California, a global leader in environmental policy, has taken a significant step towards a more sustainable future with the passing of SB 253 and SB 261, also known as the Climate Accountability Package. They present both significant opportunities and considerations for Consumer Packaged Goods companies operating in California.
Increased Transparency
SB 253, the Climate Corporate Data Accountability Act, mandates increased transparency for large companies (over $1 billion in annual revenue) doing business in California. Starting in 2026, these companies will be required to disclose their greenhouse gas (GHG) emissions annually, categorized as:
- Scope 1: Direct emissions from their own operations
- Scope 2: Indirect emissions from purchased electricity, heat, or cooling
- Scope 3: Indirect emissions (not included in scope 2) that occur in the value chain of the reporting company.
Emissions along the value chain often represent a company’s biggest greenhouse gas impacts, often representing more than 90 percent of the company’s total emissions. Inclusion of Scope 3 emissions enables companies to understand their full value chain emissions and to focus their efforts on the greatest GHG reduction opportunities. Despite mandatory Scope 3 reporting for CPG companies in California not required until 2027 for the previous reporting year, early preparation and compliance offers a head start, a competitive edge, supply chain benefits, a smoother transition, and future-proofs them for stricter regulations.
This comprehensive set of disclosures, aligned with the Greenhouse Gas Protocol standards, will provide a clearer picture of a company’s environmental footprint. Independent verification adds a layer of credibility, ensuring the accuracy of reported data.
Climate Risks in Focus: Proactive Management
SB 261, the Climate-Related Financial Risk Act, complements SB 253 by requiring companies with revenue exceeding $500 million to disclose climate-related financial risks. This biennial report, starting in 2026, will delve into:
- The potential financial impact of climate change on the company
- Strategies and measures adopted to mitigate these risks and adapt to a changing climate
Following the Task Force on Climate-Related Financial Disclosure (TCFD) framework, this report empowers businesses to proactively manage climate risks and build resilience. Note that SB 261 lowers the revenue threshold ($500 million) compared to SB 253 ($1 billion) so it would cover an even larger set of companies.
Why Does This Matter?
The implications of SB 253 and SB 261 extend beyond California. Here’s why these regulations are significant:
- Global Impact: California’s economic influence is undeniable. In terms of nominal GDP, California ranks as the world’s fifth largest economy. Compliance with these regulations sets a precedent that can resonate worldwide.
- Transparency as a Cornerstone: Greenwashing tactics lose their effectiveness. Accurate and transparent reporting builds trust with stakeholders.
- Investor Confidence: Investors increasingly prioritize climate-conscious companies. Compliance with these regulations demonstrates a commitment to sustainability, enhancing your reputation and potentially attracting more investment.
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Taking Action: A Roadmap to Compliance
CarbonBright is here to support your organization on this journey. Here are some initial steps you can take:
- Measure Your Emissions: Assess your Scope 1, 2, and 3 emissions. Our software can help you calculate your product carbon footprint with scientific accuracy, aligned with industry standards.
- Prepare for Reporting: Start collecting data and consider partnering with a third-party verifier to ensure compliance.
- Evaluate Climate Risks: Identify potential financial risks associated with climate change and develop mitigation strategies.
- Communicate Openly: Share your sustainability goals and progress with stakeholders.
Stay Ahead of the Curve
Regardless of your current sustainability efforts, understanding your environmental impact is crucial. At CarbonBright, we offer a comprehensive suite of tools and expertise to help you track and manage your product-level GHG emissions, identify and address climate risks, and establish ambitious emission reduction targets.
