Starting in 2026, California requires large companies to publicly report greenhouse gas emissions.
Noncompliance with climate laws can result in significant financial penalties annually.
Companies should prioritize SB 261, review the latest guidance and undertake data collection.
Collectively, these laws represent a significant leap forward in consistent reporting on sustainability and redefine the climate-related reporting obligations of corporations doing business in California.
For entities incorporated in the United States that do business in California, SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (Greenhouse Gases: Climate-Related Financial Risk) will have a broad impact based on the stated applicability thresholds:
SB 253 will affect both public and private companies operating in California that have revenue exceeding $1 billion.
SB 261 will affect both public and private companies operating in California that have global annual revenue exceeding $500 million, with the caveat that companies subject to California Department of Insurance regulation, or conducting insurance business in other states, are exempt from this legislation.
While neither bill defines “doing business in California,” the term appears in the state tax code. The California Franchise Tax Board says that a company is doing business in California when it engages in financial transactions in the state with the aim of profit, establishes a presence or business operations in California, or exceeds specific thresholds in sales, property or employee compensation within the state.
This extends the legislation's influence well beyond California-based entities, encompassing globally operating companies that meet these threshold requirements and are incorporated in the United States. Affected entities include U.S. subsidiaries of international parent companies if the overall organization meets the scoping requirements. Exempt entities include nonprofits, government entities, California Independent System Operator participants, wholesale electricity-only providers, teleworker-only companies and investment funds with no California employees.
To implement these requirements, the California Air Resources Board (CARB) is developing a systematic approach to identify covered companies. The agency will cross-reference the California Secretary of State database with commercial datasets from various providers to flag entities potentially doing business in California.
CARB has published a preliminary list of covered companies and detailed the process for companies to challenge or correct their inclusion. However, companies remain responsible for conducting their own compliance assessment. Appearing on or being absent from CARB's preliminary list does not override a company's obligation to self-assess whether it meets the reporting requirements.
Both laws require climate-related disclosures beginning in 2026, though with different timelines.
Under SB 253, companies must report their Scope 1 and Scope 2 emissions for the 2025 calendar year by June 30, 2026, with limited assurance required. Scope 3 emissions reporting will follow in subsequent years, with additional phase-in requirements to be detailed during implementation.
Under SB 261, climate-related financial risk reports are due by Jan.1, 2026. These reports must be posted on the company's website and submitted through CARB’s public docket by that date, and every two years thereafter. CARB will create a public docket for entities to post a link to their reports. CARB will keep this public docket open until July 1, 2026.
SB 253: Climate Corporate Data Accountability Act
Entities need to submit their first public report in 2026 by June 30. The report will encompass Scope 1 and 2 emissions, based on the prior year’s data. In 2027, on a date to be determined by CARB, entities must include Scope 3 emissions for the prior fiscal year. The measurement and reporting of these calculations must adhere to the GHG Protocol standards, along with any additional guidelines yet to be published by CARB.
Starting in 2026, entities will need limited assurance from an independent accredited third party for Scope 1 and 2 emissions, moving to reasonable assurance beginning in 2030. Reporting entities shall include the assurance report and the name of the provider in their public disclosure.
In 2029, CARB will reevaluate these requirements, such as Scope 3 reporting and qualifications for third-party assurance, against current reporting trends and common practices for potential changes by Jan. 1, 2030.
SB 261: Greenhouse Gases: Climate-Related Financial Risk
Entities shall prepare their first biennial public climate risk report on or before Jan. 1, 2026. The report shall include the disclosure of the identified climate-related financial risk(s) and the measures taken to reduce and adapt to the physical and transition risks. Reporting should follow the guidance provided by the Task Force on Climate-Related Financial Disclosures, a framework being leveraged globally by regulators and standard setters, including the European Union and the International Sustainability Standards Board. Reports should be made available to the public through a reporting entity’s external-facing channels, like a website or webpage.
These laws also stipulate that entities must pay an annual fee to CARB, with the amount still to be determined. These fees will be used to create the Climate Accountability and Emissions Disclosure Fund and the Climate-Related Financial Risk Disclosure Fund for SB 253 and SB 261, respectively. The fees were previously required to be paid upon disclosures being filed. CARB now recommends issuing a flat fee per regulated entity, and the flat annual fee for each program will be calculated as annual program cost divided by number of covered entities. Fee amounts will be determined based on how many entities are covered by the program and the annual cost of the program. There is not yet a defined date of payment under SB 219.
Failure to file the mandated reports could result in administrative penalties of up to $500,000 per year for SB 253, and up to $50,000 per year for SB 261.
CARB has yet to determine exact penalties. Financial penalties for climate rulings in other jurisdictions have already been enforced, with some fees reaching millions of dollars for greenwashing offenses (i.e., deceptively portraying or exaggerating a company’s positive impact on the environment). Companies have increasingly faced reputational risk for failing to meet stakeholder expectations regarding climate reporting. Now the direct financial risk of being slow to adopt climate reporting strategies is heightened as well.
SB 219 was developed to reduce the burden on entities operating in California. Initial discussions pushed out the compliance dates for SB 253 and SB 261, but the dates were later amended in the bill that passed in September 2024. Here are summaries of the amendments passed with SB 219:
Numerous regulations are making sustainability a larger compliance issue.
Tax incentives are one part of companies’ broader decarbonization efforts.
Training is the most common action taken toward compliance, but also the top hurdle.
Prioritize SB 261: Focus first on SB 261, as qualitative assessments take time and the Jan. 1, 2026, deadline is approaching.
Assess applicability: Review the latest CARB guidance and the Franchise Tax Board’s thresholds to determine whether your company is in scope. Reference the preliminary list of reporting entities published by CARB as a guide, noting it is not authoritative, and stay informed on all updates.
Undertake initial data collection: Identify available data sources, gather necessary information, determine reporting requirements, perform calculations, evaluate potential verifiers and develop a project plan to ensure minimum compliance.
Establish processes and controls: Create internal systems, workflows and governance structures to support accurate and consistent reporting.
Track regulatory updates: Stay alert for CARB’s final regulations, reporting templates and changes to deadlines or requirements.
Participate in public feedback: Participate in CARB’s workshops, surveys and comment opportunities to help shape the final rules and clarify compliance obligations.
