Optchain Carbon Tracking

In a groundbreaking move, California has once again positioned itself at the forefront of climate change legislation. Governor Gavin Newsom signed SB 253 and SB 261 into law on October 7, 2023, setting new precedents in corporate climate accountability around the world.

WHAT ARE THE CALIFORNIA SB 253 AND SB 261?

SB 253, known as the Climate Corporate Data Accountability Act (CCDAA), and SB 261, or the Climate-Related Financial Risk Act (CRFRA), will significantly change how companies make climate-related disclosures. The laws apply to a wide range of businesses operating and selling goods/services within California, setting strict standards for transparency and accountability.

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THE CLIMATE CORPORATE DATA ACCOUNTABILITY ACT (CCDAA)

Under the CCDAA, a significant number of public and private companies, specifically with annual revenues over $1 billion, will soon need to start disclosing their direct greenhouse gas (GHG) emissions from company activities (Scope 1) indirect emissions, including those associated with electricity usage (Scope 2) and those from their entire supply chains (Scope 3). It’s important to note that the Scope 3 emissions reporting will follow in 2027 for 2026 data after the initial implementation, providing companies and their supply chain stakeholders more time to adapt.

Companies that report on their GHG emissions will have to comply with the GHG Protocol’s standards. All reports will have to be submitted as of 2026 (reporting period for 2025) and verified by independent, third-party auditors. Failure to report on SB 253 requirements may result in a penalty of up to $500,000 per reporting year. Companies that fail to comply with emissions standards also run the risk of financial penalties starting in 2030.

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THE CLIMATE-RELATED FINANCIAL RISK ACT (CRFRA)

SB 261, or the CRFRA, takes a complementary approach. SB 261 aligns with global movements towards more comprehensive climate reporting, similar to the SEC’s proposed rule in the US and the Corporate Sustainability Reporting Directive in the EU. It requires companies with annual revenues of $500 million or more to submit detailed biennial reports (every 2 years) on climate-related financial risks and provide concrete strategies on how to mitigate them. Risks include those associated with:

  • Company operations
  • Procurement of goods and services
  • Supply chains
  • Employee health and safety
  • All types of investments and loans
  • Shareholder value
  • Consumers
  • Financial markets and economic health

Businesses that do not fulfill their reports could be fined up to $50,000. The final penalty amount will be determined by considering a company’s earnest efforts towards compliance and its historical and current adherence to regulations.

PREPARING FOR CALIFORNIA’S CLIMATE ACCOUNTABILITY PACKAGE

What stands out about these new laws is their broad scope. The state of California is not just focusing on companies headquartered within its borders but is extending its reach to any company that conducts business in the state. This approach significantly widens the net of accountability, meaning that many companies will come under these new regulations.

Companies must initiate an action plan for GHG disclosure sooner rather than later. The action plan must include supply chain traceability strategies, along with the data collection, analysis and reporting  systems to support them.

Are you looking to start your regulatory compliance journey for the CCDAA, CRFRA or other looming ESG legislation? Optchain’s Carbon Tracking solution is the ideal tool to help in your compliance journey.

 

CONTACT OPTEL’S EXPERTS TODAY. 

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