California is setting a new standard for corporate climate accountability with its ambitious climate disclosure laws. These regulations aim to enhance transparency, standardize emissions reporting, and push businesses toward more sustainable practices in the fight against climate change. As the state advances its climate goals, companies operating in California must prepare for the upcoming requirements or risk penalties. Understanding the key details of SB 253 and SB 261 will help businesses align their strategies and remain compliant in a rapidly evolving regulatory landscape.
These laws are part of a broader push for sustainability regulation in California, which also includes amendments related to voluntary carbon market disclosures and venture capital diversity reporting. The cumulative effect of these laws is to hold corporations accountable for their environmental impact while promoting responsible investment and risk mitigation.
California’s climate accountability package
On October 7, 2023, California Governor Gavin Newsom signed SB 253 and SB 261 into law, marking a major step toward mandatory climate disclosures. These laws are designed to provide stakeholders with credible climate data and require companies to assess and report their greenhouse gas emissions and climate-related financial risks.
Despite discussions in 2024 about delaying implementation, SB 253 remains on track to take effect on January 1, 2026. However, the California Air Resources Board (CARB) now has until July 1, 2025, to finalize disclosure requirements, giving businesses additional time to understand and implement reporting frameworks.
In addition to these climate bills, California has also enacted other sustainability legislation that includes climate related disclosures. Assembly Bill (AB) 1305 requires disclosure of certain emissions claims and the sale and use of carbon offsets.
This law, effective January 1, 2024, enhances transparency in voluntary carbon markets, ensuring that companies making carbon neutrality claims provide accurate and verifiable data. Another key law, Senate Bill (SB) 54, mandates diversity reporting by venture capital firms. Amended in June 2024, it now requires these firms to submit reports detailing the demographic diversity of their investments, reinforcing California’s commitment to corporate accountability beyond environmental concerns.
What is the California Air Resources Board?
The California Air Resources Board (CARB) is the state agency responsible for protecting public health, welfare, and the environment by regulating air pollution. Established in 1967, CARB oversees air quality standards, implements climate policies, and enforces emissions regulations for vehicles, industries, and businesses. It plays a key role in advancing California’s climate goals, including reducing carbon emissions, promoting sustainability practices, and ensuring compliance with laws like the California Climate Corporate Data Accountability Act (CCDAA). CARB’s initiatives help drive emissions reduction, improve economic health, and support a cleaner, more sustainable future.
Who do the laws apply to?
The laws apply to both public and private companies that conduct business in California. “Doing business in California” is broadly defined and includes companies engaged in financial transactions, headquartered in the state, or holding significant sales, property, or payroll there. This means even companies with limited California activity could be subject to compliance. Applicability is determined based on the company’s revenue from the prior fiscal year.
These laws reflect a global push toward increased corporate transparency in emissions reporting, affecting a wide range of reporting entities. Similar initiatives, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and upcoming U.S. Securities and Exchange Commission (SEC) climate disclosure rules, indicate that businesses worldwide will face greater scrutiny regarding their environmental impact.
Companies complying with California’s regulations may find themselves better prepared for international reporting obligations as well.
SB 253 – Climate Corporate Data Accountability Act
SB 253 requires U.S. companies with annual revenues of $1 billion or more and operations in California to disclose their Scope 1 and Scope 2 GHG emissions by 2026 and their Scope 3 emissions by 2027, emphasizing the importance of GHG emissions reporting. Unlike the SEC climate rule, which applies only to publicly traded companies and mandates reporting for material Scope 1 and 2 emissions, California’s law extends disclosure requirements to private businesses and mandates Scope 3 reporting, which often represents the bulk of a company’s indirect greenhouse gas emissions.
What companies must report:
SB 253 requires companies to report on various types of greenhouse gases emissions, categorized as follows:
- Scope 1 – Direct greenhouse gas (GHG) emissions from owned/controlled assets.
- Scope 2 – Indirect GHG emissions from purchased electricity or heating.
- Scope 3 – Indirect upstream and downstream GHG emissions, including purchased goods and services, travel, and product use.
Reporting timeline:
- 2026 – Scope 1 and Scope 2 emissions.
- 2027 – Scope 3 emissions.
CARB will establish regulations for disclosing annual emissions by 2025. Companies must also obtain third-party assurance, starting with “limited assurance” in 2026 and moving to “reasonable assurance” by 2030. This law is the first in the U.S. broadly requiring assurance for Scope 1 and 2 emissions, impacting around 5,000 companies. As a reporting entity, companies must ensure they are prepared to meet these deadlines to avoid penalties.
SB 261 – The Climate-Related Financial Risk Act
SB 261 requires U.S. business entities with annual revenues exceeding $500 million and operations in California to submit reports on their climate-related financial risks, aligning with the Task Force on Climate-Related Financial Disclosures (TCFD) framework. These reports must outline measures to mitigate identified risks and be published on the company’s website by January 1, 2026, with updates every two years.
With an estimated 10,000 companies affected, SB 261 defines climate-related risks as any factor potentially harming financial outcomes, including operational, supply chain, and market risks. Businesses that fail to assess these risks could face financial instability or reputational damage as regulatory scrutiny intensifies.
How California’s laws differ from SEC regulations
California’s SB 253 expands beyond the SEC’s climate rule in two significant ways:
Emissions reporting
The SEC requires public companies to disclose material Scope 1 and 2 emissions, subject to independent verification. California mandates all three scopes, ensuring a more comprehensive view of corporate emissions.
Company coverage
While the SEC rule applies only to publicly traded companies, California’s law applies to both public and private companies with over $1 billion in annual revenue. This broader scope increases transparency across private markets and supports more effective climate action.
What are the consequences of non-compliance?
The laws differ in enforcement levels, but both allow for administrative penalties:
SB 253
Reports will be evaluated by institutions such as the University of California or national libraries. Failure to comply may result in fines of up to $500,000, with penalties adjusted based on a company’s prior experience with emissions reporting.
SB 261
Non-compliance could result in fines of up to $50,000, with third-party entities monitoring adherence under California’s climate investment framework and TCFD guidelines.
How can your business prepare?
- Assess and adapt – Review past reporting practices and identify compliance gaps, including assessing physical and transition risks.
- Form a sustainability committee – Ensure climate risks are integrated at the executive level.
- Invest in climate software – Select a provider to collect consistent and accurate emissions data and evaluate climate risks across your value chain.
How Sweep can help
- Streamline data auditing – Maintain uniform data standards across your organization.
- Accelerate ESG data collection – Gather emissions and climate risk data in half the time.
- Track supply chain emissions – Identify GHG hotspots with a user-friendly dashboard.
- Ensure full compliance – Avoid administrative penalties with efficient reporting.
- Focus on business intelligence – Use accurate data to drive sustainability strategies.
With California’s climate laws moving forward as planned, businesses must act now to align with the new regulations and remain resilient in a low-carbon economy. Proactively preparing today will ensure compliance, mitigate risks, and position companies for long-term resilience in a carbon-constrained economy.
