What companies need to know about California’s Climate Corporate Data Accountability Act (CCDAA)

Key points of CCDAA and its implications

CCDAA builds upon the previously proposed bills, SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Greenhouse Gases: Climate-Related Financial Risk), effectively updating and enhancing California’s climate disclosure regulations. Despite some adjustments, the reporting deadlines remain intact, demanding companies take prompt action to ensure compliance.

Companies required to report

Large companies: Businesses with annual revenues exceeding $1 billion that do business in California must annually disclose their greenhouse gas (GHG) emissions across Scope 1, Scope 2, and Scope 3 categories.

Mid-Sized companies: Companies with revenues over $500 million are required to prepare and disclose climate-related financial risk reports, detailing the risks their operations pose to the environment and society, as well as the measures they adopt to mitigate these risks.

Failure to comply: Companies face penalties of up to $500,000 for non-compliance with emissions disclosure requirements. For climate-related financial risk reporting, penalties can reach up to $50,000. A safe harbor exists for Scope 3 emissions where companies will not incur administrative penalties for inaccuracies in Scope 3 disclosures if they are made with a reasonable basis and in good faith.

“This bill signals a turning point for climate accountability in the US, making it clear that companies must now take meaningful action.”

Julia Millot, Position Green

New flexibility in reporting Scope 3 emissions

Under the new law, the timeline for disclosing Scope 3 emissions is now set by The California Air Resources Board (CARB), providing a more flexible approach compared to the original requirement of reporting within 180 days after Scope 1 and 2 emissions disclosure. However, companies must still start preparing now to gather the necessary data for comprehensive Scope 3 reporting, which encompasses emissions from supply chains, business travel, employee commuting, and product use.

Parent-level reporting introduced

A notable amendment to the bill now allows for consolidated reporting at the parent company level. This adjustment eases the burden on companies with multiple subsidiaries that meet the reporting criteria. Previously, each subsidiary qualifying under the regulations would have needed to submit separate reports.

Removal of fees upon filing CCDAA

The amended law eliminates the requirement for companies to pay an annual fee upon filing their disclosures, potentially reducing the financial burden for businesses as they work towards meeting these reporting obligations.

Preparing for what’s ahead

With the implementation timeline rapidly approaching, businesses that fall under these new regulations should begin preparing immediately to meet California’s climate disclosure requirements. Here’s what companies should consider:

1. Assess data gaps: Begin by identifying gaps in current data collection practices, especially for Scope 3 emissions, which can be the most challenging to quantify due to their indirect nature.
2. Develop a climate-risk assessment: Companies with over $500 million in revenue need to evaluate their climate-related financial risks and disclose on the strategies to adapt to and mitigate these risks in line with TCFD.
3. Measure GHG emissions: Start measuring Scope 1, 2, and 3 emissions using the Greenhouse Gas Protocol standards to ensure compliance with the new regulations.
4. Prepare for increased transparency: With public disclosure of climate data now a legal requirement, companies should be ready for heightened scrutiny from investors, consumers, and regulators.

So what next?

CCDAA sets a high bar for transparency and accountability, impacting companies across various sectors. By acting early to align data management systems and disclosure practices with the upcoming requirements, businesses can position themselves not only for compliance but also for leadership in climate accountability.

The focus on parent-level reporting, flexible scheduling for Scope 3 emissions, and the removal of fees are aimed at easing some of the burdens, yet the need for meticulous planning and data collection remains critical. The clear message to companies is to prepare now: assess your climate impact, close any data gaps, and build a robust climate strategy.