Understanding California’s New Climate Disclosure Laws

In recent years, California has solidified its position as a global leader in environmental regulation by enacting tough climate disclosure laws aimed at promoting transparency and accountability among businesses. These laws, encapsulated in Senate Bills 253 and 261 and Assembly Bill 1305, require large companies operating within the state to report their greenhouse gas (GHG) emissions and disclose climate-related financial risks. Such measures not only aim to lessen the impacts of climate change but also ensure that businesses adopt sustainable practices that contribute to a healthier planet.

As climate-related regulations and disclosure rules become more complex and demanding, businesses need reliable partners to assist them in their compliance efforts. Global Trash Solutions (GTS) is positioned as a valuable ally for companies striving to comply with California environmental regulations while advancing their sustainability goals. GTS offers a suite of services to help businesses meet these new disclosure requirements, including zero-waste initiatives and customized sustainability plans.

Keep reading for more details on the new California emissions laws and how GTS can aid your compliance efforts.

Which Businesses Are Affected?

The new California climate disclosure laws, as set forth in SB 253, SB 261, and AB 1305, impact a broad range of businesses.

Revenue Thresholds:

• SB 253 targets businesses with total annual revenues exceeding $1 billion. This includes partnerships, corporations, limited liability companies, and other business entities.
• SB 261 applies to companies with total annual revenues over $500 million. These companies must prepare climate-related financial risk reports.

Definition of “Doing Business in California”:

To determine if a business is subject to these laws, it is essential to understand the criteria for “doing business in California.” Generally, this includes any company that:

• Actively engages in any transaction for the purpose of financial or pecuniary gain or profit within the state.
• Owns real or personal property in California.
• Employs or pays for labor performed within the state.

Definition of “Operating in” California:

A business is considered to be operating in California if it has substantial business activities within the state. This can include:

• Having a significant physical presence, such as offices or facilities.
• Engaging in substantial transactions or sales with California residents.
• Employing a considerable number of individuals within the state.

AB 1305 and Specific Climate Claims:

AB 1305 targets businesses making specific climate-related claims such as achieving net zero emissions or being carbon neutral. These companies must disclose:

• The name of the business entity selling the offset.
• Project identification numbers and names.
• Detailed project information, including types of offsets and verification methods.

Types of Emissions:

California’s SB 253 requires businesses with over $1 billion in revenue to track and disclose their Scope 1, 2, and 3 emissions

• Scope 1 Emissions – These are direct GHG emissions from sources controlled or owned by the company, such as emissions from company-owned vehicles and facilities.
• Scope 2 Emissions – These include indirect GHG emissions from the consumption of purchased electricity, steam, heating, and cooling. These emissions occur at the site where the energy is generated but are attributed to the company’s energy use.
• Scope 3 Emissions – These cover all other indirect emissions that occur in a company’s value chain. This includes both upstream emissions (such as those from suppliers) and downstream emissions (such as those resulting from the use of products sold).

Penalties for Non-Compliance:

• SB 253 – Administrative penalties up to $500,000 per year for non-compliance.
• SB 261 – Administrative penalties up to $50,000 in a reporting year.
• AB 1305 – Civil penalties up to $2,500 per day, not exceeding $500,000 total for failure to disclose or inaccurate disclosures.

Exemptions and Special Cases:

• Companies primarily engaged in insurance and those regulated by the Department of Insurance are exempt from SB 261.
• Small businesses and entities with revenues below the specified thresholds are not required to comply.

Companies must be proactive in identifying their California climate disclosure obligations to ensure compliance and mitigate risks associated with non-compliance.

Overview of New Climate Disclosure Laws

California’s new climate disclosure laws—SB 253, SB 261, and AB 1305—represent a significant step towards ensuring transparency and accountability in corporate environmental practices.

SB 253: Climate Corporate Data Accountability Act

The Climate Corporate Data Accountability Act requires businesses with annual revenues exceeding $1 billion to publicly disclose their GHG emissions. These disclosures include:

• Scope 1 Emissions – Direct GHG emissions from sources controlled or owned by the company.
• Scope 2 Emissions – Indirect GHG emissions from the consumption of purchased electricity, steam, heating, and cooling.
• Scope 3 Emissions – All other indirect emissions occurring in the company’s value chain.

Starting in 2026, companies must disclose their Scope 1 and 2 emissions, with Scope 3 emissions disclosure commencing in 2027. The California Air Resources Board (CARB) is responsible for developing and adopting these regulations.

SB 261: Greenhouse Gases: Climate-Related Financial Risk

Under SB 261, California companies with over $500 million in revenue must prepare and disclose climate-related financial risk reports biennially, starting January 1, 2026. These reports must:

• Assess the material risk of harm to financial outcomes due to physical and transition risks associated with climate change.
• Include measures adopted to mitigate and adapt to these risks.

The reports must be made publicly available on the company’s website, allowing stakeholders to evaluate the company’s preparedness and resilience in facing climate-related financial challenges. CARB will oversee compliance, imposing penalties for non-compliance and ensuring transparency.

AB 1305: Voluntary Carbon Market Disclosures

AB 1305 focuses on increasing the transparency and integrity of voluntary carbon markets. Businesses that market or sell carbon offsets and those that make claims about achieving net zero emissions or carbon neutrality must:

• Disclose detailed information about the carbon offset projects, including protocols, project locations, timelines, and verification methods.
• Provide accountability measures for projects that fail to meet projected emissions reductions or removal benefits.
• Update disclosures annually and ensure they are easily accessible on their websites.

Non-compliance can result in civil penalties up to $2,500 per day, not exceeding $500,000 total.

Steps and Tips to Ensure Compliance

To avoid penalties for non-compliance with the new California climate disclosure bills and foster truly sustainable processes, businesses can follow these steps:

• Prepare Climate-Related Financial Risk Reports
  • Develop risk assessment frameworks in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
  • Regularly update and refine these assessments to reflect changing risk landscapes and emerging data.
• Verify Climate Claims and Disclosures
  • Engage independent third-party assurance providers to verify emissions data and climate-related disclosures.
  • Ensure the credibility of your data by selecting providers with expertise in measurement and reporting in compliance with California emissions laws.
• Engage Third-Party Assurance Providers
  • Choose assurance providers with significant experience and capabilities necessary to perform engagements in accordance with professional standards and regulatory requirements.
  • Ensure the providers are independent and capable of conducting thorough and objective evaluations.
• Stay Informed and Updated
  • Regularly review updates from regulatory bodies like the California Air Resources Board (CARB) to stay informed about best practices in climate-related financial risk disclosure and carbon offset verification.
  • Monitor federal and international climate regulations to keep pace with broader standards.
• Develop Data Collection Systems
  • Implement systems for consistent and accurate data collection across all business operations.
  • Utilize recognized standards such as the Greenhouse Gas Protocol to ensure consistency and reliability in reporting.
• Implement Internal Controls
  • Establish internal controls to maintain the accuracy and integrity of GHG emissions data.
  • Conduct regular audits to verify the effectiveness of these controls.
• Train and Educate Staff
  • Provide training for employees on best practices in sustainability and compliance.
  • Create a culture of environmental responsibility within the organization.
• Engage Stakeholders
  • Communicate transparently with investors and consumers about your sustainability initiatives and compliance efforts.
  • Build stakeholder trust through regular updates and honest reporting.
• Perform Lifecycle Analysis
  • Conduct lifecycle analysis to evaluate the environmental impact of products from production to disposal.
  • Identify areas for improvement to reduce the overall carbon footprint.
• Consider Carbon Offsets
  • Purchase high-quality carbon offsets to meet sustainability goals.
  • Ensure offsets are compliant with recognized standards.
• Prepare for Future Regulations
  • Anticipate future regulatory changes and proactively adjust practices to remain compliant.
  • Engage in policy discussions and stay ahead of evolving California ESG regulations.

With careful planning, businesses can effectively comply with the new California climate disclosure laws and contribute to the state’s larger environmental goals.

How GTS Can Help

Global Trash Solutions (GTS) offers a range of services to support businesses in meeting these regulatory requirements and advancing their sustainability initiatives:

• Zero-Waste Initiatives – Implementing waste reduction programs to minimize environmental impact.
• Customized Sustainability Plans – Developing highly targeted strategies to meet specific business needs and regulatory obligations.
• Centralized Reporting – Streamlining the data collection and reporting process to ensure accurate and timely disclosures.
• Stream Analysis – Assessing waste streams to identify opportunities for improvement and increased efficiency.
• GHG Emissions Tracking – Utilizing advanced tools to measure and report Scope 1, 2, and 3 emissions.
• Risk Assessment – Conducting thorough evaluations of climate-related financial risks and advising on mitigation strategies.
• Third-Party Verification Coordination – Connecting businesses with trusted third-party assurance providers for verification of climate claims.
• Lifecycle Analysis – Evaluating the environmental impact of products from production to disposal to identify areas for improvement.

Partnering with GTS can help businesses achieve compliance with the new California climate disclosure bills while enhancing their overall sustainability performance.