California climate laws paving the way

They represent a significant leap forward in consistent reporting on climate and environmental sustainability.

These laws not only redefine the climate-related reporting obligations of corporations doing business in California but also may serve as a catalyst for progress in climate regulations at the federal level. 

Who will be affected?

For entities incorporated in the United States and that “do business” (i.e., operate in) California, SB 253 and SB 261, formally ratified as the Climate Corporate Data Accountability Act and Greenhouse Gases: Climate-Related Financial Risk, respectively, 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 global annual 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 SB 261.

While neither bill defines “doing business in California,” the term is utilized in the existing state tax code. The California Franchise Tax Board says that a company is doing business in California when entities engage in financial transactions in the state with the aim of profit, establish a presence or business operations in California, or exceed 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. This includes U.S. subsidiaries of international parent companies if the overall organization meets the scoping requirements. 

When will companies be expected to report?

Proposed amendments in SB 219 challenged this time frame. Although the time frame for companies to report has not changed in the version of the bill that was passed, CARB has been granted a six-month delay, to July 1, 2025, to develop and adopt the implementing regulation for SB 253.

What will be required?

The reporting requirements for the first year are as follows:

• SB 253: Climate Corporate Data Accountability Act

Entities will need to submit their first public report in 2026 on a date to be determined by CARB. The report will encompass Scope 1 and 2 emissions, based on the prior year’s data. Subsequently, 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 Greenhouse Gas (GHG) Protocol standards, along with any additional guidelines to be published by CARB by July 1, 2025. Additionally, entities will need limited assurance from an independent third party for Scope 1 and 2 emissions starting in 2026, moving to reasonable assurance beginning in 2030. After obtaining assurance, 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 U.S. Securities and Exchange Commission, the European Union, and the International Sustainability Standards Board. Reports are expected to 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. There is not yet a defined date of payment under SB 219.

What if companies don’t comply?

What are the key changes in SB 219?

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 this was later amended in the bill that passed in September 2024. The amendments passed with SB 219 are summarized as follows:

• CARB’s deadline to implement the regulations outlined in SB 253 has been extended from Jan. 1, 2025, to July 1, 2025.
• The original deadline for Scope 3 emissions disclosures was no later than 180 days after disclosing Scope 1 and 2 emissions in 2027. The amendment does not specify a deadline in 2027.
• Parent companies of in-scope entities can now file a consolidated report for SB 253. SB 261 already allowed for consolidated reporting at the parent level.
• There is no longer a set deadline for reporting entities to pay fees to the state board. Although fees are still required for SB 253 and SB 261, they are no longer required upon filing.
• CARB is no longer required to contract an emissions reporting organization to aid in the creation and management of the implementing regulation for SB 253.