CA Climate Laws: GHG Emissions and Risk Reporting

KPMG Regulatory Insight

• State Activity: Anticipate other states to adapt/adopt
• Legal Action: Expect legal/litigation challenges
• Timing: May change with final regulations
• Move to Measure: Companies must build measurement/reporting

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October 2023 **Updated June 2024**

California Climate Disclosure Laws

California becomes “first-in-the-nation” to adopt broad climate reporting laws that will require large businesses to report on greenhouse gas (GHG) emissions and climate-related financial risk. These laws join a suite of sustainability reporting relative to GHG emissions and climate-related financial risks and may shape climate reporting in other states and/or nationally.

The CA laws include:

• Climate Corporate Data Accountability Act (SB-253)
• Greenhouse Gasses: Climate-Related Financial Risk (SB-261)

SB-253 requires “reporting entities” to publicly disclose their GHG emissions on an annual basis. “Reporting entities” is defined to include i) a business (e.g., a corporation, partnership, limited liability company, or other business entity) formed under the laws of CA, any other U.S. state, or the District of Columbia, or through an act of Congress, ii) with total annual revenues in excess of $1 billion, and iii) that does business in California.

SB-261 requires “covered entities” to publicly disclose their climate-related financial risk and the measures adopted to reduce and adapt to those risks. “Covered entities” is defined in the same manner as “reporting entities” under SB-253 with the exception of a $500 million annual revenue threshold.

**Update: In June 2024, the CA governor’s office released proposed amendments to SB 253 and SB 261 that would change the relevant reporting year from 2026 to 2028.  See discussion below.

Key features of the bills are summarized in the table below.

1. Scope 3 disclosures required no later than 180 days after disclosure of Scopes 1 and 2.
2. No Administrative penalty for misstatements in Scope 3 disclosures made with a reasonable basis and disclosed in good faith.

Note: In signing the bills, the CA Governor noted some concerns that would be addressed by the state Administration and the legislature. These included:

• For SB-253: questions as to whether i) the implementation deadlines are “likely infeasible,” and ii) the reporting protocol could result in inconsistent reporting across businesses subject to the measure.
• For SB-261: a concern that implementation deadlines do not provide the California Air Resources Board (CARB) with sufficient time to implement requirements.

**Update: The CA governor’s office released proposed amendments to SB 253 and SB 261. The proposed amendments would include the following changes:

SB-253:

• Shifting the effective date for Scope 1 and 2 emissions reporting from January 1, 2026 to January 1, 2028 and Scope 3 emissions reporting from January 1, 2027 to January 1, 2029. The two-year extension would also apply to CARB, which would be required to adopt implementing regulations by January 1, 2027.
• Requiring reporting entities to publicly disclose Scope 3 emissions on a schedule specified by the state board instead of 180 days after publicly disclosing Scope 1 and 2 emissions.
• Adding a new provision that would allow consolidated GHG emissions reporting at the parent company level.

SB-261

• Shifting the effective date of reporting from January 1, 2026 to January 1, 2028.