Climate disclosure in 2024: Full speed (and a little California sunshine) ahead

While 2024 shapes up to be yet another “keep-us-on-our-toes-year” on the sustainability front—with everything from tackling social implications of artificial intelligence to navigating debates on ESG topics as we head into another election cycle—one area will stay front and center for companies and their sustainability teams: climate disclosure.

In the U.S., while the Securities and Exchange Commission's (SEC) proposed rule remains grounded until at least April, California has taken the lead with three landmark laws: SB 253 (the Climate Corporate Data Accountability Act), SB 261 (the Climate-Related Financial Risk Act), and AB 1305 (the California Voluntary Carbon Market Disclosure Act).

If you are a public or private company with more than US$500 million in revenue that does business in California, or a company that operates in California and makes claims related to net-zero, carbon neutrality, or significant emissions reductions based on use of carbon offsets, one or more of these laws could apply to you.

Leapfrogging the SEC: state laws with national reach

These rules apply to both private and public companies and require more comprehensive disclosure of greenhouse gas emissions (including Scope 3 emissions), climate-related financial risks, and transition plans. Compared to what is known about the SEC's still-evolving proposal, which may be more focused on “material” Scope 3 emissions, California's rules go further. For example, SB 253 would likely require all relevant Scope 3 emissions to be disclosed.

And because the laws apply to companies with a certain turnover threshold who also “do business” in California, or who operate in California and make certain claims, these regulations have national and potentially international implications, raising the bar on corporate transparency for climate. And the laws have “teeth”—for example, SB 253 carries fines for noncompliance up to $500,000 annually.

In a nutshell, who must disclose, what, and when (more details can be found in the table below):

• SB 253 requires companies with more than USD1 billion in revenue who do business in California to measure and publicly disclose greenhouse gas emissions on an annual basis, according to the Greenhouse Gas Protocol, beginning with Scopes 1 and 2 in 2026 and Scope 3 in 2027. Assurance is phased in at various levels across these Scopes between 2026 and 2030.
• SB 261 requires companies with more than USD500 million in revenue who do business in California to publish a qualitative climate-related financial risk report aligned with the Task Force on Climate-related Financial Disclosures (TCFD) biennially from 2026. Note, insurance companies are excluded.
• AB 1305 requires companies that operate in California that have claimed that they have achieved carbon neutrality or net-zero status to provide details surrounding their use of voluntary carbon offsets starting in 2025 (for 2024-year data).

California’s approach sets a higher bar for U.S. companies but can also grant companies a head-start when the federal mandate takes flight, or as additional states pursue similar regulations. For example, following California’s lead, New York is pursuing its own climate disclosure regulations. Illinois, Colorado, and Minnesota are considering narrower approaches to climate risk and transparency.

Building on familiar playbooks: TCFD and the GHG Protocol

While pioneering in the U.S., California's approach shares common ground with international mandatory and voluntary standards. This includes the E1 Climate Change standard under the EU’s Corporate Sustainability Reporting Directive (CSRD), the IFRS Sustainability S2 Standard, and the Global Reporting Initiative’s (GRI’s) proposed new climate standard.

Chief among the similarities: they build on the principles-based approach in the TCFD (now part of the International Sustainability Standards Board), requiring disclosure of material information on emissions (where using the GHG Protocol plays a role) and risks across the value chain, along with plans to address them.

Although there are differences, companies who already prepare TCFD-aligned reports or who are preparing for CSRD reporting and/or IFRS S2 reporting will find a good bit of overlap. The California laws also allow companies to satisfy their obligations by reporting in line with other international standards.

Getting started

If you've already embraced sustainability reporting, chances are you are not starting from scratch. Consider the California requirements as an opportunity to differentiate and to strengthen the resilience of your business. Here's how:

• Assess applicability. Determine whether your company is one of the thousands that will have obligations under any of these California laws. AB 1305 particularly requires attention given its shorter time frame and broader applicability (i.e., there is no turnover threshold).
• Look for overlaps: As noted, climate-related disclosures build upon well-established frameworks such as TCFD. In addition, standards setters have worked together to support interoperability. If you are already reporting on TCFD or using other standards (e.g., GRI climate, CDP) you will find that you have a head start.
• Engage with your value chain: One of the greatest challenges companies will face is the collection of investment-grade data from across the value chain to support Scope 3 disclosure expectations. Understanding business activities and relationships both upstream and downstream will be critical. Tools in the evolving carbon accounting software landscape can be helpful for this.
• Focus on audit readiness: Ensure that sustainability and finance are working in lockstep to establish controls and data-collection methodologies that are audit ready. All standards noted include some expectations or recommendations related to assurance. Transparent, verifiable disclosures strengthen credibility and decision usefulness, above all to investors.

California has been a long-time leader in environmental public policy, and we can view these developments as leading indicators of where climate disclosure is heading. Disclosing and managing your climate-related risks and impacts are not just compliance exercises—they can be key to future-proofing your business in a resource-constrained world.

Want to learn more? Morrow Sodali’s North American ESG Team can help your company navigate the requirements and develop climate-related strategies and disclosures. Contact Víctor Meléndez, Managing Director, at v.melendez@morrowsodali.com.

Climate Corporate Data Accountability Act (SB 253)

Who must disclose
Corporation, partnership, limited-liability company, or other business entity with more than USD1B in annual revenues that does business in California.

What must be disclosed
Emissions disclosures calculated following the GHG Protocol, which is used by TCFD.

When to disclose

• 2026: Scope 1 and scope 2 GHG emissions (limited assurance)
• 2027: Scope 3 GHG emissions disclosures (no assurance required)
• 2030: Scope 1 and scope 2 GHG emissions (reasonable assurance required)
• 2030: Scope 3 GHG emissions disclosures (still under consideration: limited assurance)

Greenhouse Gases: Climate-Related Financial Risk Act (SB 261)

Who must disclose
Corporation, partnership, limited liability company, or other business entity with over USD500M annual revenue. Insurance companies are exempt.

What must be disclosed
A qualitative TCFD aligned climate-related financial risk report.

When to disclose

• 2026: Climate-related financial risk report

California Voluntary Carbon Market Disclosure Act (AB 1305)

Who must disclose
Business entities that market or sell voluntary carbon offsets in California. Business entities operating in California that claim that they have achieved carbon neutrality or net-zero status.

What must be disclosed
Details of voluntary carbon offset project, what happens if the offsets do not provide expected GHG emission reductions, and how the emission reductions were calculated.

When to disclose

• January 1, 2025 (covering 2024 data): Details surrounding voluntary carbon offsets