New California Climate Disclosure Laws: Why They Matter To You

World Kinect Explains

New California Climate Disclosure Laws: Why They Matter To You

While the U.S. awaits federal action on the climate disclosure rules proposed by the country’s Securities and Exchange Commission (SEC), the State of California has already acted. On October 7, 2023, Gov. Gavin Newsom signed into law two regulations anticipated to have a wide-ranging impact on many organizations’ climate change and reporting disclosures.

Although these new laws apply specifically to companies that do business in California, they reflect part of a broader global movement toward more robust and consistent emissions reporting. This includes both the pending SEC rules in the U.S. and the Corporate Sustainability Reporting Directive (CSRD), which went into effect in the EU at the start of 2023. The directive is clear. It’s critical for companies across all sectors and regions to collate their carbon emissions data, understand their impact, report out their data and show continual improvement starting now.

What is the climate disclosure rule in California?

The Climate Corporate Data Accountability Act (SB 253) requires companies to publicly disclose their scope 1 and scope 2 greenhouse gas (GHG) emissions beginning in 2026 and their scope 3 GHG emissions beginning in 2027. The law applies to companies with $1 billion or more in total revenue (not limited to California). Although the start dates are subject to change per Gov. Newsom.

The Climate-Related Financial Risk Act (SB 261) requires companies to report on the financial risk aligned with the Taskforce for Climate-Related Financial Disclosures (TCFD). The taskforce provides information to investors about companies’ climate change mitigation strategies. SB 261 applies to companies with $500 million or more in total revenue (not limited to California).

Additionally, under both laws, companies must:
•   Disclose whether they have budgeted or increased compliance and insurance costs on a biennial basis
•   Quantify potential opportunities and strategic priorities on a biennial basis
•   Make climate reporting data publicly available on their company’s website

Companies that fail to comply or provide adequate disclosures may face penalties of up to $500,000 (SB 253) or $50,000 (SB 261).

Why companies outside of California will feel the impact?

The new laws raise the bar on corporate action and accountability to address the global climate crisis, and their impact will be felt far outside of California. That’s because many companies’ supply chains extend beyond state borders, and the requirement to report out on scope 3 GHG emissions covers every part of a business’ value chain. As a quick refresher:

Scope 1 encompasses direct emissions from sources your business owns or controls. This can include:

Fuels from your owned vehicles and equipment
Natural gas you use
Process emissions

Scope 2 includes indirect emissions from energy you purchase (assuming your organization doesn’t own the energy-generating equipment). Examples:

Purchased electricity
Purchased heating / cooling
Purchased steam

Scope 3 includes all GHG emissions caused indirectly throughout your company’s supply chain related to your business activities. This can include:

Purchased goods and services (including fuel)
Upstream and downstream transportation
Product lifecycle use
Travel
Contracted solid waste
Employee commuting

Four key steps to ensure compliance

Whether or not you’re subject to the new California laws, your business might be part of a supply chain where reporting is required. And even if reporting isn’t mandated in your company’s jurisdiction right now, companies of all types will face continued pressure to disclose and manage their carbon emissions.

The best way to prepare your business is to approach climate reporting not as a risk and compliance issue, but as an opportunity. Four best practices:

Understand how your business is impacted. Familiarize yourself with the new laws and their contents. If your company will experience a direct or indirect impact, establish your methodology and compliance plan, and identify gaps that will need actioning.
Establish your emissions inventory. Create a comprehensive footprint addressing your scope 1, 2 and 3 emissions. If you aren’t required to disclose your emissions right now, the demand for data throughout the supply chain will only grow, so you should still build your inventory. Remember, your scope 1 and 2 emissions might be part of another organization’s scope 3 reporting. Therefore, it’s crucial to understand the concepts around carbon allocation and the information you’ll need to meet your customers’ reporting requirements.
Identify and map your climate risk. Establish internal teams to understand the physical and transactional risks of GHG disclosures. Develop plans on how to both disclose and address those risks via the TCFD network.
Be proactive. Don’t wait until disclosure laws are finalized in your region. Instead, establish the processes and systems to track your emissions transparently and accurately now. Then, develop an action plan to mitigate risk and reduce your carbon footprint.

How World Kinect can meet your climate disclosure challenges

The sustainability experts at World Kinect Energy Services can help you at every stage of your carbon reporting process, from implementation through results.

Our sustainability experts can help you understand and identify your company’s climate risk and build an actionable decarbonization plan. Additionally, our carbon reporting experts can map your carbon emissions across all three scopes and help you develop a compliant emissions inventory.

Once your plan is established, you can deploy our cloud-based emissions management platform to support your ongoing accounting and disclosure needs. We can also provide you with educational workshops and other support so you can ensure accurate, compliant reporting.

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