What You Need to Know About California’s SB 253 & 261

In this episode of Intertek’s Assurance in Action podcast, Beth Mielbrecht, Associate Director at Intertek Assuris, discusses the impact of California Senate Bills 253 and 261. These laws focus on greenhouse gas (GHG) emissions reporting and climate risk disclosures for companies with significant operations in California. 
This episode covers key compliance requirements, timelines, and practical tips for companies to prepare, including managing data and addressing climate risks within their operations. 

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Transcript

Natalia Farina  Intertek   0:43
 Hello and welcome to Intertek’s Assurance in Action podcast! My name is Natalia Farina, I’m the Global Marketing Manager for Business Assurance with Intertek, and I’ll be your host for this episode. Today we're diving into two critical pieces of legislation coming out of California, the Senate Bills 253 and 261. These laws could significantly impact your operations, especially in terms of greenhouse gas (GHG) reporting. To help us unpack these bills and understand how to prepare for compliance, I'm joined by Beth Mielbrecht, Associate Director at Intertek Assuris. Thank you for being here, Beth!

 Beth Mielbrecht Intertek   0:43 – 0:46
 Thanks, Natalia. Happy to be here.

 Natalia Farina  Intertek   0:47 – 1:02
 Amazing! So, let's start with the basic, Beth.
 Can you give us a brief overview of the Senate Bills 253 and 261 and what do companies need to know about these new requirements?

 Beth Mielbrecht Intertek   1:02 – 2:21
 Sure. So the first one, Senate Bill 253, is all about greenhouse gas emissions reporting. Now this one applies to public and private companies with an annual revenue of over $1 billion who are doing business in California and we're going to discuss that more later, I'm sure.
 But Senate Bill 253 is all about the annual reporting of scope 1, 2 and 3 greenhouse gas emissions, and this will be monitored by the California Air Resources Board.
 So, 253 is greenhouse gas.
 Now, the other one, Senate Bill 261, focuses on climate risk reporting that also applies to public and private companies, but the annual revenue threshold is only 500 million, so that's smaller than the greenhouse gas bill and you also have to be doing business in California. This one is reporting bi-annually, so that means every two years on your climate related risks and those financial risks and what you're doing about those risks.
 So those are the two summaries of those two bills.

 Natalia Farina  Intertek   2:22 – 2:27
 Perfect, thank you. And what's the timeline for companies to get compliant with these bills?

 Beth Mielbrecht Intertek   2:29 – 3:06
 So that is a matter of discussion right now!
 It's a hot topic because the initial signed bills were scheduled to be implemented with starting in of 2025 reporting for 2026.
 But there is a proposed amendment that would delay it by two years with reporting not needing to be in effect until 2028.
 So, we are waiting to see what happens in the California legislature for these two bills.

 Natalia Farina  Intertek   3:07 – 3:18
 Great. And one of the most critical questions that we received, it's about the definition of doing business in California. Could you please clarify what this means?

 Beth Mielbrecht Intertek   3:20 – 4:58
 Sure.
 So there's two parts to this.
 There is a specific definition in the California law about what doing business in California means and then there's the statements in the legislation.
 So if we look at the legislation for the two bills, it says that a reporting entity is a corporation or a partnership or a limited liability company, and that business needs to be formed under the laws of California or the laws of any other state in the United States were in the District of Columbia, and that is a reporting entity.
 So, first of all, we need to consider that there's a business entity that exists in the United States.
 Once we have that, then we can move to what is doing business in California means. It means that you engage in any transaction for the purpose of financial gain,
 you are organized or commercially domiciled in California, and you have California sales of excess of $700,000 or a property in excess of $70,000 or payroll in excess of $70,000. That makes you doing business in California.
 But let's bear in mind that the legislation states you need to have be a business entity, so you have to have a business unit that is incorporated in either California or somewhere else in the United States.

 Natalia Farina  Intertek   5:00 – 5:11 
 Alright, yes, could even a company with limited operations in California be required to comply if it meets one of these criteria, right?

 Beth Mielbrecht Intertek   5:12 – 5:41
 Yes, although you've we first need to have a business entity that's operating in the United States and then yes, if the if you meet those thresholds for reporting the $1 billion in revenue or the $500 million in revenue and you're also doing business in California, those thresholds are rather low.
 But yes, it's like a flow chart of logic and as we work our way down, yes, you could need to comply.

 Natalia Farina  Intertek   5:43 – 5:59
 Perfect, thank you for explaining.
 So, now let’s dive into a more complex scenario here. What happens if a company has both non-US and US operations? How does the bill 253 apply to them?

 Beth Mielbrecht Intertek   6:00 – 7:12
 So first of all, Senate Bill 253 is looking at a company that does business in in California and has a business unit that's incorporated in the United States, and if it is a subsidiary of a non U.S company, then there could be the parent companies reporting could satisfy the rule of SB253 for greenhouse gas reporting.
 If a company has non-US and US operations, California is going to want to see the US operations for this reporting requirement, but there is reporting relief.
 I think that's the best way to explain it. 
 And it's really the California wants to know about the whole company and specifically what they have control over is only if you are incorporated in the United States with businesses operations in California.

 Natalia Farina  Intertek   7:12 – 7:20
 Alright, so it's not just about California operations, right?
 It's the whole companies emission that needs to be reported.

 Beth Mielbrecht Intertek   7:22 – 7:48

Yes, and there is still more legislation that needs to be written for these two bills.
 Senate Bill 253 is a very short bill, and it needs to direct the California Air Resources Board on how to set the reporting structure, so more guidance needs to come from California to clarify some of these questions.

 Natalia Farina  Intertek   7:50 – 8:03
 Alright. So, we also had a lot of questions about what exactly companies need to report. So, can you explain the different scopes of a emission that the SB253 requires?

 Beth Mielbrecht Intertek   8:05 – 10:45
 Sure, so Senate Bill 253 is all about greenhouse gas emissions and the greenhouse gas emissions the minimum is scope 1 & 2. 
 Scope 1 is anything that is in combustion and is burned to heat or for processing energy at your facility. So, that's your natural gas or oil or propane. It also includes the gasoline or diesel that goes into your vehicles. So, scope 1 are fuels like that that are used either stationary or mobile in cars and we want to calculate the impact those have. 

Now, scope 2 is from electricity.
 So, scope 2 is - where do you get your electricity from? Is it renewable?
 Do you have a power purchase agreement for the type of electricity you use? and we calculate the impact of that under scope 2. 

If it doesn't specify scope 3 right away, but in the future scope 3 greenhouse gases will be required under this legislation.
 Now scope 3 has 15 different categories and it is referred to as the supply chain or the value chain, and it's about where your purchased goods come from and what those are your capital goods, your upstream transportation, your employee commuting business travel, things like that.
 It also includes what happens to your products that you or services at when they're being used and at the end of life also includes franchises and investments.
 Now there's 15 and not all apply to every company in California has not specified which scope 3 emissions need to be disclosed in the future, they are leaving that up to the California Air Resources Board.
 And it's important for a company to assess which of those categories are important, and those are the ones to focus on and report.
 So, not in California is not stating that all Scope 3 categories need to be disclosed, just the ones that are important and material to your company.

Natalia Farina  Intertek   10:47 – 10:55
 That's great, thank you, Beth.
 Now, do you have any tips for companies that are preparing for compliance with both bills?

 Beth Mielbrecht Intertek   10:56 – 12:30
 Yes, absolutely.
 The first thing to do is to look at making sure you have all of your records. That you have your electricity bills and your other utility bills from your heating sources, whether that's oil or natural gas, and documenting those because as you go forward with calculating or having a consultant calculate your scope 1 and 2 emissions, those are going to be very important.
 The next thing to think about is taking a look at Scope 3 and assessing what categories are material to you.
 Not all will be material, some are more important, you'll have more impact and some of them will have more, more difficulty.
 So, the first step is just to look at it, get familiar with those 15 categories and work with someone to identify what you should focus on.

For the climate risk reporting, the best suggestion I have is to elevate that to your risk committee, elevate that to the board level to your senior management, who need to include environmental risk as part of their risk planning and strategy.
 That's the first step is get it on the meeting agenda, start talking about it and then you will start assessing where you find risks and where you find opportunities that will be the basis for your reporting in the future.

 Natalia Farina  Intertek   12:32 – 13:03
 Thank you, Beth, for sharing those important tips.
 It's clear that companies need to be proactive in understanding the scopes and the broad definition of doing business in California.
 So, for our listeners, if you have any further questions or need guidance, feel free to reach out to us at business.assurance@intertek.com or consult the official California legal documents on these bills. Until next time, stay informed and prepared.