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As the U.S. Securities and Exchange Commission’s (SEC) climate disclosure rules loom, California has forged ahead with its own legislation related to environmental, social and governance (ESG) disclosures and reporting. Governor Gavin Newsom signed Senate Bills (SBs) 253 and 261 into law on October 7, 2023, and both laws will be administered by the California Air Resources Board (CARB). Because the laws automatically apply to companies doing business in California that exceed set revenue thresholds, they are expected to impact around 10,000 companies, and not just those in industries typically considered to have environmental impacts. Managed care organizations (MCOs) that exceed the revenue thresholds set by SB 253 and SB 261 should therefore understand the laws’ requirements and begin planning ahead to ensure compliance.
SB 253 – Greenhouse gas emissions disclosures
SB 253 applies to all companies, including MCOs, with total annual revenues in excess of $1 billion and that do business in California. Revenues are based on total numbers, not just revenues generated within California.
Based on the revenue threshold, SB 253 is predicted to impact over 5,300 companies operating in California. SB 253 mandates annual reporting of:
- Scope 1 emissions – Emissions from sources directly owned or controlled by the company, such as company vehicles.
- Scope 2 emissions – Indirect emissions, such as emissions from the generation of electricity consumed by the company.
- Scope 3 emissions – All other indirect emissions not covered by Scope 2, including fuel and energy related activities, leased assets, employee commuting and business travel.
Reporting under SB 253 begins in 2026 and will cover Scope 1 and Scope 2 emissions generated in 2025. Scope 3 emissions will need to be reported starting in 2027. MCOs should be aware that tracking Scope 3 emissions may be particularly challenging given the potentially broad interpretation of indirect emissions. For example, emissions generated from data centers and cloud storage may need to be reported under Scope 3 emissions, as they could be considered fuel and energy related activities.
Reports must follow the globally recognized Greenhouse Gas Protocol standard for emissions accounting and reporting. Reportable emissions will also need to be verified by a third-party.
SB 261 – Climate reporting
SB 261 applies to companies with total annual revenues over $500 million doing business in California. The law mandates disclosure of climate-related financial risks and measures for risk reduction. The law covers physical risks (e.g., extreme weather events) and transitional risks (e.g., energy and fuel costs). Disclosure reports required by the law must align with the internationally recognized Task Force on Climate-Related Financial Disclosures (TFCD) framework or an equivalent framework. If the SEC’s proposed rules on climate-related disclosures are finalized as is, the reporting requirements under SB 261 would satisfy both California’s SB 261 and the proposed SEC rules.
Starting in January 2026, MCOs subject to the law will be required to prepare a climate-related financial risk report that discloses climate-related financial risks and the measures taken to mitigate those risks. Reporting will occur biennially and must be made available on the company’s website.
- California is requiring MCOs with significant revenues doing business in the state to disclose emissions and produce climate-related reports
- Even if based outside of California, MCOs must comply if they generate revenue above applicable thresholds in California
- Annual or biennial reporting under both laws is set to begin in January 2026