California’s Climate Regulations and Compliance Requirements Are Fast Approaching 

California has passed two laws requiring businesses to disclose their carbon emissions and climate-related financial risks. Senate Bill 253 (“SB 253”), known as the Climate Corporate Data Accountability Act (“CCDAA”), was signed into law in 2023 and will require large businesses operating in California to publicly report their greenhouse gas emissions. A related law, Senate Bill 261 (“SB 261”), was also adopted in 2023 and requires large U.S. businesses to disclose threats they face as a result of climate change. SB 253 and SB 261 impose unprecedented climate-related disclosure requirements on US public and private companies that do business in California and meet certain annual revenue thresholds. The initial reporting deadlines will begin in 2026, so affected companies should begin preparing now to be able to timely furnish the mandated climate-related information. 

 What is SB 253, the Climate Corporate Data Accountability Act? 

SB 253 requires public and private US companies doing business in California with annual revenue in excess of $1 billion to disclose their scope 1, 2, and 3 greenhouse gas emissions, with the initial reporting due in 2026 based on 2025 data. The goal of such reporting is to improve corporate transparency and standardizing corporate disclosures regarding carbon emissions; aligning public investments with climate goals; and raising the bar on corporate action to address the climate crisis. 

 Scope 1 emissions are those that result directly from a company’s activities, while scope 2 are those released indirectly, for example, from electricity purchased and used by the company. Scope 3 encompasses all indirect emissions produced from a company’s entire supply chain. Scope 3 emissions reporting is required in 2027 with respect to 2026 data; a year after the first scope 1 and 2 disclosures. 

Scope 1 and 2 emissions disclosures need to be independently assured by an independent third party. Scope 3 emissions may also require assurance; the California Air Resources Board (the “CARB”) is set to make that decision in 2027. All emissions disclosures will be housed on a publicly available digital registry. 

The CARB is tasked with establishing the official disclosure requirements and is set to publish such requirements by July 1, 2025. Thousands of companies “doing business” in California will now have to provide assurance-ready carbon emissions data and should be gathering emissions data now in order to meet reporting requirements in 2026. And while SB 253 is not directly applicable to companies with under $1 billion in annual revenues, it is anticipated that the requirement on reporting companies to disclose Scope 3 emissions (indirect emissions in a supply chain) will lead to increased pressure on smaller companies to make emissions disclosure in order to assist larger companies to meet their Scope 3 disclosure obligations. 

What is SB 261, the Climate-Related Financial Risk Act? 

SB 261 requires US companies doing business in California with annual revenue of $500 million or more to prepare and publish climate-related financial risk reports that are consistent with recommendations from the Task Force on Climate-Related Financial Disclosure framework. Under SB 261, applicable companies will be required to publicly disclose their climate-related financial risks and the measures they are taking to mitigate these risks, including details regarding the physical and transition threats affected organizations face as a result of climate change and mitigation steps being taken. 

Reports will be reviewed by the Climate-Related Risk Disclosure Advisory Group, which will identify inadequate reports, as well as propose additional policy changes and best practices for disclosure. According to the law’s sponsors, it aims to safeguard consumers and investors from losses resulting from climate-related disruptions to supply chains, workforces, and infrastructure, which are increasing due to the effects of climate change. SB 261 also addresses the financial risks businesses could face if they are unprepared for the transition toward a low-carbon economy. The initial round of climate risk disclosure reports will be due by January 1, 2026. 

What liability does a non-compliant company face? 

The laws authorize the CARB to bring civil actions against subject companies and seek civil penalties for violations. Penalties for companies relating to the emissions disclosure requirements under SB 253 can be up to $500,000 per year. Penalties relating to the financial risk report under SB 261 can be up to $50,000 per year. There is a safe harbor for scope 3 emissions disclosures; companies are not subject to administrative penalties for misstatements about scope 3 emissions made with a reasonable basis and disclosed in good faith. 

What should companies be doing now? 

Affected companies should begin now, if they have not already done so, to create an action plan for climate disclosures. With respect to the Climate Corporate Data Accountability Act, companies will need to begin gathering emissions data here in 2025 in order to meet the reporting requirements in 2026. Since the SB 253 data is subject to third-party audit-level review, impacted companies will be expected to handle their climate data with a similar level of care as their financial data, which means companies will need to implement internal processes and controls over the collection and reporting of such information. 

The CARB will publish the official disclosure requirements by July 1, 2025, so companies are encouraged to monitor and remain current on the CARB guidelines. Additional information is available at www.arb.ca.gov 

This e-Bulletin was prepared by Andrew Hirsch of SCI Capital Partners LP. Mr. Hirsch is the Vice-Chair, Publications of the Corporations Committee of the Business Law Section of the California Lawyers Association. The views expressed herein are those of the author and do not necessarily reflect the views of SCI Capital Partners LP.