California is leading the charge in corporate climate accountability with the enactment of two landmark laws, SB 253 and SB 261, that set a new benchmark for climate disclosure in the United States. These groundbreaking regulations require large companies operating in California to publicly disclose their greenhouse gas (GHG) emissions and climate-related financial risks, aiming to enhance transparency and drive meaningful action on climate change.

With stringent reporting standards, phased deadlines, and significant penalties for non-compliance, these laws raise the bar for corporate responsibility and signal a potential shift toward nationwide adoption of similar climate disclosure frameworks. For businesses, this marks a pivotal moment to integrate sustainability into their operations and governance.

In this article, we’ll provide an overview of the two climate disclosure reporting laws, key deadlines and requirements, penalties for non-compliance, and how we at Clearyst can drive compliance for your organization.

Overview of California's Climate Disclosure Laws

California has enacted two groundbreaking climate disclosure laws - SB 253 and SB 261 - that set a new standard for corporate climate accountability in the U.S. These laws require large companies doing business in California to disclose greenhouse gas (GHG) emissions and climate-related financial risks, with significant penalties for non-compliance.

SB 253: Climate Corporate Data Accountability Act

SB 253 sets a new standard for emissions transparency by mandating large companies to publicly report their greenhouse gas emissions across their operations and value chains.

Purpose

• Mandates public disclosure of greenhouse gas emissions to enhance transparency and accountability

Who Must Comply

• U.S.-based public and private companies with annual revenues exceeding $1 billion that do business in California

Key Requirements

1. Scope of Reporting:
   • Scope 1 & 2 Emissions: Direct emissions and indirect emissions from purchased electricity
   • Scope 3 Emissions: Indirect emissions from the value chain (e.g., suppliers, product use)
2. Verification:
   • Independent third-party assurance is required:
     • Limited assurance for Scope 1 & 2 by 2026
     • Reasonable assurance for Scope 1 & 2 by 2030
     • Scope 3 assurance requirements will be phased in, with limited assurance potentially required by 2030
3. Reporting Protocol:
   • Must align with the Greenhouse Gas Protocol
4. Submission:
   • Reports must be submitted to a designated emissions reporting organization

Deadlines

• 2026: Initial reporting of Scope 1 & 2 emissions (based on FY2025 data)
• 2027: Initial reporting of Scope 3 emissions (based on FY2026 data)

Penalties

• Non-compliance may result in civil penalties up to $500,000 per year
• A "good faith effort" to comply will be considered during the initial reporting cycle

SB 261: Climate-Related Financial Risk Act

SB 261 focuses on protecting consumers and investors by requiring companies to disclose climate-related financial risks and the strategies they are implementing to mitigate them.

Purpose

• Requires disclosure of climate-related financial risks and mitigation strategies to protect consumers and investors

Who Must Comply

• U.S.-based companies with annual revenues exceeding $500 million that do business in California

Key Requirements

1. Climate Risk Reporting:
   • Biennial reports must disclose:
     • Climate-related financial risks (aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) framework, IFRS S2, or in accordance with any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government)
     • Measures taken to mitigate and adapt to these risks
2. Public Availability:
   • Reports must be published on the company’s website and submitted to a public docket managed by the California Air Resources Board (CARB)

Deadlines

• January 1, 2026: First biennial report due (based on the most recent / best available data, per CARB)

Penalties

• Non-compliance may result in administrative penalties up to $50,000 per year

Implications for Businesses

These laws introduce some of the most rigorous climate disclosure requirements in the U.S., compelling companies to enhance their reporting systems and adapt their operations to meet compliance standards.

1. Stringent Standards:
   • These laws are among the most rigorous climate disclosure requirements in the U.S., comparable to the EU’s Corporate Sustainability Reporting Directive (CSRD)
   • Likely to set a precedent for similar regulations nationwide
2. Operational Impact:
   • Companies must build robust internal reporting systems, governance structures, and assurance pathways
   • Strategic integration of emissions measurement, risk assessment, financial planning, and governance is critical
3. Value Chain Pressure:
   • Scope 3 reporting will increase pressure on smaller businesses within the value chains of large companies to disclose their emissions

Preparation Tips for Companies

To navigate these new regulations, businesses must prioritize data collection, cross-departmental collaboration, and technology investments while demonstrating good faith efforts to comply.

1. Data Collection:
   • Begin gathering emissions data (aligned with the GHG Protocol) and assessing climate-related risks (using the TCFD framework, IFRS S2, or other regulated exchange, national government, or other governmental entity, including a law or regulation issued by the United States government)
2. Internal Collaboration:
   • Engage sustainability, finance, legal, and risk teams to ensure compliance
3. Technology Investment:
   • Use tools for transparent, auditable, and reliable data management
4. Good Faith Efforts:
   • Document processes, assumptions, and limitations to demonstrate compliance efforts

Conclusion

California’s SB 253 and SB 261 represent a bold step forward in addressing the climate crisis through corporate accountability. Mandating comprehensive emissions reporting and climate risk disclosures challenges businesses to adopt more transparent and sustainable practices while setting a precedent for future regulations across the U.S. Although compliance may require significant investment in data collection, governance, and technology, these efforts will ultimately position companies to navigate the evolving landscape of climate-related risks and opportunities.

At Clearyst, we have both the deep domain expertise, real-world experience, and efficient data processes to rapidly help companies with reporting compliance for SB 253 and SB 261.

For more information on how we can support as well as potential pricing / proposals, speak to an advisor today: