California has taken a significant step forward in the fight against climate change with the introduction of two major climate transparency laws—SB 253 and SB 261. Signed by Governor Gavin Newsom on October 7, 2023, these laws will affect large companies operating in California, requiring them to disclose comprehensive climate-related data starting in 2026.
Overview of California’s Climate Disclosure Laws
SB 253 – Climate Corporate Data Accountability Act
This legislation focuses on the transparency of emissions data for large companies doing business in California. The law mandates the following:
- Scope 1 & 2 Emissions Reporting: Starting in 2026, companies with annual revenues exceeding $1 billion will be required to report their Scope 1 and Scope 2 emissions on an annual basis. These reports must be third-party assured.
- Scope 3 Emissions Reporting: From 2027, these companies must also begin reporting their Scope 3 emissions, with limited assurance required by 2030.
- All reports will be submitted to the California Air Resources Board (CARB).
SB 261 – Climate-Related Financial Risk Disclosure
This law requires companies to disclose climate-related financial risks, focusing on the potential impact of climate change on their financial stability. The requirements are as follows:
- Biennial Reporting: Companies with annual revenues exceeding $500 million must submit reports every two years, starting January 1, 2026.
- The reports must align with global frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and must be publicly posted.
Compliance Based on Revenue Tier
| Annual Revenue | SB 253 – Emissions Disclosure | SB 261 – Risk Disclosure |
| $500M – $1B | ❌ Not Required | ✅ Required |
| Over $1B | ✅ Required | ✅ Required |
It’s important to note that “doing business in California” includes having sales, employees, or assets within the state. Additionally, the revenue thresholds are based on global annual revenue, not just California-specific figures.
Timeline of Key Requirements
| Date | Requirement | Applies To |
| Oct 7, 2023 | SB 253 & SB 261 signed | — |
| Jan 1, 2026 | First climate-risk reports due (biennial) | > $500M revenue companies |
| 2026 | First Scope 1 & 2 emissions reports | > $1B revenue companies |
| 2027 | First Scope 3 emissions reports | > $1B revenue companies |
| By 2030 | Limited assurance required for Scope 3 | > $1B revenue companies |
Penalties and Enforcement under California SB 253 and SB 261
- Monetary Fines:
- SB 253: Non-compliance with emissions reporting could result in fines of up to $500,000 per year for failures like non-filing or late submissions.
- SB 261: Failure to report climate-related financial risks or inadequate disclosures can lead to fines of up to $50,000 per year.
- Enforcement by CARB:
- Both laws are enforced by the California Air Resources Board (CARB), which has the authority to impose administrative penalties. The California Attorney General can also pursue legal action for severe violations.
- Grace Period and Flexibility:
- SB 253 allows a grace period for minor Scope 1 and 2 data gaps in 2026, while SB 261 provides flexibility for late filings in 2026, with penalties for egregious non-compliance.
- Non-Compliance Implications:
- Companies risk reputational damage, increased scrutiny from investors, and the financial consequences of non-compliance.
What Does “Limited Assurance” Actually Mean?
The term limited assurance refers to a level of scrutiny applied to a company’s Scope 3 emissions reporting. Unlike reasonable assurance (which involves a more thorough review of the data), limited assurance is a more basic review that ensures there are no significant discrepancies or errors. This allows companies to demonstrate they are taking steps to manage and disclose their emissions, but it is not as rigorous as a full audit.
How Should Companies Prepare for This?
As the deadline for climate reporting looms, companies should take the following steps to ensure they are compliant with California’s new laws:
- Conduct a Gap Analysis of Existing Emissions and Risk Disclosures
Companies should assess their current emissions and risk reporting practices to identify gaps and prepare for future disclosures. - Begin Supplier Engagement for Scope 3 Readiness
Since Scope 3 emissions involve the entire value chain, businesses must engage with suppliers early to ensure data accuracy and collection readiness. - Align Existing Climate Risk Frameworks with TCFD and ISSB
It is critical for companies to ensure that their climate-related financial risk disclosures are aligned with recognized frameworks like TCFD and ISSB. - Prepare Internal Systems for Third-Party Assurance
Given the requirement for third-party assurance of Scope 1 & 2 emissions starting in 2026, companies should ensure their data management systems are equipped to handle this review process efficiently.
The Path Ahead for Companies in California
As California leads the way with its stringent climate reporting laws, companies of varying sizes must prepare for these upcoming compliance requirements. With the first major deadlines set for 2026, businesses are encouraged to begin integrating climate risk and emissions data into their operations and reporting systems.
These transparency laws are not only pivotal for California’s environmental goals but also for aligning the state with global sustainability trends. Companies that comply early will be well-positioned to meet future requirements, build stakeholder trust, and drive positive change.
How Credibl Can Help
As Scope 3 emissions and climate risk disclosures demand complex, multi-source data, companies should invest in AI-enabled ESG platforms like Credibl to automate data collection, traceability, and assurance workflows.
By leveraging AI-powered data management solutions, businesses can streamline ESG reporting, ensuring they meet California’s requirements while reducing manual effort, increasing accuracy, and ensuring that reports are audit-ready.
With Credibl, your company can automate:
- Data collection across supply chains and internal operations.
- Assurance workflows for third-party validation.
- Regulatory alignment, ensuring reports meet evolving standards, such as SB 253 and SB 261.
For more information on how Credibl can help your company manage its ESG disclosures, contact us today.
