Emissions reporting is no longer optional — at least, not in California, which would be the fifth largest economy in the world if it was its own country. Before long, the rest of the country will likely catch up.
In September 2023, the California state legislature passed the Climate Corporate Data Accountability Act (SB 253) and its companion Greenhouse Gasses: Climate-related Financial Risk (SB 261). Signed by Governor Newsom on October 7th, SB 253 requires about 5,300 U.S. businesses operating in California and earning more than $1 billion to report their annual global carbon and other greenhouse gas emissions.
This unprecedented move signifies a seismic shift both for the state and the country: rigorous climate data reporting is quickly becoming the norm, starting with the largest economy in the United States.
For the real estate industry, the California Climate Accountability Package ushers in a new era of transparency, risk management, and opportunity.
“As the US shifts from optional to mandatory reporting of emissions, handling environmental data will become an integral part of managing financial risk in real estate,” says Johanna Buurman, VP of Professional Services at Measurabl. “We’ve already seen this in Europe. Every part of a business – from strategic planning to investment allocation – should consider the effects of climate on its operations. More importantly, companies need to be confident in their environmental reports.”
Understanding these bills won’t just help real estate leaders stay on the right side of the law, it helps long-term investors avoid having stranded assets in the future. This knowledge is key regardless of where your business operates.
Governor Newsom has indicated wanting to fine-tune the regulations before they take effect. Forward-thinking organizations will recognize the need to get prepared early not just for compliance’s sake, but as the path to innovation, resilience, and gaining competitive advantage. By requiring data collection in order to report, the regulations are providing businesses the fundamental information they need to make knowledgeable capital investments so they can generate ROI while also reducing emissions.
What are SB 253 and SB 261?
California is raising the bar for climate action with two transformative bills: SB 253 and 261. As part of a broader Climate Accountability Package, they bring clarity, alignment, and heightened accountability in how corporations respond to climate change.
SB 253 mandates that by 2026, all public and private companies in California with over $1 billion in revenue must report their emissions, including scopes 1, 2, and 3. Additionally, they must get these reports verified by a third party.
What will the impact look like? The requirement isn’t just about the emissions from company operations and energy consumption (scopes 1 and 2); it also includes scope 3, encompassing emissions within the entire value chain, from suppliers to tenants.
Historically, scope 3 not only accounts for the most greenhouse gas emissions in real estate worldwide (86% among companies that disclose all scopes), it’s also perennially underreported. For real estate leaders, this goes well beyond paying close attention to the environmental impact of building materials, construction, and operational processes. It means doubling down on collecting energy performance data on tenant-controlled spaces, and collecting and managing all data in a robustly auditable way.
As the demand for emission data management grows, Measurabl’s Scope 3 Tenant Emissions is an example of the kind of technology needed to accurately measure and report on this data. Measurabl’s feature calculates carbon emissions based on site utility consumption and tenant utility consumption data. This kind of data collection is crucial for companies looking to understand their carbon footprint and expand on their sustainability strategy.
SB 261 complements SB 253 by requiring disclosure of climate-related financial risks and adaptation measures. Companies with over $500 million in annual revenue need to report annually on their financial risks associated with climate change. The specific disclosure requirement is aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). Real estate owners in the UK and Europe are already familiar with TCFD, and the pending SEC disclosure regulations for public corporations likewise are converging on the same.
There’s a better way to think about compliance
Compliance isn’t just a legal necessity. Each compliance milestone is a step towards a sustainable and resilient future. The younger generations are much more concerned with the environment. For them, real estate isn’t just about buildings and land. It’s also about communities and ecosystems. And that’s the direction the industry’s heading.
“Real estate trends are ever-evolving. In the past, emphasis was placed on developing properties near executive housing. However, in the past decade, the spotlight shifted to locations favored by the younger generation,” says Scott Lemoine, Lead ESG Advisor at Measurabl. “Looking ahead, market trends might pivot towards the unique charm that the overall ecosystem of a place has to offer. So, while location remains crucial, it’s not the sole determinant of value.”
As regulation continues to evolve, meeting legal standards won’t be enough. The tracking and reporting it requires will become the proof that attracts consumers who will increasingly expect sustainability and innovation in real estate and the built environment.
The bottom line
With SB 253 and SB 261, California is setting a new standard for the nation — not unlike its lead role in automotive emissions.
As California aligns itself with environmental performance and climate risk disclosure frameworks around the world, it helps accelerate convergence on a more globally consistent data reporting standard. This is good news, and helps the real estate industry beyond the current patchwork of voluntary and ad-hoc disclosures into a new normal of auditable and integrated risk management.
Having a comprehensive data management system in place that ensures ease of verification of environmental data is a must-have. Solutions like Measurabl are more crucial than ever.