The businesses covered
The compliance determination comes down to two tests:
- Revenue thresholds
- SB 261 applies to companies with over $500 million in annual global revenues.
- SB 253 applies to companies with over $1 billion in annual global revenues.
- For both laws, the threshold is based on total annual revenues, including revenues from parent companies and subsidiaries.
- A reporting entity is defined as a business with over $1 billion in total annual revenue.
- Business in California
An entity is considered to be “doing business” in California if it meets any of the following criteria:
- Has sales, property, or payroll in California above statutory minimums
- Holds or leases personal or real property in the state
- Produces business income from activities in California
- Derives California revenue based on fair market value tests
- Engages in activities for the purpose of financial or pecuniary gain
Together, these rules sweep in not just California-headquartered companies, but any business entity – public or private, U.S. or foreign – that meets the annual revenue test and does business in the state. The law applies across various business sectors, and certain exemptions or clarifications may apply to particular business sectors.
That includes limited liability companies, other business entities, and private companies, not just publicly traded corporations.
What CARB’s list really means
CARB’s initial proposal draws on public financial data, corporate registrations, and industry information to estimate which companies are subject to the law. CARB’s preliminary list of reporting entities is only an estimate based on these sources. They have made clear that:
- Companies are responsible for their own compliance regardless of whether they appear on the list
- Many companies that are subject to the laws may not yet be listed
- CARB will continue to update its list as additional data comes in and as regulations are finalized
If your company meets the thresholds but isn’t yet named, don’t assume you’re in the clear. The corporate carbon emissions reporting program under SB 253 and the climate related financial risk reports under SB 261 are designed to capture a broad universe of entities with significant operations or revenue tied to California. Companies will be required to submit data to an emissions reporting organization pursuant to regulations adopted by CARB.
SB 253 – Climate Corporate Data Accountability Act (CCDAA)
SB 253 focuses on greenhouse gas emissions reporting and aims to standardize corporate emissions data across industries.
Key requirements
- Scope 1 and 2 emissions reporting (direct greenhouse gas emissions and indirect emissions from purchased electricity, heating, cooling, etc.) begins in 2026, with limited assurance required from an independent third party; beginning in 2030, companies will be required to obtain reasonable assurance for their disclosures.
- Scope 3 emissions reporting (value chain emissions, including upstream and downstream greenhouse gas emissions) will follow in 2027
- Reports must be prepared in accordance with greenhouse gas protocol standards developed by the World Business Council and the World Resources Institute
- Reports must be submitted through a nonprofit emissions reporting organization designated by CARB
- The reporting entity’s public disclosure must meet standards for accessibility and transparency, and reports will be publicly disclosed and accessible to stakeholders, including environmental justice interests and relevant policy committees
- Third-party assurance requires a complete assurance provider’s report to verify the accuracy and transparency of the data
- Companies must pay into an emissions disclosure fund to cover program costs
This law places California at the forefront of global greenhouse gas accounting, requiring emissions disclosures at a level not previously mandated in the U.S.
SB 261 complements SB 253 by focusing on the disclosure of climate related financial risks and their impact on companies’ operations, supply chains, and financial outlook. While some companies may have previously engaged in voluntary reporting of climate risks, SB 261 establishes mandatory requirements for such disclosures.
Key requirements
- Companies must publish a climate related financial risk report every two years, beginning January 1, 2026
- Reports must align with guidance from frameworks like the Task Force on Climate-related Financial Disclosures (TCFD)
- Reports must cover both material risks posed by climate change and the company’s strategies for mitigation and adaptation
- Unlike SB 253, there is no assurance requirement for SB 261, but companies should prepare for scrutiny from regulators, investors, and advocacy groups
- Reports will be publicly disclosed and available for review by industry stakeholder input groups and the public
The purpose of SB 261 is not just compliance – it is about pushing companies to build resilience in a net zero carbon economy.
What companies should do now
Even if your company isn’t yet on CARB’s initial proposal draws, the timeline is aggressive. Waiting could leave you scrambling. Here’s how to get ahead:
- Figure out if you’re covered
- Review gross worldwide revenue against the thresholds
- Assess whether you have business in California under the Internal Revenue Code definitions
- Consult legal and accounting teams to clarify if your company qualifies
- Assign responsibilities
- Assign clear responsibilities across finance, operations, procurement, IT, and sustainability
- Begin collecting emissions data aligned with the greenhouse gas protocol
- Where gaps exist, rely on industry average data while making a good faith effort to improve data accuracy and comply with reporting requirements
- Understand the timelines
- SB 261 reports start in 2026
- SB 253 emissions reporting starts in 2026, with Scope 3 following in 2027
- Build a roadmap that incorporates timely reporting implementation
- Budget for compliance
- Engage an independent third party to provide limited assurance
- Consider whether to engage multiple assurance providers as part of your strategy
- Account for costs tied to the emissions disclosure fund
- Allocate resources for compliance systems, data management, and reporting
What happens if you don’t comply
Failure to comply with California’s climate disclosure laws may expose companies to:
- Administrative penalties assessed by CARB
- Reputational harm from gaps in reporting entities disclosures
- Loss of credibility with investors, customers, and regulators
- Missed opportunities to demonstrate leadership in climate accountability and sustainable development
It is important to note that certain groups, such as government entities, are exempt from these requirements.
Given California’s influence and the likelihood that other states – and possibly the federal government – will adopt similar laws, compliance here may become the de facto standard nationwide.
CARB has published guidance to help companies prepare:
Companies should monitor CARB’s site as they continue to adopt guidance and regulations adopted pursuant to SB 253 and SB 261, as well as implementing regulations under cap and trade regulations and related programs.
Final thoughts
California’s climate disclosure laws – SB 253 and SB 261 – are reshaping corporate reporting obligations. Whether your company is named on CARB’s preliminary list or not, the responsibility to comply is yours.
By acting early – reviewing your annual revenues, understanding your California revenue footprint, mobilizing data, and preparing for third party assurance – you can turn compliance into an opportunity.
