Understanding the Greenhouse Gases: Climate-Related Financial Risk Act

On October 7th, California Governor Gavin Newsome signed the Greenhouse Gases: Climate-Related Financial Risk Act (CA SB 261).

The climate-focused legislation will impact thousands of companies, both public and private operating in California. This article will breakdown each legislation and answer the key questions organizations are asking themselves as the journey to California’s new climate legislation begins.

What is the Greenhouse Gases: Climate-Related Financial Risk Act?

The Greenhouse Gases: Climate-Related Financial Risk Act (CA SB 261) requires both public and private companies meeting revenue requirements and operating in the state of California to produce an annual report summarizing both their climate-related financial risk and the steps they will take to reduce and adapt to it.

Who Does CA SB 261 Apply To?

CA SB 261 affects corporations, limited liability companies, other business entities and specified partnerships with total annual revenues greater than $500 million and operating in California.

How Does CA SB 261 Define a Climate-Related Financial Risk?

A climate-related financial risk is defined as any material risk to immediate or long-term financial outcomes due to physical and transition risks.

What are the CA SB 261 Requirements?

Produce a report summarizing the entity’s climate-related financial risks in alignment with the final recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD) from 2017.

Organizations must disclose which measures they’re taking to reduce and adapt to the climate-related financial risks that they’ve disclosed. The organizations must submit a statement to the CA Secretary of State affirming that the disclosed report satisfies the requirements of the signed bill.

The final report must be made available to the public on the organization’s website.

What is the CA SB 261 Framework?

CA SB 261 reporting will use the TCFD framework.

What is the CA SB 261 Timeline?

The TCFD report is due no later than January 1, 2026.

What Does “Doing Business in California” Mean?

While neither bill explicitly defines “doing business” in California, the California Franchise Tax Board offers some guidance. According to their website, they consider you “doing business” in California if you meet any of the following criteria:

  • Engage in any transaction for the purpose of financial gain within California
  • Are organized or commercially domiciled in California
  • Your California sales, property or payroll exceed the following amounts for 2022:
    • California sales tax $690,144
    • California real and tangible personal property exceed $69,015
    • California payroll compensation exceeds $69,015.”

Organizations impacted by CA SB 261 need to start preparing for the California climate disclosure immediately. By properly preparing for the disclosures, your organization will have stronger controls over emission data and reporting and avoid the risks and penalties associated with non-compliance.

Schneider Downs Resources

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How Can Schneider Downs Help?

Schneider Downs can help organizations identify material climate-related financial risks and create an accompanying report in line with Task Force on Climate-Related Financial Disclosures TCFD recommendations. In addition, our team can help develop a greenhouse gas inventory and calculation process, as well as eventual limited assurance on the calculations.

If you have any questions about CA SB 253 or CA SB 261, please our Senior ESG & Sustainability Manager Matt Hartman at [email protected].

About Schneider Downs ESG Consulting

With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization perform a gap assessment relative to the finalized regulation, suggest areas of improvement and meet the disclosure requirements.

Learn more about our ESG consulting services at www.schneiderdowns.com/esg or contact the team at [email protected].

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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