The California Climate Disclosure Accountability Act (CCDAA): What businesses need to know

California is leading the way on climate disclosure. In 2023, the state passed two major laws that together create one of the most ambitious climate reporting regimes in the world.

The first is Senate Bill 253, the Climate Corporate Data Accountability Act (CCDAA). Often referred to simply as the Corporate Data Accountability Act, this law requires large public and private companies doing business in California to measure and disclose their greenhouse gas emissions each year. Over time, companies will also need to obtain third party assurance for their emissions data.

The second is Senate Bill 261, the Climate-Related Financial Risk Act. This law is complementary to the CCDAA. Instead of focusing on emissions data, it requires companies to disclose their climate related financial risks—covering both physical and transition risks—and explain how those risks affect their strategy and long-term financial outcomes.

To help unpack what this means for impacted companies, our internal expert Alison Gammie answers some key questions. Her perspective is straightforward: subject companies should start preparing now.

What is the Climate Corporate Data Accountability Act (SB 253)?

SB 253, known as the Climate Corporate Data Accountability Act, requires large public and private companies doing business in California to measure, track emissions, and annually disclose their greenhouse gas emissions. The act applies to companies with total annual revenues greater than one billion dollars. Covered reporting entities include both public and private businesses, including multinational enterprises and private companies operating across borders, provided they generate financial or pecuniary gain from business in California.

Reporting companies will be required to publicly disclose scope 1 direct emissions, scope 2 indirect emissions from purchased energy, and scope 3 emissions across their value chains. This means accounting for emissions produced not only within corporate operations, but also across supply chains, transportation, and even indirect activities such as business travel. Public disclosure must be made annually, and the information constitutes official reporting obligations under California’s climate disclosure law.

Oversight sits with the California Air Resources Board, often referred to as the Air Resources Board CARB, which is tasked with developing detailed reporting regimes, reporting processes, and enforcement measures. The goal is to create climate accountability by standardizing emissions data, requiring reasonable assurance from independent auditors, and ultimately providing a reasonable basis for emissions reporting that stakeholders, investors, and regulators can trust.

What is SB 261 on climate related financial risks?

SB 261, the companion to SB 253, addresses climate related financial risks. It applies to companies with annual revenues above five hundred million dollars and requires subject companies to publish climate related financial disclosures that explain how climate risks are identified, assessed, and managed.

These risks are defined broadly and include both physical and transition risks. Physical risks cover threats such as extreme weather events, sea level rise, or prolonged droughts that could disrupt corporate operations, supply chains, and employee health. Transition risks cover the shift to a low-carbon economy, including policy changes, consumer demand shifts, reputational pressures, and evolving financial markets.

The disclosures under SB 261 are intended to help investors, regulators, and the public evaluate how companies are preparing for climate risks that could affect financial standing, shareholder value, economic health, and long term financial outcomes. Public disclosure must be made every two years, and businesses operating in California will be expected to integrate these disclosures into their broader corporate strategies.

Which businesses are covered?

The scope of California’s climate disclosure law is intentionally broad. SB 253 applies to reporting entities with total annual revenues above one billion dollars, while SB 261 applies to reporting companies with annual revenues above five hundred million dollars. These thresholds cover both public and private companies, including private companies operating outside California but generating revenue within the state.

The definition of doing business in California includes engaging in activities for financial or pecuniary gain, meaning that even limited operations or partial corporate operations may qualify. Companies operating subsidiaries, offices, or distribution facilities within California are also subject companies. In many cases, reporting can be consolidated at the parent company level, which may simplify compliance and reduce the reporting burden.

This means that the scope goes well beyond large companies headquartered in California. Many global firms with only partial operations in the state, including private companies, will still find themselves subject to the reporting requirements.

What are the timescales for compliance?

The California Air Resources Board is in the process of finalizing detailed rules and reporting processes, but the general timeline is already clear. For SB 253, reporting entities must begin to annually disclose greenhouse gas emissions in 2026, based on data collected during the 2025 reporting year. Initially, disclosures will focus on direct emissions and scope 2 emissions. Scope 3 emissions will follow later, with reporting requirements phased in over time.

Third party assurance will also be phased in gradually. Initially, limited assurance will be accepted, but over time reasonable assurance will be required for scope 3 emissions. The role of third party assurance is central to the law’s emphasis on climate accountability and ensuring compliance.

For SB 261, climate related financial disclosures must begin in 2026, with updates required every two years thereafter. Subject companies must demonstrate how they are managing climate related financial risks, including both physical and transition risks, as part of their corporate strategy and governance.

What are the penalties for non compliance?

Companies that fail to meet their reporting obligations may face administrative penalties imposed by the Air Resources Board CARB. These penalties can include fines, enforcement notices, and reputational damage. In addition, companies that publicly report inaccurate or incomplete data without a reasonable basis may lose safe harbor protections.

Non compliance could affect financial investments, institutional investments, and overall financial standing. Companies that fail to meet reporting requirements risk eroding shareholder value and long term financial outcomes by undermining confidence among investors and financial markets.

How can in-scope businesses prepare now?

The first step for subject companies is to determine whether they fall within the revenue thresholds for SB 253 or SB 261 and whether they qualify as doing business in California. If so, the following actions are critical to ensure compliance and avoid non compliance penalties:

• Begin comprehensive data collection of greenhouse gas GHG emissions across scope 1, scope 2, and scope 3. This means accounting for emissions produced in corporate operations, supply chains, business travel, and the wider value chain.
• Establish strong governance and internal controls over reporting processes and sustainability data to build trust in public disclosure.
• Adopt carbon accounting software to automate and standardize climate reporting. Manual processes will not be sufficient given the scope and complexity of emissions disclosure requirements.
• Prepare for third party assurance by making emissions data auditable, consistent, and traceable, providing a reasonable basis for disclosures.
• Integrate climate related financial risks into board-level discussions and strategic planning, considering both material risk and transition risks.
• Align climate reporting with global reporting regimes such as ISSB, CSRD, and TCFD to allow disclosures to serve multiple regulatory requirements.

How can ESG software support compliance?

Meeting emissions disclosure requirements under California’s climate disclosure law will require high-quality sustainability data across reporting entities and corporate operations. ESG and carbon accounting software can help businesses operating in California by automating data collection, consolidating emissions data across supply chains, and providing standardized outputs that align with the Climate Corporate Data Accountability Act.

Such tools also support third party assurance by creating transparent, auditable data flows, enabling reasonable assurance and long-term climate accountability. By linking emissions data with climate related financial disclosures, businesses can also improve decision-making around financial investments, consumer demand shifts, and economic health.

In summary

California’s climate disclosure law, driven by Senate Bill 253—the Climate Corporate Data Accountability Act—and Senate Bill 261 on climate related financial risks, represents a landmark in corporate climate accountability. These laws apply to a wide range of public and private businesses with significant annual revenues, whether headquartered in California or simply generating financial gain through business in California.

For subject companies, the message is clear: start preparing now. By building robust reporting processes, adopting carbon accounting software, aligning with global reporting regimes, and preparing for third party assurance, impacted companies can transform reporting obligations into an opportunity. Strong climate reporting builds trust with investors, supports shareholder value, enhances long term financial outcomes, and positions companies as leaders in California’s climate transition.