California's Climate Accountability Laws: SB 253 and SB 261 Explained
- Karim Emami
- Mar 14
- 4 min read
What Companies Need to Know About the New Climate Reporting Requirements
California has recently enacted two significant pieces of legislation aimed at enhancing corporate transparency regarding climate impact: Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261). These laws mandate comprehensive disclosures from large companies operating in the state and are designed to push greater corporate transparency and accountability, impacting thousands of companies operating in the state. With implementation deadlines approaching, businesses are evaluating how to meet these requirements effectively while maintaining compliance and credibility.
Takeaway Summary
SB 253 and SB 261 introduce mandatory climate disclosure requirements for large businesses operating in California.
SB 253 mandates companies with more than $1 billion in annual revenue that do business in California to report their scope 1, 2, and 3 greenhouse gas emissions. Companies must also obtain third-party assurance for their disclosures
SB 261 centers on financial risks from climate change and mandates companies with over $500 million in annual revenue that do business in California to publish a biennial report of climate-related financial risks and mitigation strategies.
Both laws take effect in 2026, based on 2025 data.
Companies must prepare for complex data gathering and third-party verification.
Overview of SB 253 and SB 261
SB 253: Climate Corporate Data Accountability Act
SB 253 applies to all public and private US-based companies with annual revenues over $1 billion and “conduct business in California”. These companies must disclose their greenhouse gas emissions across scopes 1, 2, and 3. Companies must begin reporting scope 1 and 2 emissions in 2026 based on 2025 data, with limited third-party assurance. Scope 3 reporting starts in 2027 using 2026 data, and by 2030, companies must obtain reasonable assurance for scope 1 and 2 and limited assurance for scope 3.
SB 261: The Climate-Related Financial Risk Act
SB 261 requires companies with annual revenues over $500 million which also do business in California to publish a report every two years identifying material risks from climate change and how the company is managing or mitigating those risks. The report should follow the guidance of the Task Force on Climate-related Financial Disclosures (TCFD). This law encourages companies to understand not just how they impact the climate, but how the climate may impact their operations, assets, and financial standing.
Timelines for California’s climate disclosure requirements
Companies subject to SB 253 must begin reporting scope 1 and 2 emissions in 2026 using 2025 data, with scope 3 reporting starting in 2027 based on 2026 data. The California Air Resources Board (CARB) must issue final regulations by July 1, 2025, and companies are required to follow the Greenhouse Gas Protocol standards for all emissions reporting. From 2026 to 2029, scope 1 and 2 reports must include limited third-party assurance, which increases to reasonable assurance by 2030. Scope 3 reports will require limited assurance starting in 2030. For SB 261, the first climate risk disclosure report is due by January 1, 2026.
Non-Compliance and Penalties
Companies that fail to meet the disclosure requirements under SB 253 or SB 261 may face financial penalties. SB 253 allows fines of up to $500,000 per year for non-compliance or inaccurate emissions reporting, with a safe harbor for scope 3 disclosures made in good faith.
Under SB 261, penalties can reach $50,000 per year for incomplete or inadequate climate risk reports. In both cases, enforcement may consider whether the company made good faith efforts to comply.
How Companies Should Prepare
Meeting the requirements of SB 253 and SB 261 will require collaboration across legal, sustainability, finance, and supply chain teams. Companies should:
Assess Applicability: Determine whether your company meets the revenue thresholds and conducts business in California.
Data Collection: Implement systems to accurately measure and report Scope 1, 2, and 3 emissions. Start collecting emissions data now, including supplier engagement for Scope 3.
Risk Management: Develop internal processes to identify, assess, and disclose climate-related financial risks in line with TCFD recommendation.
Third-Party Assurance: Engage qualified assurance providers to verify emissions data as required.
Earthara offers support in all these areas from developing emissions inventories and identifying financial risks, to ensuring that disclosures are accurate and aligned with expectations under SB 253 and SB 261.
Final Thoughts
The introduction of SB 253 and SB 261 represents a shift from voluntary sustainability reporting to mandatory climate accountability. These laws go beyond pledges and ask for verified data and meaningful reporting. Companies that take early action will not only reduce compliance risk but also improve transparency with stakeholders and investors. Understanding and quantifying Scope 3 emissions can be particularly difficult due to the wide net it casts over upstream and downstream activities. Earthara helps companies navigate this process and prepare documentation that stands up to regulatory and investor inspection.
Disclaimer: This blog post is intended for general informational purposes only and does not constitute legal advice. You should consult with your legal counsel before relying on any of the information provided.
