By CJ Smith, Ph.D, Supervisor – Environmental, U.S. Compliance
California has enacted two significant climate-related laws that will impact large corporations doing business in the state: the California Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk (SB 261). These regulations aim to increase transparency and accountability around greenhouse gas (GHG) emissions and climate-related financial risks.
Applicability
Under SB 253, the California Air Resources Board (CARB) will develop and adopt regulations requiring corporations with annual revenues exceeding $500 million and $1 billion that do business in California to disclose their GHG emissions. Disclosures will be made to an approved emissions reporting organization using a specified protocol. Beginning in 2033, CARB may adopt a different reporting protocol.
Entities may be allowed to use data already reported under the state’s Mandatory Reporting Regulation to fulfill some of these requirements.
Key Dates
- Starting in 2026:
Reporting entities must publicly disclose Scope 1 and Scope 2 emissions for the prior fiscal year by a date set by the state board. Disclosures will be required annually.
- Starting in 2027:
Reporting entities must also publicly disclose Scope 3 emissions, no later than 180 days after filing their Scope 1 and Scope 2 reports for the prior fiscal year.
Reporting Requirements
Corporations meeting the revenue thresholds must publicly disclose the following:
- Scope 1 emissions: All direct GHG emissions from sources a company owns or directly controls, regardless of location. This includes emissions from fuel combustion activities.
- Scope 2 emissions: Indirect GHG emissions from the consumption of acquired or purchased electricity, steam, heating, or cooling, regardless of location.
- Scope 3 emissions: All other indirect GHG emissions not included in Scope 2. This includes upstream and downstream emissions from activities such as purchased goods and services, business travel, employee commuting, and processing and use of sold products.
Exemptions
- Businesses that generate annual revenues less than $500 million are exempt from reporting under SB 261 and SB 253.
- Businesses that generate revenues greater than $500 million and less than $1 billion must comply with SB 261, but are not subject to SB 253.
Recordkeeping and Consolidation
Climate-related financial risk reports under SB 261 may be consolidated at the parent company level. If a subsidiary qualifies as a covered entity but is part of a larger parent company, the subsidiary does not need to prepare a separate report. Additional guidance from CARB is expected.
What Businesses Should Do Now
Although the first reporting deadlines begin in 2026, businesses should start preparing now by:
- Assessing current GHG data collection processes.
- Identifying gaps in tracking Scope 3 emissions.
- Reviewing potential reporting protocols and methodologies.
- Establishing internal governance for climate-related disclosures.
California’s SB 253 and SB 261 represent a significant shift in corporate climate accountability. Companies that prepare early will be better positioned to meet these requirements and demonstrate leadership in environmental responsibility. Reach out to your U.S. Compliance Air Quality Team for any questions about California’s new climate reporting requirements.
