Summary
Cut through the green tape
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Details
Deep dive
Background
The State of California has long been in the vanguard of environmental regulation in the United States, and the Climate Corporate Data Accountability Act (CCDAA) adopted on 7 October 2023 is the latest in a series of policies and programs aimed at addressing climate change in the state. Building on previous initiatives such as the Global Warming Solutions Act (GWSA) of 2006 and other climate-related bills and Executive Orders, the CCDAA is a major step forward in strengthening corporate accountability for their carbon emissions. Earlier regulations established the foundation for statewide greenhouse gas (GHG) reduction targets with the GWSA mandating emissions disclosures from establishments involved in selected industrial activities. The CCDAA establishes a mandatory carbon disclosure regime for a wider range of companies and activities. The Act fits within California’s broader strategy to attain carbon neutrality by 2045 and maintain net negative emissions thereafter and aligns with global efforts to ensure corporate transparency in climate impact reporting. Being the fifth largest economy in the world, the CCDAA and other climate-related policies in California have far-reaching implications beyond the borders of the State.
Requirements of the CCDAA
The CCDAA establishes stringent carbon disclosure requirements for affected companies, mandating that starting in 2026 (disclosing emissions for the 2025 calendar year), companies annually report their Scope 1 and Scope 2 emissions, and, starting in 2027, their Scope 3 emissions. All reporting must follow the Greenhouse Gas Protocol, a globally recognized carbon accounting standard, to ensure consistency and accuracy in the reporting regime. Moreover, emissions disclosures must be verified by an independent third-party assurance provider to ensure the credibility of reports.
Which companies are affected
The CCDAA is targeted at large businesses in California generating annual revenues of over $1 billion. This revenue threshold covers a wide range of industries, including but not limited to energy, manufacturing, technology, retail, and transportation. Mandatory emissions reporting under the CCDAA applies to both public and private companies. As estimated by Ceres, one of the sponsors of the bill, around 5,300 companies could be affected by the CCDAA, about 73% of which are private companies. By covering both public and private companies, the CCDAA has a wider scope than the Securities and Exchange Commission's (SEC) climate disclosure rules adopted in 2024 which apply only to certain public companies.
Penalties for noncompliance
The CCDAA stipulates financial penalties for failure to report, late submission of reports, or infringements of other reporting requirements of the Act. The financial penalties imposed on a company shall not exceed $500,000 in a reporting year. In determining penalties, the California Air Resources Board (CARB) which is responsible for enforcing the CCDAA will examine all relevant factors including the company's past and present compliance record. As the implementation of the CCDAA emissions reporting regime only just started, there are no cases of enforcement action by the CARB. Moreover, beyond financial penalties, companies that fail to meet their reporting obligations risk reputational loss, as the Act requires the emissions data of all reporting companies to be made publicly available on a central digital platform, allowing investors, consumers, and advocacy groups to track the reporting record of companies.
