How to Prepare for California’s Climate Accountability Package

In the rapidly evolving climate reporting landscape, California’s Climate Accountability Package stands at the forefront. Signed into law in October 2023, the legislative package, comprising Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261), marks a pivotal move in the state’s commitment to combating climate change.

With a focus on transparency and accountability, these laws mandate that businesses with operations in California disclose their climate-related risks, impacts, and actions. 2024 is a critical year for impacted companies to prepare for the new laws. In this article, we explore the key aspects for navigating compliance and contributing meaningfully to fight climate change.

Understand Your Legal Requirements 

First, is your business even regulated by the new legislation? What are the key timelines and details of the laws that impact your business? If you’re not certain on these questions, we highly recommend seeking credible legal counsel on your organization’s exposure to the laws. If your business is subject to the laws, consider not only monitoring the development of regulations in 2024, but also participating in the California Air Resources Board (CARB) rulemaking process. CARB’s Board Meetings are open to the public, available via webcast, and are typically held monthly. Your organization can submit comments on meeting topics, and agendas for CARB’s Board Meetings are available here.

Become Familiar with Reporting Frameworks

If your organization is not already measuring its emissions in accordance with the Greenhouse Gas Protocol (GHGP), become familiar with these standards as the Accountability Package requires emissions reporting. The GHGP is the primary and most widely used international standard for measuring and managing emissions.

Under the GHGP, emissions are classified into scope 1, scope 2, and 15 categories of scope 3 emissions. The GHGP has several guidelines for carbon accounting, but the Corporate Standard and the Corporate Value Chain (Scope 3) Standard are likely most relevant for your disclosures. 

You will also want to develop an understanding of the Task Force on Climate-Related Financial Disclosures (TCFD) framework. SB 261 requires disclosures to be in alignment with the recommendations of the TCFD, and must also include measures taken to mitigate and adapt to these risks. The TCFD framework focuses on four pillars of how organizations operate: governance, strategy, risk management, and metrics and targets. It has become the global baseline for climate disclosure requirements and was developed after recognition that climate-related risks have material impact on companies’ financial health and viability. Understanding these risks based on reliable data is important to insurers, investors, and lenders for informed decision-making and valuation.

While metrics and targets are only one of the four pillars, the TCFD views it as the foundation that supports all pillars. And GHG measurement is core to metrics and targets, which is viewed by TCFD as critical to understanding the extent of an organization’s exposure to risks and opportunities related to climate change.

Climate risks are the impact that climate change has on your organization, whereas GHG inventorying is a quantification of your organization’s impact on climate change. Thus, the TCFD requires scope 1 and 2 emissions disclosure and encourages scope 3, where material. This emphasizes that climate risk translates into financial risk. There are many other requirements of the TCFD that your organization needs to become familiar with to comply with SB 261. To learn more, visit this link.

If you’re just getting started measuring emissions, this process can appear daunting–but it doesn’t need to be. Tools, like simple to navigate carbon accounting software, automatically calculate emissions, identify emissions hotspots, track progress, and generate reports in line with international standards and reporting frameworks. They also have automatic data quality checks and built-in audit trails that capture the steps of your data collection and processing, which assists in the accuracy, integrity, and completeness of data. With how complex climate reporting can be, carbon accounting software can at least make your emissions measurement simple. 

Assess Your Organizational Capabilities

Consider assessing your organization’s capabilities, processes, and existing systems against the requirements of each regulation. This will highlight what your gaps are, where you need to dedicate resources, and will help inform a plan for compliance.

Questions to consider may include: Does my organization have the internal expertise or do we need to look externally to develop this capability? If the latter, what is it that we need? Is it hiring a carbon accountant or consultants who can walk us through the requirements? Do we need software that can help bring together data from multiple sources across the organization and automatically perform the calculations for us? Do we have the proper controls on climate reporting in place?

Partnering with external experts or using carbon emissions management software can help build the capabilities of your organization’s internal teams for dealing with these complex disclosure requirements, climate risk assessments, and carbon accounting. 

Engage Key Stakeholders

Reporting on climate is a cross-functional project that demands inputs from various functions throughout an organization. However, the data required for complying with climate disclosures is often highly decentralized. 

For example, facilities and operations are likely to be the data owners for scope 1 and 2 emissions (e.g. fuel purchases and utility records), accounting or operations may be the data owners for certain scope 3 emissions (e.g. records of procurements from suppliers), and finance and legal teams are critical to dealing with risks and preparing for audits.

Because this data is scattered across the organization, we recommend using carbon accounting software to centralize data and enhance coordination to ensure transparency and compliance. These tools should allow for easy data ingestion, including bulk data upload and custom mapping – so you and your team do not need to spend hours manually manipulating your data outside of the system. 

Boards also have an important role for complying with these regulations and directing the organization’s strategy for risk mitigation. With SB 261, organizations will be required to disclose information about the board’s role in the climate program of your business. Because of this, many organizations establish executive level sustainability committees with key partners from across relevant parts of the organization to develop and manage a plan and progress on emissions and climate risks disclosures. 

Establish Internal Controls for Gathering Data

Accuracy in climate data requires strict governance. Effective internal controls create an oversight system that develops efficient collaboration, leads to more credible reporting, and ultimately builds confidence in climate disclosures. Controls are risk reduction policies, procedures, and practices for identifying data needs, collecting data, processing data, and managing the data. Basically, a quality management system to ensure accuracy and prevent errors. This is particularly important when dealing with decentralized data subject to regulation as miscalculations, errors, or misstatements could lead to significant financial penalties.

Your internal controls should be documentation of the data, processes, methodologies, systems, assumptions, materiality thresholds, and estimates used to prepare an inventory. Sustainability regulations are dynamic and still emerging. Because of this, having a strong climate reporting program with controls, including audit-ready carbon accounting, will help your organization easily and readily adapt to the evolving world of climate disclosures. 

Your organization may also consider following the EPA’s Inventory Management Plan guidance for structuring your carbon accounting documentation and COSO’s recently released guidance on Internal Control Over Sustainability Reporting (ICSR).

If your organization is new to measuring its emissions, or is trying to improve its carbon accounting systems, create a distinct role with responsibility to champion this process, break down decentralized data silos, and enforce internal controls.

Being subject to California law, this data faces heightened scrutiny that your organization may not have previously experienced for its sustainability reporting. Because of this, we recommend that organizations think of, manage, and report their climate data with the same degree of rigor as their financial data disclosures. 

Measure Your Emissions to Create a GHG Inventory

Now is the time to begin or improve upon your GHG inventory process as measuring your organization’s carbon footprint is a requirement. It also provides insights on your largest sources of emissions, allowing you to take informed action to reduce emissions and optimize resource allocation for the greatest carbon impact.

If your organization is new to measuring emissions or does so outside the GHGP standard, below is a high level summary of the steps needed to create a GHG inventory and take action on your climate impact:

Planning

• Review GHG carbon accounting and disclosure standards
• Establish inventory boundaries (operational and organizational)
• Choose a base year

Data Collection and Emissions Calculation

• Identify emission sources and data requirements
• Develop data collection procedures and tools
• Gather and review data
• Use estimates to fill data gaps
• Quantify emissions using emission factors from well-established sources

Audit Data

• Complete internal quality assurance
• Obtain assurance of data from external audit firm

You can download this checklist here.

Scope 3 tips: Collecting the information needed for scope 3 emissions comes with its own unique set of challenges such as: data availability, data decentralization, and engagement with suppliers. Because scope 3 emissions disclosure is required by SB 253, it empowers your organization to have a very transparent conversation with your suppliers about climate impact, influence, and responsibility. Not all suppliers may have the resources to measure their emissions, therefore we recommend approaching the conversation as a partner, not necessarily as a client making demands. We also suggest codifying supplier GHG inventories or data sharing: as an example, this could mean working with your procurement teams to include GHG inventory requirements or decarbonization targets into your supplier contract renewals. Start by prioritizing engagement with your suppliers responsible for the largest share of scope 3 emissions.

Get Assurance

​​If your organization is subject to SB 253, you will be required to hire a third-party auditor to provide assurance on your GHG measurement. Remember grade school math class? Where the teachers always instructed you to show your work as to how you came to your result? At a high level that’s what assurance is. Auditors want to see how your organization calculated your emissions and where all the data was sourced. This builds the case for implementing tight internal controls over your organization’s carbon accounting data, sources, calculations, and processes that are meticulously documented.

To provide verification of your organization’s GHG emissions data, a third-party assurance provider will perform the following tasks: review methodologies, verify that protocol requirements have been met, review underlying data management systems, trace data from source to output/report, examine records, conduct interviews, review inputs, calculations, conversions, etc., determine if reported emissions are complete, GHGP compliant and accurate, and finally provide an assurance statement.

Limited assurance for scopes 1 and 2 begins in 2026 and will evolve to reasonable assurance in 2030. The law currently also requires limited assurance for scope 3 starting in 2030, but that provision will be reviewed by CARB in 2027. Importantly, not all financial auditors are qualified to provide assurance for the new climate disclosures. Make sure your assurance provider meets the standards set out by SB 253.

Note: Carbon accounting software automatically captures the steps of your data collection and processing, which assists not only in the quality and completeness of data, but provides a built-in audit trail that can easily be shared with your auditor.

Consider Software Automation

Use 2024 to work towards minimization of manual data entry and custom calculations. We may sound like a broken record on the benefits of automating your carbon accounting processes with software, but it’s because it makes creating a GHG inventory so much easier. For example, instead of manually entering in utility bill data, and manually applying emissions factors, consider software that will allow you to integrate with your utility account, or bulk upload your bills and automatically log your energy consumption data in order to be more efficient and reduce human errors. Carbon accounting software can also automatically apply emissions factors so you can calculate your emissions with precision and audit-ready documentation.

Climate Disclosure Readiness

Preparing for California’s Climate Accountability Package requires a proactive and strategic approach. While some of this may appear overwhelming if you’re new to climate reporting, it’s important to understand that these regulations are not designed to impose an undue burden on you. Instead, they are designed to help your organization decarbonize, mitigate exposure to climate-related risks, and act on opportunities that are both good for your business and bring us closer to meeting global climate targets. 

Don’t let the complexities of California’s Climate Accountability Package hold you back. Reach out to our team today to discover how our Climate Solutions Platform empowers your company to lead in climate action and sustainability, while confidently meeting its compliance requirements.