California climate disclosure rules: What companies need to know about SB253 and SB261

Newly-passed climate disclosure rules mean Californian companies will need to prioritize accurate carbon disclosure and start reporting on climate-related financial risks. Failure to report will result in financial penalties.

Prepare your carbon disclosure.

What are the new California climate disclosure rules?

In October 2023, the California legislature passed two laws focused on corporate climate disclosures. These will impact both public and private companies doing business in California who meet certain annual revenue thresholds. The rules could potentially impact businesses required to report under the US SEC’s climate disclosure rules, who may need to report under the California laws as well as under a more extensive scope.

The California climate disclosure rules include Senate Bill 253 (SB 253): The Climate Corporate Data Accountability Act and Senate Bill 261 (SB 261): The Climate-Related Financial Risk Act.

Coming into effect in January 2026, the laws will require companies to disclose carbon emissions and climate-related financial risks. The laws are focused on corporate disclosures and do not regulate actions that companies should take to reduce their carbon emissions.

What is SB 253?

SB 253 is the Climate Corporate Data Accountability Act, which requires large businesses in California to publicly report their greenhouse gas emissions annually, in accordance with the Greenhouse Gas Protocol.

From 2026, companies will have to report on their direct and indirect emissions ( Scope 1 and Scope 2). In the following year, Scope 3 emissions — i.e. companies’ indirect supply chain emissions — must also be included in the reporting scope. Businesses must obtain third party assurance by a verifying company with expertise in carbon accounting, which will be overseen by the California Air Resources Board (CARB).

What is SB 261?

SB 261 is the Climate-Related Financial Risk Act, which requires companies to bi-annually disclose threats they will face as a result of climate change. Reporting must include physical and transition risks faced by the business, as well as an outline of mitigation measures and strategies. Submissions are reviewed by California’s Climate-Related Risk Disclosure Group. Companies should align with the Task Force on Climate-related Financial Disclosure (TCFD) framework, or another format that meets TCFD recommendations.

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Which companies need to adhere to the California climate disclosure rules?

Public and private companies doing business in California with revenues exceeding USD $1 billion must adhere to SB 253, while those exceeding USD $500 million in revenue must also adhere to SB 261.

What are the liability implications?

Failure to report will lead to immediate penalties.

Companies subject to SB 253 may face up to USD $500,000 per year in penalties for failure to comply or misstatement of emissions disclosures, while companies subject to SB 261 may face up to USD $50,000 per year for non-compliance or incomplete or inadequate disclosures.

What is the timeline to comply with the California climate disclosure rules?

The deadline for the California Air Resources Board (CARB) to implement SB 253 is 1 January 2025. Reporting of Scope 1 and 2 emissions for companies subject to SB 253 begins in 2026, meaning that companies must report on 2025 emissions in 2026. Scope 3 emissions (for 2026) must be reported in 2027.

For companies subject to SB 261, the deadline for the first climate-related risk report is 1 January 2026. A limited assurance level, such as a review, will be required between 2026-2029. After 2029, a reasonable assurance level such as a third party audit, must be reported.

How do the California climate disclosure rules relate to other US climate change legislation?

SB 261 is modeled after existing climate disclosure rules used in California’s retirement fund for teachers and other major financial institutions.

SB 253 is more comprehensive than the US Securities and Exchange Commission (SEC)’s recently-adopted climate disclosure rules, as it impacts both public and private companies.

SB 253 also requires Scopes 1, 2, and 3 emissions, while the US SEC rules currently require Scope 1 and — if deemed material — Scope 2.