Motivated by the urgent need to address climate risk, the California legislature has enacted sweeping measures that require companies to provide detailed accounts of their environmental impact and risk exposure. These rules apply equally to domestic companies and to those based elsewhere if they operate in the Golden State. Mandated disclosures include direct and indirect emissions, the ways climate change poses financial threats and the governance structures with oversight for these risks.

At the heart of California’s mandates are two statutes: Senate Bill 253 (the Climate Corporate Data Accountability Act) and Senate Bill 261 (the Climate-Related Financial Risk Act). Together, these laws compel companies to disclose their greenhouse gas emissions and climate-related financial risks. The mandates extend to any company “doing business in California” with more than $1 billion in annual revenue. The inclusion of “doing business” sweeps in many out-of-state operators and subsidiaries. Public companies as well as large private companies are covered. 

This is a summary of what companies must report under the new mandates

• Emissions reporting requirements — Companies must report greenhouse gas emissions across multiple categories. Scope 1 (direct emissions) and Scope 2 (indirect emissions from energy purchases) are now required. Scope 3 (emissions from supply chains and product use) are likely to be phased in. The breadth and depth of data required create major collection and verification challenges, including third-party attestation requirements.

• Climate-related financial risk disclosures — Firms must disclose material climate risks they face. These include physical dangers like wildfires or drought as well as transition risks such as new regulations or shifting consumer preferences. Reports must detail how these risks could impact business operations, strategy and finances.

• Governance and oversight expectations — Corporate boards must exercise oversight of climate risks, integrating such concerns into risk management and reporting structures. Explicit assignment of responsibility and robust internal controls are now prerequisites.

Collecting emissions data across supply chains can be complex, especially for global organizations. The risk of litigation and regulatory enforcement is rising, as is the chance of conflicting obligations in other states or countries. Companies may struggle with the costs and expertise required for compliance.

Companies can best position themselves for navigating these mandates by engaging legal, accounting and environmental consultants for expertise and best practices. A skilled regulatory compliance attorney can be invaluable in developing a compliance plan that includes building internal reporting systems; strengthening board oversight; and conducting a climate risk readiness assessment. Proactive compliance often uncovers operational inefficiencies and helps position the company as a sustainability leader in an increasingly climate-conscious market.

Garcia & Gurney, A Law Corporation in Pleasanton advises corporate clients in Alameda and throughout California on how to establish and maintain compliance with complex regulations. Call 925-468-0400 or contact us online to schedule a consultation.