California's Climate Disclosure Laws

Implications of the Climate Corporate Data Accountability Act (“CCDAA”) and the Climate-Related Financial Risk Act (“CRFRA”) for food companies.

Learn how you can prepare for California's Climate Disclosure Laws
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California Climate Bills SB 253 and SB 261 are signed into law

On October 10, 2023, California Governor, Gavin Newsom, signed into law two bills that have the potential to transform the climate disclosure environment for large food companies doing business in the state. SB 253, the Climate Corporate Data Accountability Act (“CCDAA”) mandates granular, full-scope emissions reporting for companies with over $1 billion in revenue and SB 261, the Climate-Related Financial Risk Act (“CRFRA”), requires companies with over $500 million in revenue to identify and publicly disclose any climate-related financial risks they face as well as measures they are adopting to reduce such risks.

These two new laws complement other regulatory schemes, such as the European Union’s Corporate Sustainability Reporting Directive. They also stand in contrast to the yet-to-be finalized Climate Disclosure rule proposed by the U.S. Securities and Exchange Commission, which would only apply to public companies and whose emissions disclosure requirements have faced significant corporate pushback and could be diminished in the final rule.

The Climate Corporate Data Accountability Act (SB 253)

The Climate Corporate Data Accountability Act applies to all companies, whether publicly listed or private, doing business in the state of California with an annual gross revenue over $1 billion.

The law requires entities to report their Scopes 1, 2, and 3 emissions via a digital platform on the following timelines:
  • Scope 1: all direct greenhouse gas emissions from sources under a company’s ownership or direct control
    REQUIRED: Beginning in 2026 and annually thereafter
  • Scope 2: all indirect greenhouse gas emissions from electricity, steam, heating, or cooling that is purchased by the company
    REQUIRED: Beginning in 2026 and annually thereafter
  • Scope 3: all indirect upstream or downstream greenhouse gas emissions from sources not directly owned by the company, including purchased goods and services, business travel, and processing and use of sold products.
    REQUIRED: Beginning in 2027 and annually thereafter

Data Quality & Verification

Additional requirements stipulate that the disclosures must be verified by a 3rd party assurance provider with significant experience in measuring, analyzing and reporting on corporate carbon accounting.

All reporting must be in alignment with the Greenhouse Gas Protocol (“GHG Protocol”) standards and guidance, including the GHG Protocol Corporate Accounting and Reporting Standard and the GHG Protocol Corporate Value Chain Accounting and Reporting Standard.

All reporting must employ the GHG Protocol’s guidance around primary and secondary data sources, specifying preferences around the use of proxy data, global average emission factors, and other generic scope 3 emissions data.

Lastly, the reports must be accessible and understandable by consumers in the general public and the company’s shareholders.

Lack of compliance with the law can result in civil penalties from the state’s attorney general.

The Climate-Related Financial Risk Act (SB 261)

The Climate-Related Financial Risk Act applies to all companies, whether publicly-listed or private, doing business in the state of California, with an annual gross revenue over $500 million, or that have otherwise made public-facing climate-related risk disclosures in the past.The law requires reporting on:
  • Climate-related financial risks aligned to the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”). This translates to disclosures of any material risk to immediate and/or long-term financial outcomes that are related to climate change. This include risks related to:
    - Supply chains
    - Provision of goods and services
    - Corporate operations
    - Financial standing of loan recipients and borrowers
    - Shareholder value
    - Consumer demand
    - Financial markets
    - Economic health
  • Measures taken by the company to reduce their climate-related financial risk and adapt to changes in environmental realities.
Reporting will be required in 2026 and annually thereafter.

Implications of California's New Climate Laws for Food Companies

A new era for climate disclosures

These two laws will affect more than 5000 companies that do business in California, including virtually every enterprise company across the food value chain. While this level of reporting is underway in several voluntary frameworks like the Science Based Targets Initiative (SBTi), the mandatory nature of these laws shines a new light on the realities of carbon accounting for the food industry.
"In order to begin to address the climate crisis, consistent, higher level, and mandatory disclosures are needed from all major economic actors, and California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient, and prosperous future for our state."
- Climate-Related Financial Risk Act

The upside for food companies

While the food industry contributes as much as 33% of global greenhouse gas emissions, it simultaneously holds an outsized potential for climate change mitigation. Recent guidance released by SBTi for reporting on FLAG (forest, land, and agriculture) emissions requires a new level of granularity into corporate supply chains. Laws such as the ones passed in California and climate disclosure guidance such as SBTi FLAG not only hold the food industry accountable, they also provide pathways and incentives for innovation and elevated financial commitments to carbon reduction.

The time to act is now

Given the complexity of agricultural supply chains, food companies should start strategizing now on how they plan to comply with these laws and report out on their emissions and risks starting in 2026. Given the laws’ requirements for granular data, third party assurances, and alignment with industry-standard frameworks, we are looking forward to increased commitments to measuring, managing, and improving impact across the industry.