Quick recap: California’s SB 253 Scope 1 and 2 requirements
Before diving into the Scope 3 decision, it’s worth recapping the basics of California’s climate disclosure laws. SB 253 requires business entities with more than $1 billion in total annual revenues that do business in California to publicly disclose their direct and indirect greenhouse gas emissions. (A related law, SB 261, requires many of the same companies to disclose climate related financial risks, with penalties capped at $50,000 per entity per year.)
Key points on SB 253’s first reporting cycle:
- Scope 1 emissions are direct greenhouse gas emissions from a company’s own operations.
- Scope 2 emissions are indirect emissions from purchased electricity and energy.
- Reports covering the prior fiscal year for both Scope 1 and Scope 2 emissions are due by November 10, 2026.
- Reporting entities must calculate and disclose GHG emissions in accordance with Greenhouse Gas Protocol standards, the global greenhouse gas accounting framework most businesses already use.
- Starting in 2027, companies will also need limited assurance on Scope 1 and 2 emissions reporting, verified by a third-party assurance provider under one of five accepted standards, moving eventually toward reasonable assurance for later reporting years.
- CARB will exercise enforcement discretion for the first reporting cycle, though administrative penalties for non-compliance can ultimately reach up to $500,000 annually.
This first phase laid the foundation for California’s emissions reporting program. The bigger, more complex challenge has always been Scope 3: the upstream and downstream greenhouse gas emissions that occur throughout a company’s value chain, from purchased goods and services to employee commuting and business travel.
The Scope 3 decision: a phased, category-based reporting requirement
Earlier this year, CARB consulted industry stakeholders on three possible paths for rolling out Scope 3 reporting requirements:
- Broad applicability, requiring all reporting entities to disclose all 15 GHG Protocol Scope 3 categories starting in 2027.
- Sectoral phase-in, starting with the transportation and industrial sectors only.
- Category phase-in, starting with the categories that already have the most industry average data and the most mature quantification methods.
After weighing industry stakeholder input on the practical challenges of sourcing reliable emissions data across an entire value chain, CARB has proposed moving forward with the category phase-in approach.
Under this plan, mandatory Scope 3 emissions reporting beginning in 2027 will initially be limited to five key categories:
- Purchased Goods and Services
- Fuel and Energy Related Activities
- Waste Generated During Operations
- Business Travel
- Employee Commuting
CARB selected these five categories because they are already the most frequently disclosed, and because they have the most established data sources and mature quantification methods. Reporting on the remaining ten Scope 3 categories, including many downstream greenhouse gas emissions categories, will be voluntary reporting for now, giving business entities flexibility while broader data infrastructure and industry practice continue to mature.
A few other important details from the decision:
- Administrative penalties for incomplete or inaccurate Scope 3 emissions data won’t apply until 2030; enforcement in the early years will focus only on non-filing.
- Insurance companies, previously exempt to avoid duplicating California Department of Insurance reporting, will now need to meet SB 253’s reporting requirements starting in 2027, either through a combined report or a supplement to their existing state filing.
- CARB plans to hold listening sessions in August and September to gather further industry stakeholder input, with additional reporting guidance expected by September 1, 2026.
Why this climate accountability decision matters
The category phase-in approach is a pragmatic middle ground. It acknowledges that reliable emissions data, especially from suppliers and partners, is still hard to come by for many reporting entities, while still pushing companies to start disclosing the categories where data and methodology are most mature. For businesses navigating California’s climate disclosure laws, this means:
- Scope 3 preparation should start now, even though mandatory reporting doesn’t begin until 2027.
- Focus first on the five priority categories, since these will carry compliance obligations soonest.
- Voluntary reporting on other categories can still demonstrate climate accountability leadership and prepare your organization for future reporting years.
- Assurance readiness matters early. Building clean, audit-ready emissions data processes now will make the shift to mandatory third-party assurance far smoother, whether you engage one or multiple assurance providers.
