspect of this effort is California climate reporting – regulations requiring enterprises to disclose their GHG emissions and climate-related financial risks. 

This blog post unpacks everything ESG and sustainability professionals need to know about California climate reporting. We’ll delve into the key requirements, explore compliance benefits, and discuss future developments in this evolving landscape

What is California Climate Reporting? 

California climate reporting encompasses two key bills: 

  • Senate Bill (SB) 253: The Climate Corporate Data Accountability Act 
  • Senate Bill (SB) 261: The Greenhouse Gas Reporting and Risk Management Act 

SB 253 focuses on transparency around GHG emissions. It mandates companies with over $1 billion in annual revenue doing business in California to report their Scope 1 and 2 emissions annually. Scope 1 emissions are those directly generated from a company’s operations (e.g., fuel combustion), while Scope 2 emissions are indirect emissions from purchased electricity, heat, or cooling. 

SB 261 tackles climate-related financial risks. Companies with over $500 million in revenue operating in California must identify, assess, and disclose a plan to mitigate these risks using the framework established by the Task Force on Climate-related Financial Disclosures (TCFD). 

In essence, California climate reporting aims to: 

  • Increase transparency around a company’s environmental footprint. 
  • Hold businesses accountable for managing their GHG emissions. 
  • Help companies identify and address climate-related financial risks. 
  • Support California in achieving its ambitious climate goals.

Key Considerations for Businesses: Navigating California Climate Reporting 

Implementation Timeline: 

SB 253 and SB 261 will both come into effect in 2026. However, proactive preparation is crucial. Businesses should start building their reporting teams, establishing data collection systems, and familiarizing themselves with specific requirements. 

Navigating California Climate Reporting

Compliance Requirements: 

1. SB 253: Lifting the Lid on Your Emissions 

Think of SB 253 as shining a light on your company’s environmental footprint. It requires you to annually report on two fundamental types of greenhouse gas (GHG) emissions: 

  • Scope 1: These emissions come directly from operations, like fuel combustion in an organization’s vehicles (if they’re not electrically powered) or machinery. 
  • Scope 2: These are indirect emissions an organization produces from the electricity, heat, etc., from where the energy it purchases and uses is produced. 

By reporting these emissions using a standardized method called the Greenhouse Gas Protocol, you provide a clear picture of your organization’s environmental impact. 

2. SB 261: Identifying and Addressing Climate Risks 

SB 261 takes a proactive approach by asking you to identify two types of climate-related risks that could potentially affect your business: 

  • Physical risks: These are the direct impacts of climate change, such as extreme weather events that disrupt your supply chain or damage your facilities. 
  • Transitional risks: These involve indirect impacts, such as changing regulations or consumer preferences related to climate change, which could disrupt your business model. 

Once you’ve identified these risks, SB 261 requires you to assess their potential impact and disclose a mitigation plan. A proper mitigation plan helps you better understand your exposure to climate change and demonstrate proactive steps toward a more sustainable future. 

Challenges and Benefits: 

Gathering accurate emissions data and integrating climate reporting into existing systems can be challenging. However, compliance offers significant benefits, including: 

  • Improved ESG ratings, attracting environmentally conscious investors. 
  • Enhanced risk management by proactively addressing climate-related threats. 
  • Increased brand reputation as a sustainability leader. 

California Climate Reporting Rules: Developments and Future Outlook 

The California Air Resources Board (CARB) is responsible for developing and enforcing the specific rules for both SB 253 and SB 261. For SB 253, CARB is expected to finalize the regulations by January 1, 2025. 

Several potential developments could shape the future of California climate reporting in the coming years. Some of the notable developments include: 

  • Expansion of mandatory reporting: This could include Scope 3 (indirect emissions from a company’s value chain)
  • Increased focus on specific sectors: Industries with high GHG footprints may face stricter reporting requirements
  • Alignment with national/international standards: California’s approach could influence the development of national or global climate reporting standards. 

By staying informed about these developments, ESG and sustainability professionals can ensure their organizations are well-positioned to comply with evolving regulations. 

Conclusion: Embracing Transparency for a Sustainable Future 

California climate reporting represents a significant step forward in promoting corporate accountability on climate change. For ESG and sustainability professionals, understanding these regulations is essential. By complying with these requirements, enterprises not only demonstrate their commitment to environmental stewardship but also gain a competitive edge in the evolving marketplace. 

Canadian organizations that deal with ESG and sustainability can leverage California’s approach as a valuable benchmark. By adopting similar transparency measures and aligning their practices with emerging global standards, they can contribute to a more sustainable future for all. 

Do you find yourself lost amidst the complexities of California Climate Reporting? Let our sustainability experts be your guiding light. We can help you navigate the complexities, develop a winning climate strategy, and empower your organization’s sustainable future. Connect with us today! 

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