What does this mean for companies in scope?
California’s SB 253 and SB 261 are companion laws that require large businesses doing business in California to disclose greenhouse gas emissions and climate-related financial risks. While both laws aim to increase transparency, they cover different aspects of climate disclosure.
SB 253, the Climate Corporate Data Accountability Act, focuses on quantifying your carbon footprint. It mandates large businesses to disclose their greenhouse gas (GHG) emissions annually, following the Greenhouse Gas Protocol standards.
SB 261, the Climate-Related Financial Risk Act, examines how climate change might impact your company’s finances and strategy. It requires businesses to publicly disclose their climate-related financial risks.
The California Air Resources Board is responsible for overseeing compliance with both SB 253 and SB 261 and developing the implementation rules through an ongoing rulemaking process.
Here’s what you need to know about the timelines, scope, and key dates for both laws.
SB 253 – The reporting timeline
You’re in scope if:
SB 253 applies to public and private businesses that operate in California and have over $1 billion in annual revenue. The definition of “doing business in California” includes engaging in transactions for financial or pecuniary gain and exceeding certain sales thresholds.
The revenue threshold is determined by the lesser of the entity’s two previous fiscal years of revenue. This means if your total annual revenues exceeded $1 billion in either of the last two fiscal years, you’re in scope.
Parent companies can submit consolidated reports on behalf of their in-scope subsidiaries, which can simplify the reporting process for multi-entity organizations.
Dates to keep in mind:
The core reporting timeline of SB 253 starts in 2026, with the initial reporting deadline set for August 10, 2026. Here’s what that means:
- For fiscal years ending on or before February 1, 2026: You’ll report data for fiscal year 2026.
- For fiscal years ending after February 1, 2026: You’ll report data for fiscal year 2025.
The reporting period for the initial SB 253 reports will depend on the fiscal year-end date of the reporting entity.
What you need to report:
Under SB 253, affected businesses must report their Scope 1, Scope 2, and Scope 3 GHG emissions annually, following the Greenhouse Gas Protocol. SB 253 requires businesses to manage Scope 3 greenhouse gas emissions, which include upstream and downstream activities across your value chain.
Entities must report their Scope 1 and Scope 2 emissions for the applicable reporting year by August 10, 2026. Scope 3 emissions disclosures will begin in 2027, with reports covering 2026 emissions data due in that year.
Assurance requirements:
Reports under SB 253 must be verified by an independent third party and made publicly accessible as part of the reporting entity’s public disclosure. However, third-party assurance is not required for the first reporting cycle in 2026.
Limited assurance for Scope 1 and 2 emissions will be required starting in 2026, with reasonable assurance expected by 2030. Companies must obtain limited assurance to verify the accuracy and completeness of their emissions disclosures.
Safe harbor and enforcement discretion:
Good news: CARB will exercise enforcement discretion for the first report due in 2026, allowing reporting entities to submit Scope 1 and Scope 2 emissions based on existing data. CARB has clarified that no penalties will be imposed in 2026 for SB 253 as long as companies demonstrate a “good faith effort” in preparing their disclosures.
A safe harbor provision for Scope 3 disclosures protects companies from penalties for unintentional misstatements until 2030. Companies are not subject to administrative penalties for misstatements about Scope 3 emissions made with a reasonable basis and disclosed in their reports under SB 253. They may also estimate emissions where primary data is unavailable, using industry-average data instead.
However, non-compliance with SB 253 can result in administrative penalties after the initial reporting period, with fines reaching up to $500,000 per reporting year based on the violator’s compliance history.
SB 261 – The reporting timeline
You’re in scope if:
SB 261 requires U.S. companies with total annual revenues exceeding $500 million that do business in California to publicly disclose their climate-related financial risks.
This is a lower revenue threshold than SB 253, which means more companies will be in scope for SB 261’s disclosure requirements.
Dates to keep in mind:
The first climate risk reports under SB 261 are due on or before January 1, 2026, and biennially thereafter (every two years).
Your climate risk reports must address how climate risks—both physical and transitional—could impact your business operations, strategy, and financial implications.
Both SB 253 and SB 261 require third-party assurance to ensure the credibility of emissions data and climate risk disclosures, though the assurance requirements differ between the two laws.
Penalties:
The penalties for non-compliance with SB 261 are capped at $50,000 per year, which is lower than the penalties for SB 253.
How ESG software can help you meet California climate disclosure requirements
Compliance with SB 253 requires a multi-phase strategy and integration of climate-related tracking systems into daily operations. Given the complexity of emissions reporting and the need for robust data systems, many businesses are turning to ESG software platforms to streamline the process.
Here’s how ESG tools can help:
Centralized emissions data collection: ESG software can centralize emissions data collection from various sources across your value chain, ensuring transparency and accountability in emissions reporting. This is crucial for meeting the minimum reporting requirements and maintaining data quality.
Pre-programmed with the Greenhouse Gas Protocol: Many ESG tools are pre-programmed with the Greenhouse Gas Protocol standards, which helps reduce the risk of calculation mistakes in emissions reporting and ensures your disclosures align with the reporting framework required by CARB.
Audit-ready reports: ESG software platforms can assist businesses in creating a comprehensive greenhouse gas emissions inventory to meet SB 253 compliance requirements. They can generate audit-ready reports and facilitate collaboration with third-party verification providers, reducing the administrative burden of external audits.
Supplier engagement for Scope 3: ESG software can streamline supplier engagement workflows, which is crucial for managing Scope 3 emissions data collection and reporting. This is especially important given that Scope 3 reporting begins in 2027.
Multi-framework alignment: ESG platforms can help businesses track progress and align their emissions data with multiple reporting frameworks, reducing duplication in reporting efforts. This is valuable as you may need to comply with other disclosure requirements beyond California climate disclosure laws.
Robust internal controls: Implementing robust internal controls and data management systems is essential for successful compliance with SB 253, and ESG software can support this process. Entities must maintain records demonstrating that they meet the revenue and “doing business in California” definitions under SB 253.
Next steps for corporate climate disclosure
The California climate disclosure requirements under SB 253 and SB 261 represent a significant shift in corporate emissions reporting and climate risk disclosure. The initial reporting deadline is approaching fast, and covered entities need to start preparing now.
CARB plans to continue actively engaging with stakeholders and gathering stakeholder feedback throughout the ongoing rulemaking process. While the proposed regulations offer some flexibility—especially with the enforcement notice for 2026 and safe harbor provisions for Scope 3—companies should not wait to begin their data collection and reporting preparations.
If you’re a business entity with annual revenue over $500 million and you do business in California, start assessing your reporting obligations today. Whether you’re preparing for your first disclosure in 2026 or planning ahead for Scope 3 reporting in 2027, building robust data systems and establishing strong internal processes now will set you up for long-term compliance success.
