California and Canada Update Rules on Climate Disclosures

Alert

October 17, 2024

California

On September 27, 2024, California’s governor, Gavin Newsom, signed into law Senate Bill 219 (SB 219), enacting several amendments to Senate Bill 253 (SB 253) and the Climate‐Related Financial Risk Act (SB 261). These amendments provide additional flexibility for reporting entities while maintaining the core reporting requirements. The 2026 reports, required for emissions during Calendar Year 2025, underscore the importance of having your infrastructure for reporting in place now.

Key Updates and Requirements for California

Annual Emissions Reporting: Companies must submit yearly reports on their global emissions of carbon dioxide and other gases contributing to global warming. SB 219 allows for some flexibility in the timing of Scope 3 emissions reporting, now to be scheduled by the California Air Resources Board (CARB) starting in 2027.
Compliance Dates: For companies doing business in California with over $1 billion in revenue, Scope 1 and 2 emissions reporting begins in 2026, with Scope 3 emissions reporting starting in 2027. These timelines align with CARB’s specifications, as amended by SB 219. Important note: the 2026 reports are required for emissions during Calendar Year 2025. Now is the time to ensure your infrastructure for reporting is in place.
Financial Risk Assessment: Companies making over $500 million must explain how climate change affects their finances globally. The first report is due by January 1, 2026 for Calendar Year 2025, and biennially thereafter.
Consolidated Reporting: Parent companies can consolidate climate-related financial risk reports instead of requiring reports from each subsidiary.
Website Disclosures: Companies must publicly disclose their emissions and climate-related financial risks on their websites. The first disclosure is due by January 1, 2026, with subsequent disclosures required every two years.
Enforcement and Penalties: CARB will enforce the Climate Corporate Data Accountability Act (CCDAA), and companies failing to comply may face penalties up to $500,000. SB 219 provides flexibility regarding payment deadlines for annual fees upon filing disclosures.

The industrial manufacturing sector, a significant contributor to greenhouse gas emissions, will face unique challenges and opportunities in meeting these requirements. Overall, these regulations underscore California’s commitment to holding corporations accountable for their role in climate change, potentially setting a precedent for similar legislation across the United States.

Canada

On October 10, 2024, Canada continued along its path toward mandatory climate-related disclosures when it unveiled an expansion of its requirements to cover private firms, aiming to mandate such reporting for large, federally incorporated entities. Additionally, the government proposed a sustainable investment taxonomy to classify green and transitional economic activities.

Key Updates and Requirements for Canada

The development of a Made-in-Canada sustainable finance taxonomy and regulations to require climate disclosures from large companies builds on the important work done by the Sustainable Finance Action Council.
The federal government is investing over $160 billion in its net-zero economic plan, including through a $93 billion suite of tax credits for major economic investments in:
- Carbon capture, utilization, and storage;
- Clean technology;
- Clean hydrogen;
- Clean technology manufacturing;
- Clean electricity; and,
- Electric vehicle (EV) supply chains.
In addition to tax credits for major economic investments, the federal government is attracting net-zero private sector investment by:
- Catalyzing private investment in low-carbon projects, technologies, businesses, and supply chains through the $15 billion Canada Growth Fund, which has already invested over $2 billion across eight deals, including three novel Carbon Contracts for Difference;
- Leveraging at least $20 billion from the Canada Infrastructure Bank to build major clean electricity and clean growth infrastructure projects;
- Securing Canada’s advantage as the world’s supplier of choice for critical minerals and the clean technologies they enable, by further developing supply chains through a $3.8 billion Critical Minerals Strategy; and,
- Building more clean, affordable, and reliable power, and supporting innovation in electricity grids, including offshore wind, through the $3 billion recapitalization of the Smart Renewables and Electrification Pathways Program.
Amendments to the Canada Business Corporations Act will require new climate-related financial disclosures, with a regulatory process to determine the specifics and the size of companies to be covered.
Small and medium-sized businesses (those with 1-499 paid employees) will not be subject to the new requirements, but the government is considering ways to encourage voluntary climate-related disclosures.
The Canadian Sustainability Standards Board released proposed standards for companies to report sustainability and climate-related information, based on the International Sustainability Standards Board’s sustainability disclosure standards.

These developments reflect Canada’s commitment to enhancing transparency and accountability in corporate climate actions, aligning with international standards and fostering sustainable economic activities.

How We Can Help

Cherry Bekaert can assist companies in meeting their carbon accounting and reporting needs. We can companies set up their reporting process to measure, track and report their carbon emissions to follow new laws on greenhouse gases. We help companies understand the financial risks of climate change and suggest ways to reduce these risks.

Manufacturing and other companies should begin preparing to meet the requirements of the CCDAA by assessing their current emissions, overall carbon footprint, supply chain management practices, and energy efficiency measures. Given the complexities of the audit process, compliance and liability risks, it is critical to have carbon accounting reporting done by certified accountants. By leveraging Cherry Bekaert capabilities in accounting, finance and risk management, we can help companies navigate the complexities of the new legislation and drive meaningful progress towards a more sustainable future.