On October 7, 2023, California Governor Gavin Newsom signed SB 253 and SB 261 into law, requiring companies doing business in the state to disclose their climate-related risks and greenhouse gas emissions.
SB 253 will mandate emissions reporting for companies with over $1 billion in revenue, while SB 261 compels climate risk disclosures from those with more than $500 million in revenue. These rules aim to increase transparency on how businesses are addressing the financial impacts of climate change. While SB 253 is expected to impact about 5400 companies, SB 261 may subject upwards of 10,000 companies to mandatory climate risk disclosures.
In our recent webinar, we spoke to Manifest Climate experts alongside external guests about the significance of these new disclosure requirements, how they will affect corporate climate communications, and the penalties for non-compliance.
Panelists
Louie Woodall | Product Content Director at Manifest Climate
Kenneth Wu | Executive Director of Corporate Sustainability at Gilead Sciences
Erin Koch | Director of Global ESG, Prologis
Q: How will SB 253 and 261 affect companies’ relationships with climate disclosures?
Louie Woodall, Product Content Director at Manifest Climate
California’s climate rules are significant in reach
A: While many jurisdictions have been ‘talking the talk’ on climate disclosures, SB 253 and SB 261 reveal that California is ‘walking the walk’. What makes these two rules particularly significant is their reach; the impact of these laws will be felt far beyond California. A recent analysis found that the majority of Fortune 1000 companies are likely captured by SB 261 and SB 253. By and large, any company that is not subject to the SEC’s proposed climate disclosure rule will be subject to the California rules. And for many companies, this will be their first experience reporting on climate risks and opportunities.
California’s climate rules will be first to the finish line
A: California’s laws might preempt anything else that comes out of federal agencies, so many US companies are being flanked on both sides by climate requirements. They have climate disclosure requirements coming from the east — Europe (the CSRD) — and now also from the west (California). And the only way to confront the challenge is to power up your own in-house climate disclosure machine.
The current timelines for SB 253 and SB 261 will require companies to start reporting by January 1, 2026 — but the data for these reports must be from 2025. So companies will need to get data controls, gathering systems, reporting processes, and governance mechanisms in place by 2025 at the latest to avoid any of the penalties or sanctions for non-compliance. Some companies may already have a headstart, but those starting from scratch really do have to start now.
SB 261 will be based on the TCFD
A: SB 261’s framework for reporting on climate risk and opportunity is modeled on the already widely adopted Taskforce on Climate-Related Financial Disclosures (TCFD). Companies preparing to comply should use the TCFD as their blueprint, closely following the advice in the TCFD’s 2021 Implementation Guide. The accompanying annexes, recommendations, and best practices published by the Taskforce will put companies in good stead for reporting in line with SB 261.
Q: How will the new California rules influence the way corporations tell their climate stories?
Kenneth Wu, Executive Director of Corporate Sustainability at Gilead Sciences
A: Companies may be taking the right actions to address climate change, but may have been shy about articulating these clearly, either internally or externally. And while voluntary disclosures may have addressed in part or in full the 11 topic areas covered by the TCFD, SB 261 is unequivocal — it requires responses in all 11 areas.
Under SB 261, what you plan to do and why is just as important as what you have done (which is more the scope of SB 253). SB 261 will standardize plans, providing an ‘apples to apples’ comparison for how US companies look at climate change risk and opportunities.
Q: How does the SEC’s climate disclosure rule differ from California’s SB 261 and SB 253 rules?
Louie Woodall, Product Content Director at Manifest Climate
A: The SEC does refer to the TCFD as the ‘foundation’ for its own climate risk disclosure rule, giving it a shared foundation with SB 261. And although the SEC’s rule is still as yet a proposed rule and therefore subject to change, the primary difference is that the SEC rule was much more prescriptive about describing the financial impacts of certain climate risks at a line-item level.
For example, how do this year’s wildfires affect your assets and cash flow? The SEC’s rule is far more prescriptive because they want to make climate-related financial information intersect effectively with traditional financial information.
Kenneth Wu, Executive Director of Corporate Sustainability at Gilead Sciences
A: The SEC is looking at publicly traded organizations, whereas SB 261 targets both public and private. Companies that were not susceptible to the SEC requirements may be subject to the California rules. Additionally, the SEC seems unsure on whether the rule will include scope 3 emissions, whereas SB 261 and SB 253 do require Scope 3 reporting. If you’re a successful Californian company at a multinational scale, you’re also probably susceptible to the European Union’s Corporate Sustainability Reporting Directive (CSRD). The combination of SB 261 and SB 253 will help to position companies somewhat at the level of the CSRD and possibly even exceed the requirements of the SEC.
Q: What are the penalties for non-compliance with SB 261 and SB 253?
Louie Woodall, Product Content Director at Manifest Climate
A: The administrative penalties for SB 261 could be up to $50,000 in a reporting year. There may still be some updates to the bill, so this could change. But the reputational damages could be far greater. The California Air Resources Board will be monitoring climate disclosures, and companies will essentially be ‘named and shamed’, or at least be easily identified.
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