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 may also 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?

Taking into account the current time frame, companies would be wise to proactively develop the processes and procedures to meet the requirements of these new laws sooner rather than later.

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 annual public report by 2026, encompassing scope 1 and 2 emissions, based on fiscal year 2025 data. Subsequently, in 2027 (no later than 180 days after the initial report), 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. 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 (TCFD), a framework being leveraged globally by regulators and standard setters, including the U.S. Securities and Exchange Commission (SEC), the European Union and the International Sustainability Standards Board. Reports are expected to be made available to the public through the reporting entities’ external-facing channels like a website or webpage.

These laws also stipulate that entities must pay an annual fee to CARB upon filing their disclosures, 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.

What if companies don’t comply?

What can companies do to prepare?

RSM US LLP recommends that companies start by understanding their current state of available, climate-related data. Then, regardless of where a business is in the environmental, social, and governance (ESG) or climate-specific reporting journey, the best advice is to dive in, assess the requirements of these new laws and other coming regulations (in addition to other stakeholder demands), and harness the resources needed to meet those requirements.

Companies that fall under the scope of these laws must organize and identify the data they need to collect. The data may extend beyond what is currently tracked internally and requires understanding and potentially engaging with participants in the supply chain. Organizations will have to develop processes, procedures and internal controls that provide auditable data responsive to the regulatory and stakeholder requirements. This can be an extensive process, depending on available resources, data sources and collection processes, and organizational structure.

RSM has guided clients in tackling various elements of the required disclosures. For companies seeking assistance with preparing and reporting their GHG emissions in alignment with the GHG Protocol, RSM’s ESG advisory team offers multiple services to help ensure their GHG reporting complies with SB 253 requirements. These services include a readiness assessment, development of their GHG inventory, review of their existing inventory and more.

Additionally, by integrating ESG insight with risk knowledge and experience, RSM has assisted clients in developing responses and controls that align to the TCFD framework. As your organization progresses, our ESG advisory team can support you in furthering your ESG integration to ensure developed measures continue to reduce climate-related financial risks.

If you are unsure where to start or how to meet these requirements, our ESG advisory team can advise you on all aspects of compliance. 

Why should companies prepare?

The California laws continue the trend of increasing demand for transparency. Stakeholders care about this topic, and these new regulations are among the first of what could be many similar actions across the United States and other jurisdictions globally.

Even before passage of these new laws, customers were making decisions based on ESG criteria, and climate reporting was gaining traction across industries. Mandatory reporting requirements such as SB 253 and SB 261, as well as the SEC’s proposed climate-related disclosure rule and the Corporate Sustainability Reporting Directive in Europe, are shifting the landscape from voluntary reporting based on demands from stakeholder groups to government-mandated disclosures and enforcement.