The landscape of corporate environmental disclosures remains ever shifting.
In just the last week, multiple late-breaking changes were proposed to the Europe Union’s historic Corporate Sustainability Reporting Directive (CSRD) to weaken and delay these mandatory disclosures. However these motions were roundly rejected by the European Parliament, and the fundamental requirements will now be formally adopted before the end of the year — requiring more than 50,000 companies to begin assessing the sustainability of their businesses in January of 2024.
Indeed, businesses should expect to see more requirements like CSRD in the future, not fewer. For example, California just passed new disclosure laws that will impact many businesses, particularly consumer goods brands that operate in the state.
California Governor Gavin Newsom recently signed these two groundbreaking bills into law: Sen. Scott Weiner’s SB 253, known as the Climate Corporate Data Accountability Act, and Sen. Henry Stern’s SB 261, the Climate-Related Financial Risk Disclosure Act. These two laws will be the most extensive emissions-related laws in the United States, and will require companies to assess, measure, and report on both their environmental impact and climate-related financial risks.
For both bills, transparency is a central theme. These laws will demand that businesses not only publicize their climate and environmental impacts, but that they have full, completed, and verified information to support their claims. As mentioned, these requirements are representative of larger market and regulatory trends toward data-backed ESG disclosures.
But what exactly do these CA laws mean for your business now? Who will be affected? How can you start preparing?
As the leading software platform for sustainability data, Worldly offers the tools, primary data collection, analysis, and verification services that businesses need to support their compliance strategies in this new era. We have over a decade of experience helping consumer goods businesses measure, evaluate, and report on supply chain impacts. We’ve put together this guide to help you assess the impacts of these new laws and prepare your organization for compliance.
Climate Corporate Data Accountability Act (CA 253):
The Climate Corporate Data Accountability Act, or CA 253, will transform how businesses evaluate and report their greenhouse gas emissions.
This comprehensive law covers the following types of carbon emissions:
- Scope 1 (Direct Emissions), which includes emissions produced directly by the company itself;
- Scope 2 (Purchase and Use of Electricity), which accounts for emissions stemming from the purchase and use of electricity;
- Scope 3 (Indirect Emissions), which is perhaps the most extensive and includes emissions linked to supply chains, purchased goods and services, and the processing and use of sold products.
Companies will not only need to report these emissions, but also have their reporting data independently verified by a third-party assurer — in fact, reports without this assurance would be considered incomplete by the California Air Resources Board (the government body monitoring the reports).
While CA 253 will initially only require Scope 1 and Scope 2 reporting (with Scope 3 due in 2027), we believe this will still be a substantial undertaking — particularly for businesses with complex supply chains. Because reporting obligations are based on company revenue and not simply on carbon emissions levels themselves, larger companies may be required to collect emissions data from their much smaller and under-resourced supply chain partners; or vice versa, smaller businesses contracting with large companies may need to request detailed data from their major partners.
Where to start
To get ahead of these compliance requirements, we recommend that brands use the supplier engagement and adoption tools on Worldly to begin mapping their supply chains. These tools can determine which of your manufacturers are already disclosing their greenhouse gas emissions via the Higg Facility Environmental Module (FEM). Even better, the same tools can automatically make requests of facilities that are not yet reporting through the FEM. Worldly can also support verification and third-party auditing of submitted assessments, as required by CA 253. By using Higg FEM to engage your suppliers over the next year, your business can start gathering data needed for your Scope 3 calculations in time for 2027 reporting.
With nearly 4,500 companies doing business in California required to comply, we expect that CA 253 will make Scope 3 carbon accounting a new norm.
Climate-Related Financial Risk Disclosure Act (CA 261):
Compared to CA 253, the new law CA 261 goes further than GHG emissions, to require disclosure of more general climate-related business risks.
Affected companies will need to submit a biennial climate-related financial risk report, which must cover:
- Climate-Related Financial Risks: Companies will need to assess financial risks stemming from climate change. These risks must cover topics such as corporate operations, supply chains, and employee health and safety, and should encompass both immediate and long-term financial outcomes.
- Measures to Mitigate Risks: Companies must also outline the measures they have adopted to reduce and adapt to these stated climate-related financial risks.
This law is expected to cover more companies than SB 253 — approximately 10,000 companies overall, including those with total annual revenues more than $500 million (based on the company’s revenue for the prior fiscal year) that operate in California (not solely those who are headquartered in the state).
Where to Start
While carbon accounting can help businesses identify climate-related financial risks, emissions don’t tell the entire story. For businesses facing CA 261 compliance, Worldly offers a number of solutions that can help you identify and disclose these other risks.
To start, the Brand and Retail Module (BRM) is designed to help companies benchmark their existing environmental and human rights policies, actions, and targets against apparel and footwear industry best practices. The BRM is a great starting place for CA 261 reporting, particularly when it comes to identifying supplier risks and assessing corporate operations.
Additionally, while the Higg FEM can support measurement of environmental impacts, the companion Higg FSLM (Facility Social and Labor) is designed to gather data on working conditions. Given that CA 261 will encompass employee health and safety, the Higg FSLM can be a useful tool for identifying and monitoring labor issues within the supply chain.
Finally, given that companies would be required to disclose to two separate reporting bodies, maintaining interoperability across disclosure reports will be a crucial step in reducing overhead for your team. We also anticipate that there will be significant overlap with reporting requirements from other recent climate legislation, such as the EU’s Corporate Sustainability Reporting Directive (CSRD).
The next era of environmental, social, and governance regulation is upon us. Whether your business is impacted or not, we encourage companies to embrace California’s groundbreaking disclosure laws — it’s an opportunity to position yourself early as a leader for a more sustainable future.
And we’re here to help you get started. Our teams have helped hundreds of brands identify the supply chain data they need and put the technology in place to get it. Get in touch with our customer success team for a free readiness assessment.
By relying on Worldly as your primary platform for data collection, your business can streamline its CA 253 and CA 261 reporting strategies — so you can spend less time managing spreadsheets and more time improving your company’s actual impact.