What you need to know about California's new climate reporting law

In 2023, California passed the Climate Accountability Package, which requires certain businesses to report on their greenhouse gas emissions and climate-related risks. Companies doing business in California need to start collecting emissions data on January 1, 2025, though reporting will begin in 2026.

The two bills in the package aim to make companies more accountable for their climate impact. However, the initial language left many businesses unsure if the new rules applied to them. In September 2024, California Governor Gavin Newsom signed amendments to clarify the confusion and extend deadlines for regulators, but there’s still some ambiguity in the reporting rules.

ESG reporting increasingly falls under the purview of finance teams, so you may be the one responsible for compliance with the new bills. We know that legalese is complex, so we’re here to help. Read on to determine how the regulations could impact your business—and what to do next.

What the laws say

Harvard Law School has a good overview of the bills if you want to do your own reading. Here’s the gist:

• Senate Bill 253: Companies with $1 billion+ in annual revenue that operate in California need to report their greenhouse gas (GHG) emissions.
• Scope 1 and Scope 2 emissions: These are 1) direct emissions (like fuel burned on-site) and 1) indirect emissions from energy use (like electricity, even though the emissions occur at a power plant). Companies meeting the revenue threshold need to start collecting this data on January 1, 2025, and deliver their first report in 2026.
• Scope 3 emissions: These emissions encompass the broader supply chain and product lifecycle. They’re more complex to calculate. Reporting will begin after a regulatory body called the California Air Resources Board (CARB) decides how best to do it. CARB has until July 1, 2025, to set the reporting rules.
• Senate Bill 261: Companies with $500 million+ in annual revenue must publish reports every two years on their climate-related financial risks and how they’re addressing them, starting in 2026. One big exception: insurance companies are excluded from this requirement to avoid double-reporting. Instead, they’ll stick to a national reporting standard.

Do these laws apply to you?

The most important first step is to determine if these laws impact you. Here’s what to consider:

• Does your business have a parent company? If you’re a subsidiary, only the parent company needs to report on all of this. Check to see if they have a strategy in place.
• Do you meet the revenue thresholds? You read this in the last section, but let’s make sure we’re on the same page:
  • If your annual revenue is $1 billion or more, you’ll report on greenhouse gas emissions. Importantly, you’ll need to start collecting this data on January 1, 2025.
  • If it’s $500 million or more, you’ll report on your climate risks every two years unless you’re an insurance company. You’ll submit your first report in 2026, so start evaluating this in 2025, but there’s no firm start date.
• Are you doing business in California? This one’s tricky unless you’re based in the state. The climate package doesn’t clearly define what “doing business” means yet. CARB will presumably clarify this in July. Other California agencies have criteria for this, though it varies by department. Bottom line: If you have customers, employees, or real estate in California, or if you pay any taxes there, you should probably start collecting data on January 1.

What to do now

If you’ve determined that new rules apply to you, there are a few steps you can take to get prepared:

1. Review other climate reporting requirements. If you’re already reporting elsewhere (e.g., the EU’s Corporate Sustainability Reporting Directive), see how they overlap with California’s rules.
2. Strengthen your internal reporting systems. Make sure your processes for tracking and reporting climate data are solid and scalable. Be ready to move on this in January.
3. Find expert help. Consider hiring advisers, like an assurance firm, to verify your emissions data—especially for Scopes 1 and 2, which need to be reported starting with 2025 data.
4. Finally, stay tuned. The guidelines are still nebulous, and important information will be released in the next six months. Keep a close eye on updates from CARB and the State of California. You’ve got this!