We appear to be entering a new era in sustainability driven by mandatory climate and ESG reporting. Since the founding of Blu Skye in 2004, we’ve witnessed a remarkable shift in the public and private sector’s approach to sustainability. Early on, sustainability leaders relied on voluntary reporting efforts with bespoke standardization. More recently, the GHG Protocol and Science Based Targets Initiative (SBTi) have cemented their status as the global standards for GHG emissions accounting and climate target setting, respectively, while reporting and disclosure schemes are coalescing (e.g., ISSB). Today, government-driven mandatory reporting regulations are emerging in both the EU and US, which will force sustainability onto the C-suite’s management agenda if it’s not already there.
If you’re based in the EU (or have subsidiaries/branches there), you need to pay attention to the Corporate Sustainability Reporting Directive (aka “CSRD). It has the largest scope of any of these regulations covering environmental (including Scope 1-3 GHG emissions), social, and governance (ESG) issues, requires a “double materiality assessment” to determine which topics are “material” to your organization, and requires some public entities to begin reporting as early as 2025 (using 2024 data). The “double” in double materiality assessment refers to determining “materiality” of an issue from either an “inside-out” perspective (i.e., what impact does the company have on people and the planet) or an “outside in” perspective (i.e., what financial risks and opportunities may exist for the company based on the topics). CSRD reporting requires limited assurance to begin with reasonable assurance to come later.
At the US federal level, the SEC’s final ruling on Climate-Related Disclosures softened from the initial draft rules to only require reporting on Scope 1 and 2 GHG emissions (beginning in 2027 for 2026 data), despite Scope 3 emissions typically being the largest slice of a company’s carbon footprint. The ruling also requires a narrative disclosure (beginning in 2026 for 2025 data) of material climate-related risks (actual or potential), their impacts, mitigation strategies and costs, and an overview of the board and management’s governance of these risks. Additionally, within financial statements, companies must include a note on the quantified, financial impact of severe weather events on the company. Disclosed GHG emissions require a limited assurance report with reasonable assurance required for large accelerated filers (LAFs) after a transition period.
In addition to the EU- and US-level initiatives, large companies that do business in California will need to comply with the state’s three climate-related mandatory reporting regulations. See below for our summary of these reporting regulations.
While many large public companies already voluntarily report on GHG emissions and climate risks, complying with any of these new regulations will require cross-functional collaboration from sustainability, accounting/finance, legal, operations, HR, and leadership teams, among others.
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Summary of California’s New Regulations
CA SB253 | Climate Corporate Data Accountability Act (CCDAA)
Applicability: Any US-based company (public or private), with global annual revenues in excess of $1B USD that is “doing business in California”
Requirements: Report annual greenhouse gas emissions (Scopes 1-3) in accordance with GHG Protocol and pay a filing fee (amount TBD) to California Air Resources Board (CARB)
Timing:
Scopes 1-2 emissions are due in 2026 (for emissions year 2025) and annually thereafter
Scope 3 emissions are due in 2027 (for emissions year 2026), no later than 180 days after Scopes 1 and 2 are disclosed for previous fiscal year, and annually thereafter
Assurance: Requires 3rd-party, independent assurance report. Limited assurance for Scopes 1 & 2 in 2026 going to reasonable assurance in 2030. Limited assurance for Scope 3 in 2030
Penalties: Up to $500,000 USD in a reporting year
CA SB261 | Climate-Related Financial Risk Act (CRFRA)
Applicability: Any US-based company (public or private) with global annual revenues in excess of $500M USD that is “doing business in California”
Requirements: Prepare and submit a climate-related financial risk report (along with a filing fee, amount TBD) that covers climate-related financial risks consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework and measures adopted to reduce and adapt to those risks to California Air Resources Board (CARB) and publish the report on the company’s website
Timing: First report due January 1, 2026 and then biennially thereafter
Assurance: 3rd-party, independent verifier for GHG emissions
Penalties: Up to $50,000 per reporting year for failing to publish report or for inadequate or insufficient reports
·CA AB1305 | Voluntary Carbon Market Disclosures Business Regulation Act (VCMDA)
Applicability:
Any “entity” that purchases or uses voluntary carbon offsets (VCOs) and operates within CA or purchases or uses VCOs sold within CA and that makes claims regarding the achievement of net zero emissions, “carbon neutral,” or similar claims
Any “business entity” marketing or selling VCOs within CA (see bill text for reporting requirements).
Reporting Requirements (for entities purchasing or using VCOs and making a claim):
For all VCO projects/ programs, report annually on website:
The name of the business entity selling the offset and the offset registry or program; the project identification number, if applicable; the project name as listed in the registry or program, if applicable
The offset project site location and project type (including whether derived from a carbon removal, avoided emissions, or a combination)
The specific protocol used to estimate emissions reductions or removal benefits
Whether there is independent third-party verification of company data and claims listed
For all GHG claims, report annually on website:
All information documenting how, if at all, a “carbon neutral,” “net zero emission,” or other similar claim was determined to be accurate or actually accomplished, and how interim progress toward that goal is being measured. This information may include, but not be limited to, disclosure of independent third-party verification of all of the entity’s greenhouse gas emissions, identification of the entity’s science-based targets for its emissions reduction pathway, and disclosure of the relevant sector methodology and third-party verification used for the entity’s science-based targets and emissions reduction pathway.
Whether there is independent third-party verification of the company data and claims listed.
Timing: While the law became effective Jan 1, 2024, the bill’s sponsor clarified he intended the first reports be due on or before January 1, 2025
Assurance: No external assurance stipulated for the report.
Penalties: Up to $2500 USD per day for each day information is unavailable or is inaccurate, for each violation, not to exceed a total amount of $500,000 USD.