On September 27, 2024, California enacted a groundbreaking climate disclosure law, requiring large corporations and financial institutions to publicly disclose their greenhouse gas (GHG) emissions and climate-related financial risks. While primarily targeting large companies, this law’s ripple effect is poised to impact credit unions across the U.S., particularly those with operations in California or significant asset size. Understanding the implications of this law and taking proactive steps toward compliance will be crucial for credit unions to navigate the evolving regulatory landscape and uphold their commitment to sustainability and member service.
The bill tweaks requirements of California’s climate disclosure bills, SB 253, the Climate Corporate Data Accountability Act, and SB 261, Greenhouse gases: climate-related financial risk.
SB 253 targets companies including financial institutions with total annual revenues exceeding $1 billion, regardless of whether they are based in California. These businesses must now report their direct and indirect GHG emissions aligned with the Greenhouse Gas (GHG) Protocol as well as their financial exposure to climate risks. The law covers Scope 1, 2, and 3 emissions—meaning companies must disclose emissions from their own operations, purchased energy, and their entire value chain, including suppliers and customers. Currently, the law requires Scope 1 and 2 disclosure beginning in 2026 and Scope 3 disclosure in 2027.
SB 261 targets companies with total revenues exceeding $500 million. These businesses must prepare reports to disclose their climate-related financial risk in accordance with the Task Force for Climate Related Financial Disclosures (TCFD) framework and describe measures adopted to reduce and adapt to that risk. Such reports must be posted on the company's public website by January 1, 2026 and biannually from then on.
This new regulation is more than just a compliance measure; it is a game-changer for both businesses and consumers. A 2022 research report, The Changing Climate for Credit Unions, highlighted the urgency for credit unions to consider potential impacts of climate change and put in place effective climate risk management programs. And while the initial impetus for climate disclosure at credit unions may be to respond to these regulatory requirements, many will find that climate disclosure can reap several benefits. It proactively responds to growing expectations from members, investors and even employees, who are demanding greater accountability on climate-related risks. Benefits for U.S. credit unions include:
California's climate disclosure regulation is part of a ripple effect spreading across the global and U.S. economy, following similar requirements already put in place by the European Union (Corporate Sustainability Due Diligence Directive) and the Securities and Exchange Commission. Other jurisdictions from the United Kingdom, Australia, Hong Kong, and Singapore are expected or have already adopted climate disclosure rules as well. Opposition to these changes persist with pending litigation underway. However, the momentum is clearly headed towards increased climate disclosure requirements here in the U.S. as well as globally.
Credit unions have long differentiated themselves from traditional banks by their value-based approach to banking driven by a commitment to people-helping-people. While credit unions are well-versed in making positive social impact in the communities they serve, many lag behind on environmental responsibility. This is a missed opportunity.
A 2024 PwC Global Workforce study found that 7 in 10 employees consider a company's envirionmental policies and practices as an important factor when choosing where to work. They are most interested in how their company is responding to climate change, focused on carbon emissions and recycling and reuse practices. Credit unions can expect their members, especially the Millenial and Gen Z generations, to reflect these values in their banking choices. Several websites have sprung up in recent years to respond to the growing member preference to switch to green and ethical banks, including bank.green and Switch It Green.
The key takeaway? Credit unions are poised to lead as preferences in ethical banking grow, but need to expand their social impact programs to make positive environmental impact too.
Whether or not your credit unions is legally required to comply, you can stay ahead of the curve by taking the following steps:
Start with the simple step of educating yourself on climate risk and sustainability at credit unions. Talk to climate experts who can jumpstart your knowledge. Read blogs, attend webinars, join Linked In groups and sign up for trainings. The annual United in Sustainability Credit Union Summit on October 23-24. 2024 is a great opportunity to connect and learn. As you build confidence, engage in dialogue and share knowledge across your credit union.
Effective climate disclosure programs are driven by high-level executive commitment. Credit unions can publish Sustainability Statements that recognize the importance of addressing climate risk while recognizing that good sustainability requires a journey.
Conduct an audit of your credit union’s carbon emissions. Start with Scope 1 and 2 emissions—those you can control directly, like energy usage in branches or emissions from your fleet vehicles. As reporting requirements evolve, you can expand to assess Scope 3 emissions, including indirect emissions from your suppliers or financed activities. By starting now, you've got time to get data literate before formal disclosure requirements kick in.
Evaluate how climate risks might affect your credit union’s operations and loan portfolio. For example, consider the potential impact of extreme weather events on member businesses and homes, and review how your financial products, especially real estate loans, could be affected by evolving climate regulations or market preferences for eco-friendly properties.
Use the carbon footprint results to identify quick actions that make a difference. Promote eco-friendly commutting through transit passes, encourage energy efficient practices in offices, integrate electric vehicles into your fleet, and more. Doing so helps your credit union gain practice in how environmental action turns into environmental impact.
As experience grows, you can next develop a more comprehensive sustainability strategy to transform operations in the long-term. For example, consider offering green loan products or supporting renewable energy projects in your local community. Consider setting meaningful short, medium and long-term goals to focus action in areas that matter and build a realistic pathway to reducing emissions.
Credit unions that prioritize sustainability can develop new products and services to offer a Green Member Experience that meets the growing demand for green financing. By offering eco-friendly loans and investment opportunities, you can attract new younger members who prioritize environmental responsibility.
Credit unions reflect their ethos as cooperative-based organizations. We know that change requires collaborations, with each moving the needle in our own ways. By connecting with other climate leaders, within and outside the credit union sector, you can ensure operations remain future-proof by proactively keeping ahead of changes. For example, the Global Alliance for Banking on Values offers a network for banks committed to sustainable finance.
California’s new climate disclosure law represents a significant shift toward greater corporate accountability in addressing climate change, and credit unions should be prepared to respond. Whether or not your institution is immediately affected, the move toward greater transparency in emissions and climate risks is inevitable. By acting now, credit unions can not only comply with future regulations but also strengthen member trust and lead the way in sustainable finance.
For more information on how to assess your credit union’s climate risks or develop a sustainability strategy, contact us today at discover@impacti.solutions. We've worked with U.S. credit unions at all stages of the sustainability journey and can design a roadmap that fits your realities and resources. Together, we can ensure your credit union is positioned for long-term success in a climate-conscious world.
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