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While ongoing priority shifts at the federal level will certainly impact environmental disclosure regulations in the United States, stakeholder pressure has, to-date, been the bigger driver of progress around corporate emissions and risk management — more so than federal mandates. Customers, suppliers, and shareholders are choosing partners based on CDP scoring, emissions targets, and risk assessments. Companies showing responsibility for both environmental impact and risk preparedness are demonstrating stability and are seeing the benefits.
That ground-up support is a positive signal, but there is still a role for government regulations to play in climate action. As part of the Paris Climate Agreement, 190+ countries and the European Union have committed to “limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;” which, according to the Intergovernmental Panel on Climate Change (IPCC), “requires global greenhouse gas emissions to peak before 2025 at the latest, and be reduced by 43% by 2030.” Currently at a global temperature increase of 1.1°C since 1850, we can observe the impacts of climate change in effect today, demonstrated by increased severity and frequency of wildfires, tropical storms, flooding and other extreme weather events.
As the fourth largest economy in the world, California has again taken the lead to mandate all U.S. companies doing business in the state will be required to report their greenhouse gas (GHG) emissions and demonstrate their preparedness for the ongoing risks of climate change. In 2025, three separate initiatives will go into effect as the California Climate Accountability Package, covering GHG emissions accounting, climate risk readiness, and carbon offset disclosure to address both emissions reduction and active climate change risk preparedness.
Organization's must change their ways of working to stay ahead of impending climate regulations. Learn More →
This package of environmental legislation is comprised of three separate elements:
Starting in 2026 on a date to be determined, all companies doing business in California with an annual revenue greater than $1 billion will be required to report their Scope 1 and Scope 2 emissions, as well as have these emissions verified to a limited level of assurance by a third party.
In 2027, disclosure requirements will increase to include Scope 3 emissions. No verification will be required the first year of disclosure, but limited assurance will likely be required starting in 2030.
Also in 2030, the level of verification required for Scope 1 and Scope 2 disclosure will be increased to reasonable assurance. Corporations can report at the parent level and there will be a to-be-determined fee involved for submitting reports to the California Air Resource Board (CARB) disclosure website.
Although the platform for data submission and public access is not yet available, the intent of the bill is to “maximize access for consumers, investors, and other stakeholders to comprehensive and detailed GHG emissions data … in a manner that is easily understandable and accessible.”(SB219 bill text). Therefore, applicable companies should be prepared to be compared to emissions profiles of other businesses in their industry.
All companies doing business in California with an annual revenue greater than $500 million will be required to report at least one climate-related financial risk, as well as measures to reduce and adapt to identified risks every other year — with the first report due no later than January 1st 2026.
CARB has aligned reporting requirements to the Task Force on Climate-related Financial Disclosures (TCFD) standard. Although the TCFD recommendations were incorporated into International Financial Reporting Standards (IFRS) S2, Climate-related Disclosures, the four thematic areas that represent core elements of how organizations operate remain the same.
In 2024, SB-253 and SB-261 were coupled into one bill: SB-219 – Greenhouse gases: Climate Corporate accountability; Climate-related financial risk.
Companies setting Net Zero targets are often looking to carbon offset programs to negate any remaining emissions after reduction strategies have been implemented for all managed business operations. Therefore, CARB has identified the necessity of every company utilizing carbon offsets to publicly communicate all offsets and validations on the company’s website — going into effect on July 1, 2025.
Although the quality criteria listed above are reminiscent of the quality criteria for renewable energy credit (REC) validation, RECs are not considered a “voluntary offset” as the appropriate renewable energy emissions factor of a REC is applied directly to emissions accounting of Scope 2 market-based emissions. Additional disclosure requirements pertain to organizations marketing and/or selling voluntary carbon offsets, such as crediting period, start date, crediting period, issuance year, standards met, accountability and calculation methods, and the period the offset is monitored.
There are several practical steps affected organizations can take in order to comply with California law:
This includes Scope 1, Scope 2 Location-Based and Scope 2 Market-Based, and Scope 3 emissions inventories. CARB does not explicitly ask for market-based emissions accounting, but a market-based Scope 2 inventory can demonstrate your organization's commitment to decarbonizing your electricity supply and resulting progress toward Scope 2 emissions reduction targets.
Begin the inventory process as soon as possible, especially if you have not yet performed an inventory, as identifying your usage data sources can be time consuming. Ensure your data is organized, your calculation methods are clearly documented, and all sources are traceable back to the source. Utilizing a data management and emissions accounting platform accessible to a third party is strongly recommended as it will ease the effort of verification.
An Inventory Management Plan (IMP) is also critical to document the methodologies and assumptions of the your GHG Inventory calculations.
Specifically for Scope 1 and Scope 2, companies will need to undergo a third-party “limited assurance” review of calculated greenhouse gas emissions for fiscal year 2025, which is a less rigorous level of scrutiny than a "reasonable assurance" review. Carbon advisors can help clients navigate the process of obtaining third-party limited assurance by providing subject matter expertise and supporting methodology documentation to verify the accuracy of data and calculations.
Although SB261 is in effect sooner than SB253, your company can start identifying relevant emissions metrics, targets, and transition risks in parallel with an emissions inventory. The TCFD guidelines for climate-related financial disclosures are broadly applicable and aim to provide decision-useful, forward-looking information suitable for inclusion in standard financial reports. Throughout the process of compiling a TCFD-aligned report, keep in mind the 7 principles they denote for effective disclosures:
In line with number 5, ensure you review the relevant industry specific disclosures for your organization as topics may not be covered in the general risk assessment guidelines.
Once your emissions data is submitted to CARB, it will be published alongside other organizations within your industry. So as not to have comparisons come as a surprise, work with a consultant to review your performance against chosen competitors to proactively identify steps to improve your sustainability standing.
CDP is the most widely utilized reporting mechanism for environmental data across the globe. Responding to the CDP climate questionnaire is a thorough tool to assess your company’s progress to effective emissions management and TCFD-aligned disclosures across all elements of business operations.
The California Climate Accountability Package represents a significant step forward in holding businesses accountable for their greenhouse gas emissions and climate-related risks. While companies are facing increased pressure to disclose and manage these factors, the legislation provides a clear framework to ensure transparency and sustainability, ultimately benefiting both the environment and corporate stability. Organizations must act swiftly to align their operations with the new requirements, making proactive steps toward compliance essential for long-term success.
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