California’s Climate Corporate Data Accountability Act (CCDAA): Strategies for Businesses to Prepare

California’s Climate Corporate Data Accountability Act (CCDAA): Strategies for Businesses to Prepare

In September 2024, California Governor Gavin Newsom signed the Climate Corporate Data Accountability Act (CCDAA) into law. The new law, originally known as bills SB 253 and SB261 and combined into SB 219, will require US companies doing business in California to disclose their Scope 1, 2, and 3 greenhouse gas emissions and/or potential climate-related financial risks starting in 2026. Furthermore, many companies will need to seek third-party assurance for their sustainability data.

This law aims to improve corporate transparency and standardize corporate disclosures regarding carbon emissions and, as such, raises the bar on corporate climate requirements. It is part of a global mandatory sustainability reporting movement that includes the CSRD in Europe and mandatory disclosure regulations coming to Canada, Japan, Switzerland, and more

Given the size of California, this bill is expected to impact 10,000 companies headquartered across the country. Understanding these regulations and preparing in advance is crucial for companies to ensure compliance. If you are unsure if you will need to report, please reach out.

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Key Takeaways

• Companies will need to start reporting in 2026, based on 2025 data.
• Impacted companies will need to report Scope 1, 2, and 3 data and/or climate-related financial risks.
• Companies over $1 billion in revenue must obtain third-party verification for their emissions reports to ensure accuracy and reliability.
• Failure to comply with these regulations can lead to significant financial penalties for businesses.

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What does the Climate Corporate Data Accountability Act (CCDAA) require?

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The CCDAA requires some US-based public and private companies operating in California to disclose their emissions data, beginning in 2026 on 2025 data. In addition to Scope 1 emissions, those that result directly from a company’s activities, and Scope 2 emissions, those released indirectly, such as from electricity purchased and used by the company, the CCDAA will also require companies to disclose Scope 3 emissions – emissions produced from a company’s entire value chain. Given the challenge of collecting supply chain emissions data, Scope 3 emissions reporting is delayed one year and will be required in 2027 on 2026 data. (For an overview of emissions “Scopes” and carbon accounting, see this quick explainer.)

In addition to collecting this data, many companies will need to have their Scope 1 and 2 emissions disclosures independently assured by a third party. The California Air Resources Board (CARB) is expected to offer additional guidance as to whether Scope 3 emissions will also require third-party assurance. All emissions disclosures will be housed on a publicly available digital registry.

In addition to emissions disclosures, the CCDAA also requires certain businesses operating in California to prepare and publish climate-related financial risk reports in accordance with the Task Force on Climate-Related Financial Disclosure (TCFD) framework by January 1, 2026. Those reports must be published on a company’s website. 

Impact of the CCDAA on Businesses

Who Needs to Comply

The CCDAA is expected to impact approximately 10,000 companies across the United States:

• Large companies: Public and private businesses that operate in California and have annual revenues exceeding $1 billion must annually disclose their greenhouse gas (GHG) emissions across Scope 1, Scope 2, and Scope 3. They will also need to disclose their climate-related financial risks and the measures they take to mitigate these risks.
• Mid-sized companies: Public and private companies with California operations and revenues over $500 million are required to prepare and disclose climate-related financial risk reports, detailing the risks their operations pose to the environment, as well as the measures they adopt to mitigate these risks.

Penalties for Non-Compliance

The law authorizes the State Board to bring civil actions against subject companies and seek civil penalties for violations of the act. Failure to comply with these laws can lead to hefty fines:

• Emissions disclosure: Penalties for companies relating to the emissions disclosure requirements can reach up to $500,000.
• Financial risk reporting: Penalties relating to the financial risk report part of the requirements can reach up to $50,000. 

Note: Due to the historical difficulty of collecting and calculating supply chain data, there will initially be a safe harbor for scope 3 emissions disclosures; companies are not subject to administrative penalties for misstatements about scope 3 emissions made on a reasonable basis and disclosed in good faith.

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Reporting Requirements Under CCDAA

Scope 1, 2, and 3 Emissions Reporting

Companies with over $1 billion in annual revenue must report their greenhouse gas emissions. This includes:

• Scope 1: Direct emissions from owned or controlled sources.
• Scope 2: Indirect emissions from the generation of purchased electricity.
• Scope 3: Other indirect emissions, such as those from the supply chain.

These reports must follow the GHG Protocol standards and be publicly available for stakeholders.

Climate-Related Financial Risk Disclosures

Companies with revenues over $500 million will need to prepare a climate-related financial risk report every two years. This report should:

1. Align with the Task Force on Climate-related Financial Disclosures (TCFD) framework.
2. Detail efforts to mitigate climate risks.
3. Explain any gaps in data and plans to address them.

Third-Party Assurance and Verification

Companies sharing emissions data and climate-related financial risk disclosures will need to seek third-party assurance to ensure the accuracy of their data:

• Emissions reporting: Requires assurance for Scope 1 and 2 emissions starting in 2026, with Scope 3 assurance phased in by 2030.
• Climate-related financial risk: A climate reporting organization will review reports for adequacy, with penalties for insufficient disclosures.

The introduction of these reporting requirements marks a significant step towards greater transparency in corporate climate impact and financial risk management. Sustainability metrics must now be measured and reported – and verified – in a similar manner as financial metrics

Timeline and Deadlines for Compliance

Initial Reporting Deadlines

The California Air Resources Board (CARB) has deadlines for compliance. Starting in 2026, companies must report their Scope 1 and Scope 2 emissions for the year 2025. This means that businesses need to prepare their data starting in early 2025 to meet this requirement.

Ongoing Reporting Obligations

After the initial reporting, companies will have ongoing obligations. They will need to report:

• Scope 1 and 2 emissions annually.
• Scope 3 emissions, which will be reported in the year following the initial disclosures. For example, emissions for 2026 must be reported in 2027.
• Updates on climate-related financial risks every two years.

Future Amendments and Updates

The CARB will continue to review and update the regulations. They are expected to:

• Assess the public disclosure deadlines by January 1, 2030.
• Develop a digital platform for easier reporting, although a specific date for this has not yet been set.
• Publish a report on the submitted disclosures by July 1, 2027.

It is crucial for businesses to stay informed about these deadlines to avoid penalties and ensure compliance with California's climate laws.

In summary, businesses must act quickly to prepare for these new requirements, as the timeline is tight and the implications of non-compliance can be significant. Companies should start gathering their data and developing strategies to meet these upcoming deadlines.

Strategies for Businesses to Prepare for the CCDAA

Develop a Compliance Plan

As a first step, businesses should create a detailed compliance plan. This plan should include:

• Identifying key stakeholders within the organization.
• Setting clear goals and timelines for compliance.
• Allocating necessary resources for reporting and data collection.

Leverage Technology for Reporting

Utilizing technology can greatly enhance the efficiency of emissions reporting. Businesses should consider:

• Implementing carbon accounting software to track emissions.
• Using data analytics tools to analyze and report emissions data.
• Ensuring that technology solutions are user-friendly and accessible to all relevant staff.

Engage with Stakeholders and Experts

Engagement with stakeholders is crucial for successful compliance. Companies should:

• Communicate openly with employees about new reporting requirements.
• Collaborate with industry experts to understand best practices.
• Seek feedback from stakeholders to improve reporting processes.

In summary, businesses must take proactive steps to ensure compliance with the CCDAA. By developing a solid plan, leveraging technology, and engaging stakeholders, companies can navigate these new regulations effectively.

Final Thoughts on California’s CCDAA

In conclusion, California's CCDAA are significant laws that will change how businesses operate regarding climate issues. Companies with over $1 billion in revenue must report their greenhouse gas emissions, while those with over $500 million must disclose climate-related financial risks. These laws aim to promote transparency and accountability. As these regulations roll out, companies need to prepare for the new requirements to avoid penalties and stay competitive. Understanding these laws is crucial for businesses operating in California, as they set a precedent that could influence regulations in other states and countries.

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How Gravity can help you meet the CCDAA deadline with confidence

CCDAA is the highest level of carbon reporting in the United States and requires significant preparation. There are many mechanisms to ensure you meet the deadline, whether that is managing it in house, hiring a consulting firm, or onboarding software.

Gravity offers the best of both worlds: world-class software and personalized support from Climate Experts. We’ll work with you every step of the way: from data collection to final reports to ensure you meet your deadline with the highest level of accuracy.

Here’s how we can support you:

• Automated data collection: Collecting Scope 1, 2, and 3 data can be one of the most time-consuming processes for reporting. Using Gravity’s bill scanning feature and utility APIs, you can process thousands of documents in seconds – without manual error. The supplier engagement solution and surveys makes it possible to collect data from across your value chain in record time.
• Data assurance: Data assurance should be baked into every step of the process to ensure the highest-grade data and minimal work for your auditors. Gravity’s platform supports viewing data logs, attaches supporting evidence for every data point, and accelerates the audit process by keeping it all in one place/providing you the ability to grant auditors view access to your report. We also can introduce you to trusted auditors to ensure this process runs smoothly.
• Simplified reporting: Our platform will automatically format your data to the CCDAA's standards. You can also translate the raw data you collected for CCDAA to any other disclosure requirements you need to meet, including the CSRD.
• World-class assistance: In addition to cutting-edge technology, you’ll also be partnered with an expert Climate Strategist who will be on hand to help you navigate the regulation as it applies to your company, compose answers to qualitative and quantitative questions, and offer final reviews and submission reports.
• Energy efficiency: Use your data to identify
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Frequently Asked Questions

1. Who is affected by California CCDAA?

California’s CCDAA impacts both public and private companies that earn more than $500 million and operate in California. Companies over $1 billion in revenue will need to report emissions data, as well as their climate-related financial risk. 

2. What does it mean to "do business" in California?

California considers you to be “doing business” if your company meets any of the following:

• Engage in any transaction for the purpose of financial gain within California
• Are organized or commercially domiciled in California
• Your California sales, property or payroll exceed the following amounts:some text
  • CA sales exceed $735,019 (either the threshold amount or 25% of total sales)
  • CA real and tangible personal property exceed $73,502 (either the threshold amount or 25% of total property)
  • CA payroll compensation exceeds $73,502 (either the threshold amount or 25% of total payroll)

These numbers change annually. You can see the full list here.

3. When must companies start reporting their emissions under CCDAA?

Companies will need to start reporting their emissions for the year 2025 in early 2026.

4. What penalties exist for not complying with the CCDAA?

Companies that fail to comply with the emissions reporting requirements could face fines up to $500,000 per year, while those that do not comply with the climate-related risk disclosures could face fines up to $50,000.

5. How often do companies need to report under CCDAA?

Companies must submit reports about climate-related financial risks every two years, and every year for their emissions measurements.

6. What is the role of the California Air Resources Board (CARB) in these laws?

CARB is responsible for implementing the laws and providing guidance to businesses on compliance.

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