California Leads the Way with Groundbreaking Climate Disclosure Laws: SB 253 and SB 261

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California flagCalifornia has once again positioned itself at the forefront of climate action with the passage of two ambitious laws: Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261). Signed into law by Governor Gavin Newsom in 2023, these measures signal a transformative shift in how companies operating in California must address and disclose climate-related information.

SB 253: Climate Corporate Data Accountability Act

SB 253 requires large companies doing business in California to publicly disclose their greenhouse gas (GHG) emissions. Specifically, companies with annual revenues exceeding $1 billion must report their direct emissions (Scope 1), indirect emissions from purchased electricity (Scope 2), and value chain emissions (Scope 3) to an emissions reporting organization designated by the California Air Resources Board (CARB).

  • Scope 1: Direct emissions from owned or controlled sources.
  • Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling.
  • Scope 3: All other indirect emissions that occur in a company’s value chain, including both upstream and downstream activities.

The first Scope 1 and 2 disclosures are due in 2026, with Scope 3 disclosures following in 2027. Companies must have their reports independently verified, ensuring credibility and transparency. Notably, the inclusion of Scope 3 emissions sets SB 253 apart, as these are often the most significant yet least reported sources of emissions.

Scope of Companies Affected: SB 253 applies to any company “doing business in California” that meets the revenue threshold, regardless of where they are headquartered. This broad definition ensures that a wide range of national and international companies with California operations are covered.

Fines and Penalties: Failure to comply with SB 253 requirements can result in administrative penalties of up to $500,000 per year. CARB has the authority to enforce these penalties, with a particular focus on repeated or egregious violations.

SB 261: Climate-Related Financial Risk Disclosure

SB 261 targets companies with annual revenues exceeding $500 million, requiring them to prepare and publish biennial reports on their climate-related financial risks. These reports must be in accordance with the guidelines from the Task Force on Climate-Related Financial Disclosures (TCFD).

Companies must disclose:

  • Their climate-related financial risks.
  • The measures they are taking to reduce and adapt to those risks.

The first reports are due by 2026. While companies subject to federal climate disclosure rules (such as the SEC’s anticipated climate disclosure rule) can submit those disclosures in lieu of a separate SB 261 report, the California law ensures a broad base of corporate participation, even for companies that are not publicly traded.

Scope of Companies Affected: SB 261 covers both public and private companies “doing business in California” that meet the $500 million revenue threshold, significantly expanding the number of organizations required to assess and report on climate risks.

Fines and Penalties: Non-compliance with SB 261 can also lead to administrative penalties, up to $50,000 per reporting year, ensuring that the reporting obligations are taken seriously.

The Broader Impact

Together, SB 253 and SB 261 are poised to create one of the most comprehensive state-level corporate climate reporting regimes in the world. California’s approach recognizes that transparency is a powerful driver of change: by requiring companies to measure and disclose their climate risks and impacts, the state aims to encourage better management and reduction of GHG emissions across the economy.

Businesses now face the urgent need to enhance their climate reporting capabilities, engage with stakeholders across their value chains, and integrate climate risk into their corporate strategies. Compliance is not just about avoiding penalties; it’s about building resilience and demonstrating leadership in an increasingly climate-conscious market.

California’s SB 253 and SB 261 are landmark laws that underscore the state’s commitment to combating climate change through transparency and accountability. As other jurisdictions consider similar measures, California’s model may well become the standard for corporate climate disclosure in the United States and beyond. Companies that start early in aligning their operations with these new requirements will not only ensure compliance but also gain a competitive edge in the evolving business landscape.