California SB 253 and SB 261 – Key questions answered

California has passed two landmark climate disclosure laws, SB 253 and SB 261, that reshape how large companies doing business in California must report on greenhouse gas emissions and climate related financial risks. These laws, known collectively as California’s climate disclosure laws, are among the most ambitious in the United States and will be implemented by the California Air Resources Board (CARB).

In this blog, we answer some of the most common questions about SB 253 and SB 261, the scope of covered entities, and what reporting entities should do to prepare.

What is California SB 253?

SB 253, the Climate Corporate Data Accountability Act, requires large reporting entities to provide detailed GHG emissions reporting requirements across all scopes, including Scopes 1, 2, and 3. This law is sometimes referred to as the Climate Corporate Data Accountability Act.

Which companies are in scope?

Covered entities are companies with annual revenue of more than 1 billion dollars that do business in California. This threshold captures many multinational corporations and large subsidiary entities operating in the state.

What is the timeline for implementation?

Initial reports on Scope 1 and Scope 2 GHG emissions are expected in 2026. Scope 3 indirect emissions reporting follows in 2027. Reports will be filed through a CARB administered reporting program, with a proposed deadline each year.

Companies will need third party assurance. Limited assurance will be required initially and later moving to reasonable assurance.

What should companies do to prepare?

Assess reporting requirements under SB 253, including data systems for emissions reporting. Prepare for assurance by strengthening internal controls. Track CARB developing regulations in the public docket. Ensure subsidiary entities and global operations are aligned to avoid incomplete reporting. Make good faith efforts to comply, as CARB has indicated it may exercise enforcement discretion in early reporting cycles.

What is California SB 261?

SB 261, the Climate Related Financial Risk Act, requires large companies to publish climate risk reports. These disclosures must describe climate related financial risks and the measures adopted to reduce or adapt to such risks.

The law is modeled on the Task Force on Climate Related Financial Disclosures and aligns closely with international financial reporting standards. The goal is to ensure investors, regulators, and the public understand how climate change could affect the financial performance of major businesses.

Which companies are in scope?

Under SB 261, covered entities are business entities with total annual revenues over 500 million dollars that do business in California. This includes both US and foreign companies with California sales.

What is the timeline for implementation?

Initial reports are due in 2026, based on the prior fiscal year. Companies must then annually disclose their climate related financial risks and strategies. The air resources board CARB will adopt implementing regulations through a rulemaking process, with opportunities for public input via a public docket and workshops.

What should companies do to prepare?

Map exposure to climate related financial risks. Develop governance processes for climate disclosure. Monitor CARB proposed draft regulations and the final regulations expected before the first reporting cycle. Engage stakeholders early to ensure good faith efforts at compliance, which CARB may consider if it needs to exercise enforcement discretion.

What about AB 1305?

In addition to SB 253 and SB 261, California has also enacted AB 1305, the Voluntary Carbon Market Disclosures Act. This law is aimed at ensuring transparency and integrity in climate claims, particularly around carbon offsets.

Which companies are in scope?

AB 1305 applies broadly to entities that market or sell voluntary carbon offsets in California, companies that purchase or use such offsets and make net zero or carbon neutral claims, and businesses operating in California that make public claims about GHG emissions reductions.

What is the timeline for implementation?

The law took effect on January 1, 2024. Companies must provide disclosures on their websites and update them at least annually. Noncompliance can result in civil penalties of up to 2,500 dollars per day, capped at 500,000 dollars per violation.

What should companies do to prepare?

Review climate related claims tied to offsets and ensure they are backed by transparent information. Confirm consistency with climate disclosure laws to avoid exposure to enforcement action. Align offset use with broader climate strategies to show that financial risks are properly managed.

The bottom line

California SB 253, SB 261, and AB 1305 together set a new bar for transparency. Large reporting entities with significant business in California and annual revenue must get ready for mandatory GHG emissions reporting and climate related financial disclosures, while any entity making offset or net zero claims must comply with AB 1305’s disclosure requirements.

The California Air Resources Board will continue to release regulations and hold public workshops as part of the rulemaking process. Companies should closely monitor these developments, engage in good faith efforts, and prepare governance, systems, and controls to meet the new standards.

Key takeaways:

• SB 253 focuses on climate corporate data accountability and GHG emissions reporting.
• SB 261 addresses climate related financial risks and requires annual climate risk reports.
• AB 1305 adds guardrails for voluntary carbon market disclosures.

Together, these are California’s climate laws and they will reshape the landscape for any company with significant business in California.