In a bid to champion environmental responsibility, California is on the brink of setting new standards in sustainability disclosure requirements.
These rules, aiming to drive businesses toward a more sustainable future, are poised to outshine other proposals and set a new model for reporting of greenhouse gas emission data. But fear not, as we break down the California Climate Corporate Data Accountability Act, also known as SB 253, into digestible bits for a clearer understanding.
What is SB 253 and What’s New?
Introduced by Sen. Scott Wiener, SB 253 has been undergoing some tweaks to ensure its effectiveness. The latest development is a change in the timeline for reporting different types of emissions. Let’s delve into the nitty-gritty:
Scope 1 Emissions: These are direct emissions, like greenhouse gases released from manufacturing plants.
Scope 2 Emissions: These involve indirect emissions, such as the greenhouse gases that arise from utilities, like electricity and natural gas, to heat and cool buildings or operate equipment.
Scope 3 Emissions: These encompass emissions from the entire value chain, including those stemming from upstream suppliers.
SB 253 stipulates that companies will start disclosing their Scope 1 and 2 emissions in 2026, followed by Scope 3 emissions in 2027. This shift in the reporting schedule aims to allow businesses more time to gear up for the process.
Who’s In and What’s Required?
Public and private companies with annual revenue of at least $1 billion that operate within California are directly impacted by the reporting requirement. However, because of the inclusion of Scope 3 emissions, SB 253 also captures a much wider array of entities that do business with larger reporting businesses. So, whether it’s the local bakery or a giant tech company, they may be in a position of having to report emissions.
And it’s not just about reporting—businesses will be required to provide assurance from an independent third-party auditor when they report their emissions data to the California Air Resources Board. This is where the expertise of the CPA profession, already trusted experts in the sustainability reporting and assurance space, will become key players in the implementation of SB 253.
How Are CPAs Involved?
As established providers of a myriad of financial and advisory services, including required audit services, to a wide spectrum of businesses, CPAs are well-positioned to provide assurance over GHG emissions.
Through these existing services, CPAs already have an intimate knowledge of a business and its processes. The CPA profession has extensive experience in developing methodologies to apply auditing and attestation standards—including sustainability information. Further, CPAs have the expertise to promote transparency and trustworthiness of the data being collected and shared with consumers and other decision-makers.
How is CalCPA Engaging?
In the spirit of collaboration, CalCPA has engaged with the author and sponsors of SB 253 to highlight where the proposed legislative language may be inconsistent with existing professional standards and may benefit from additional clarity. By objectively providing input on the proposed policy, CalCPA has shaped the development of an effective and efficient greenhouse gas emission reporting framework.
And if California policy leaders choose to advance SB 253 into law, CalCPA’s efforts will help streamline implementation and compliance for impacted entities—including the professionals advising them—and ensure the public receives reliable, consistent and comparable information.
CalCPA comments sought to change a confusing word (“verification”) to a more relevant one (“assurance”) and make sure consistent and established standards are the bases of an engagement. Importantly, we emphasized that a CPA’s licensure requirements and strict adherence to professional standards and independence rules position the profession well to meet the need of reporting businesses and the public relying on reported data.
The Road Ahead for SB 253
SB 253 has made its way through the Senate and is now awaiting its turn in the Assembly. The clock is ticking, with the deadline for the Legislature to pass SB 253 before the Sept. 14 deadline.
Last year a similar bill was barely defeated on the last night of the legislative session. This year things have changed. Federal action on similar policies have stalled—emboldening state policymakers to be leaders. Freshmen legislators who have campaigned on environmental action are now in the mix. And a governor looking for opportunities to increase his national profile could be eager to jump behind the first of its kind emission reporting framework.
How significant will SB 253 be for California’s businesses? How do its requirements stack up against potential federal regulations for publicly traded companies? And how will this impact reporting standards in other parts of the country? Stay tuned for updates as we unravel the impact of SB 253 and the role of the CPA in this rapidly emerging service area.
Jason Fox is CalCPA’s vice president of advocacy and government affairs. You can reach him at email@example.com.