From Mandate to Management: Compliance with California's SB 253 and SB 261

California has set a precedent for keeping corporations accountable for climate change. Recently, they have passed Senate Bills 253 and 261, which require companies that do business in California to disclose their greenhouse gas emissions and financial risks that stem from climate change.

These laws demonstrates that governments can drive transparency and accountability regarding climate change. Transparency and accountability are no longer optional. Corporations now need to prepare to comply with these requirements. Responsible Alpha can help corporations see to these regulations and successfully adapt to them.

Why This Matters

• SB 253 and SB 261 help manage the globe’s climate risks and thus help us mitigate the catastrophic consequences that are occurring right now. From wildfires in California to melting glaciers in the Arctic, climate risks are accelerating faster than models have predicted. These environmental crises also threaten supply chains and financial markets, which corporations must understand.

• The California Air Resources Board is looking to release final reporting guidance in 2025. Responsible Alpha can help companies assess these risks and adequately prepare for these upcoming requirements. Complying with SB 253 and SB 261 is not as easy as one may think. It requires a strategy that may alter how the entire business runs. Organizations must find a way to manage financial, ESG, and operational data in an environment where all teams can ensure that their information can be potentially audited.

The Mandates

SB 253 – Climate Corporate Data Accountability Act

SB 253 mandates that companies that do business with the state of California and have over $1 billion in annual revenue report all their Scope 1, 2, and 3 emissions. We have already done a blog covering these in another blog that can be found here: Look Forward, Not Backwards: Science Based Targets initiative Updating Corporate Standard.

Additionally, the act mandates that limited assurance be required by 2027, with reasonable assurance coming in by 2030. Limited assurance means that companies need to have their data reviewed with an independent third party (an auditor or assurance provider), involving a few tests and resulting in the third party giving a moderate level of confidence that the data is not fabricated or misreported.

On the other hand, reasonable assurance requires a higher level of scrutiny, with the assurance provider giving a higher level of confidence that the data is accurate. This also comes with more tests, including site visits and a review of internal methods for tracking climate emissions.

SB 261 – Greenhouse Gases: Climate-Related Financial Risk

On the other hand, SB 261 applies to companies with revenues over $500 million. It also deals with disclosure and requires companies to reveal their climate-related financial risks. Unlike SB 253, SB 261 does not require third-party assurance. These climate-related financial risks are dictated in the Task Force on Climate-related Financial Disclosures (TCFD), which is in the new International Sustainability Standards Board (ISSB) guidance.

Action Items for Companies

• Assess Climate-Related Risks: Companies should assess climate-related risks that are material, utilizing the TCFD and ISSB to do so. Within this process, they should also invest in technology that can better track and automate disclosures.

• Prepare for Requirements: Corporations should also prepare to release Scope 1, 2, and 3 emissions, ensuring that they have an independent third-party to check.