How SB 253 impacts small and medium-sized businesses

The pressure is mounting for governments to keep up with public demand to hold businesses accountable for reducing their climate impact, so more and more climate disclosure regulations are being introduced (and passed) around the world. The most recent – and monumental – regulations is California’s Senate Bills 253 and 261.

SB 261 applies to companies with annual revenues over $500 million USD, and the SB 253 bill applies to companies with revenues over 1 billion USD who operate in California. However, it indirectly – but majorly – impacts small and medium businesses that account for nearly two-thirds of jobs in the United States. How?

SB253 specifically mandates that companies report on their carbon emissions from every aspect of their business, including their indirect (Scope 3) emissions. That means that they need emissions data from all of their vendors and suppliers: i.e. the small and medium enterprises (SMEs) who service them.

What is SB 253?

SB 253 – aka The Climate Corporate Data Accountability Act – is a senate bill that was signed into law on October 7, 2023. The bill mandates that private and public companies that “do business in California” report on their own operational greenhouse gas emissions as well as their supply chain emissions.

The emissions data has to be aligned to the Greenhouse Gas Protocol standards, and all of the data will become publicly available online.

It is a monumental step towards accountability for businesses to measure, manage, and ultimately reduce their climate impact.

Who does SB 253 apply to?

The bill directly applies to public and private companies with more than $1 billion in annual revenue who operate in California.

The State of California defines “doing business in California” on their website, but in short: there are thresholds for the amount of sales that a company does in California for the bill to apply. Businesses do not need to be based in California to be impacted. Regardless of whether you think your company might be impacted it is always prudent to prepare!

The state of California is the fifth largest economy in the world, so the impacts of this bill are huge! Even if you are not based in California, the chance that your business is part of an impacted company’s supply chain is pretty high – and if not now, it’s simply a matter of when.

When does SB 253 come into effect?

Scope 1 and 2

The bill mandates that a company’s direct emissions (Scope 1 and 2) must be measured and disclosed by 2026. Importantly, this means that the data is collected, measured, and verified against the Greenhouse Gas Protocol standards for 2025.

Scope 3

By 2027, companies will need to measure and report their indirect (including their supply and value chain) emissions according to GHG Protocol standards.

Companies will also need to get their emissions verified by a third party.

According to the SBTI, over 70 percent of a company’s GHG emissions take place along the value chain. With SB 253 mandating Scope 3 emissions reporting, the impact on SMEs who are part of that value chain – and ultimately on reducing corporate emissions- cannot be understated.

What happens if companies do not meet the SB 253 reporting requirements?

Fines up to $500,000 can be given to penalize non-compliant companies.

How can SMEs prepare?

SB253 is estimated to affect over 5,300 businesses, which means that over 5,300 supply chains will be impacted too: we’re looking at you, SMEs!

Inevitably, SMEs will soon get requests for their climate data from their biggest customers. The climate data that they will need to provide is their business’ direct (Scope 1 and 2) greenhouse gas emissions.

“Rigorous greenhouse gas accounting is the bedrock for achieving bold climate action. Simply put, you cannot cut what you don't count.”

How long will it take to prepare?

Depending on how you approach measuring your GHG emissions, the process of collecting and refining your climate data can take anywhere from weeks to months.

Leveraging a software like Carbonhound can be extremely helpful to make sure you have credible, up to date climate data to disclose while also saving you time and money.

When Tendril Studio & Forever Co. needed to respond to their customer request, they were able to automate their climate data collection and export it in report-ready format in just 3 weeks.

What happens if SMEs don’t prepare?

Businesses that are not directly mandated by SB 253 can not be fined – but they can and will lose major customers and opportunity.

Measuring your emissions in 2024 and 2025 ahead of the first reporting deadline of 2026 is the best way to keep important customers and differentiate yourself amongst your competitors.

Automate your carbon accounting and data collection

Calculate your footprint, manage your climate impact, set targets, and track your progress – all in one place.

Where does carbon accounting software fit in?

Measuring and reporting on greenhouse gas emissions is a critical first step towards understanding a business’ impact and striving towards change. It is also the key information that will be shared as part of the SB 253 requirements, and the data that directly impacted companies will ask of their supply chain.

Since many SMEs don’t have an in-house sustainability expert nor big budgets to spend on consultants, carbon accounting software like Carbonhound is a no-brainer. With transparent and accessible pricing and an automated interface designed for non-experts, it is the best way for SMEs to take control of their climate data with confidence.

Tendril Studio and Forever Co. prepared a response to their customer’s emissions reporting request in just three weeks.

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What is SB 261?

Where SB 253 speaks to the quantitative side (emissions) of climate impact, SB 261 is the qualitative part (risk). It is the “Climate-Related Financial Risk Act”, and requires companies with revenues over $500 million USD that do business in California to submit climate-related financial risk reports.

For example, if a food company sources its ingredients from a farm that is susceptible to drought and climate change, they would have to disclose what financial risk that poses to their business and any mitigation strategies (like purchasing more insurance).

The first reports will be required in 2026.

What is AB 1305?

Assembly Bill 1305 was also passed on October 7 and speaks to voluntary carbon market disclosures, aka the purchase, sale, and marketing of carbon offsets. It aims to make the carbon market more transparent.

Beginning on January 1, 2024, any company that purchases offsets needs to publicly disclose how claims of “net-zero” or otherwise are actually calculated and achieved. This includes carbon emissions data, the type and quality of offsets purchased, and whether there is third-party verification of the company data and claims listed.

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