With the recent passage of California Bills SB-253, SB-261, and SB-219, companies doing business in the state may be subject to sweeping new disclosure rules about their greenhouse gas (GHG) emissions, climate-related risks, and opportunities. The initial compliance requirements begin as early as January 1, 2026.

Consequences of non-compliance include:

• Reputational concerns from investors and customers as environmental, social, and governance (ESG) leadership is increasingly expected
• Regulatory penalties and increased oversight, exposing companies to heightened scrutiny and potential legal challenges

If you’re a C-suite executive, sustainability leader, or financial controller at a company doing business in California, the time to act is now.

Take Your First Steps

If you lead sustainability, finance, legal, or risk, here are your two most critical first steps:

Assess Regulatory Applicability and Organizational Scope

Engage legal, finance, and compliance stakeholders to determine your company’s exposure under California’s climate disclosure mandates:

• Confirm whether your organization meets the revenue thresholds— $1 billion for SB-253 and $500 million for SB-261.
• Determine whether your organization qualifies for an exemption.

This foundational step will clarify your regulatory obligations and inform the compliance roadmap.

Establish a Strategic Readiness Framework

Position your organization for compliance by building the core capabilities necessary to meet upcoming disclosure requirements:

• Develop a comprehensive GHG emissions inventory spanning Scope 1, Scope 2, and material Scope 3 categories, aligned with GHG Protocol guidance.
• Select and align to a disclosure framework, such as the Task Force on Climate-related Financial Disclosures (TCFD) or the International Sustainability Standards Board (ISSB), to ensure consistency and comparability of climate-related financial reporting.

Key Highlights

On August 21, 2025, the California Air Resources Board (CARB) convened their second virtual public workshop to engage stakeholders on the state’s landmark climate disclosure laws—the Climate Corporate Data Accountability Act (SB-253) and the Climate-Related Financial Risk Act (SB-261). These regulations will soon require companies doing business in California above certain revenue thresholds to disclose their GHG emissions and climate-related financial risks.

Doing Business in California

CARB introduced new proposed definitions for doing business, revenue, and the process for identifying parent-subsidiary relationships, key elements that determine which entities are covered by regulations.

• Doing business. Instead of the broad California Revenue & Taxation Code standard, CARB now proposes exploring the California Secretary of State’s publicly available database of active entities—specifically, companies with a designated agent for service of process in California.
• Revenue. Revenue is defined as “the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.” This figure does not account for operating expenses.
• Subsidiaries. Based on the existing cap-and-trade regulation, CARB is accepting the definition that “Subsidiary is a business in which another company (the parent or holding company) owns more than 50% of its voting stock. A subsidiary has a different legal business name than its parent company. This corporate relationship implies that the parent company has a controlling interest and can influence the subsidiary's operations, management, and financial decisions, even though the subsidiary operates as a separate legal entity.”

Covered Entities

Organizations may be exempt from reporting under SB-253 and SB-261, including:

• Non-profits
• Government entities
• A company whose only business in California is the presence of teleworking employees
• California Independent System Operator
• A business entity whose only activity within California consists of wholesale electricity transactions that occur in interstate commerce

Implementation Fee

CARB has proposed a flat fee model in which each covered entity pays an annual fee calculated as the annual program cost divided by the number of covered entities.

• Under this framework, companies with more than $500 million in annual revenue will be subject to the Climate-Related Financial Risk Disclosure Fund Fee (SB-261),
• Companies with more than $1 billion in revenue will be responsible for the Climate Accountability and Emissions Disclosure Fund Fee (SB-253).
• Importantly, subsidiaries are treated as separate regulated entities and must pay fees individually, even if reporting through a parent company.
• Organizations subject to both SB-253 and SB-261 will face dual obligations and must pay fees under each program.
• To ensure long-term sustainability of the program, CARB also confirmed that fees will be adjusted annually for inflation.
• Based on its ongoing costs and modeling assumptions, CARB estimates an annual fee of $3,106 for SB-253 entities and $1,403 for SB-261 entities.

Reporting Guidance

Organizations have flexibility in choosing their climate risk reporting framework, but must:

• Adhere to the principles, such as materiality determination and climate-related risk disclosures, embedded in that chosen framework when reporting.
• Include a statement outlining the reporting framework applied, the recommendations and disclosures addressed or omitted, and the rationale and future plans for any disclosures. Stakeholder feedback on definitions, frameworks, and exemptions is also encouraged.

SB-253

• Organizations must report Scope 1 and Scope 2 GHG emissions and obtain limited assurance over those emissions by June 30, 2026, for the prior fiscal year, with Scope 3 emissions reporting starting in 2027 for the prior fiscal year. CARB will show enforcement leniency for the first report if companies make good faith efforts to comply.

SB-261

• Reports on climate-related financial risks are due by January 1, 2026, covering either the 2023–24 or 2024–25 fiscal year depending on each organization’s fiscal year-end. CARB will create a public docket from December 2025 for posting these reports to enhance transparency.

Legislative and Regulatory Timeline

California’s climate disclosure framework, built on SB-253 and SB-261, continues to move through a multiphase regulatory process. As of July 2025, here’s where the regulatory timeline stands and what companies should anticipate next.

Initiation and Drafting Phase: Completed

CARB began the formal regulatory process in late 2023 after the enactment of SB-253 and SB-261. This initial phase focused on defining regulatory priorities, aligning with the Administrative Procedure Act (APA), coordinating internally, and developing early rulemaking concepts.

Public Workshops and Pre-Rulemaking Engagement: Ongoing

Throughout 2024 and continuing into 2025, CARB has hosted public workshops and listening sessions to gather input from stakeholders. In July 2025, they issued a FAQ document to assist companies on preparing for the regulation. Key discussion topics include refining the definitions of covered entities and their reporting boundaries, exploring methodologies for calculating greenhouse gas emissions, and clarifying the timing and expectations for third-party assurance requirements.

This stage is helping shape the upcoming regulatory language and surface practical considerations for implementation.

Notice of Proposed Action and Formal Comment Period: Not Yet Initiated

Following the second public workshop recently held, CARB has proposed October 14 as tentative date for the official Notice of Proposed Action, which will kick off the formal 45-day comment period required under APA procedures. Once this notice is published, the rulemaking timeline officially begins.

Final Rulemaking: Redeliberation, OAL Review, and Approval: Pending

Following the comment period, CARB will review and incorporate public feedback, finalize the regulatory language, and submit the rule package to the California Office of Administrative Law (OAL). The OAL will then conduct a 30-day legal review, and the entire process—beginning with the Notice of Proposed Action—must be completed within one year.

Learn More About Each Bill

SB-253: Climate Corporate Data Accountability Act

SB-253, known as the Climate Corporate Data Accountability Act, requires companies with more than $1 billion with total annual revenue doing business in California to report their GHG emissions annually, starting in 2026, promoting transparency, accountability, and alignment with California’s broader climate goals and regulatory framework.

Who it Applies to

Companies with over $1 billion in revenue, doing business in California

What’s Required

• Scope 1 and Scope 2 emissions reporting on June 30, 2026
• Scope 3 emissions reporting begins in 2027
• Must align with the GHG Protocol, including Scope 3 guidance

Assurance Requirements

• Limited assurance for Scope 1 and 2 by June 30, 2026
• Reasonable assurance phased in by 2030
• Scope 3 assurance may begin in 2027 (pending rulemaking)

Penalty Enforcement

• No penalties in first year of reporting, provided entities made good faith efforts to gather data
• Subsequent non-compliance may result in up to $500,000 per year

Reporting location

Company website

SB-261: Climate-Related Financial Risk Disclosure

SB-261, known as the Climate-Related Financial Risk Disclosure Act, requires companies with more than $500 million in annual revenue to publicly disclose their climate-related financial risks and mitigation measures biennially, starting in 2026, aligning with California’s climate risk transparency goals.

Who it Applies to

Companies with over $500 million in revenue, excluding insurance companies

What’s Required

• First climate-related financial risk report due by January 1, 2026, and every two years thereafter
• Disclosures may follow one of the several frameworks to meet requirements:
  • TCFD Recommendations published in June 2017
  • ISSB guidelines by IFRS foundation
  • Any equivalent report developed in accordance with any regulated exchange, national government, or other governmental entity
• Each report submitted to CARB should contain a statement on:
  • The reporting framework being applied
  • A clear overview of which recommendations and disclosures have been met, and which are still pending.
  • A concise summary explaining the reasons for any exclusions, along with an outline of future plans for incorporating such disclosures

Key Elements

• Governance. Description of organization’s governance structure for identifying, assessing, and managing climate-related financial risks, which should include:
  • Management oversight of climate-related risks and opportunities and should provide a description pertaining to Board oversight of those climate-related risks and opportunities (if the reporting entity has a Board).
• Strategy. Description of organization’s actual and potential impacts of climate-related risks and opportunities on the company’s operations, strategy, and financial planning. This includes describing:
  • The climate-related risks and opportunities the organization has identified over the short, medium, and long term
  • The impact of climate-related risks and opportunities on the organization’s operations, strategy, and financial planning
  • The resilience of the organization’s strategy, taking into consideration the future impacts of climate change under various climate scenarios
• Risk Management. Description of how the reporting entity identifies, assesses, and manages climate-related risks including a qualitative description of:
  • The process the reporting entity uses for identifying, managing and assessing climate-related risks, and how those considerations and processes are integrated into the organization’s overall risk management.
• Metrics and Targets. Disclosure of the metrics and targets used to manage relevant climate risks and opportunities, which may include GHG emissions across Scopes 1, 2, and 3, where such information is material.

Assurance Requirements

None currently

Penalty

Up to $50,000/year for insufficient or unpublished disclosures

Reporting Location

CARB Public Docket (open from Dec 1, 2025, and scheduled to close on Jul 1, 2026)

SB-219: Clarifications & Adjustments

California’s SB-219, signed into law on September 27, 2024, is an omnibus climate disclosure bill that consolidates and amends California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Disclosure requirements to delay, clarify, and adjust reporting timelines, fees, and administrative mechanisms for covered entities reporting GHG emissions and climate-related financial risks.

• Regulation timeline extended. CARB planned to adopt implementing regulations by July 1, 2025 (pushed from January 1, 2025), delaying the start of mandatory reporting under SB-253 and SB-261.
• Parent-level consolidation allowed. Parent-level consolidated reporting is permitted for both GHG emissions and climate-related financial risk disclosures.
• Scope 3 timing decoupled. Scope 3 emissions are no longer required within 180 days of Scope 1 and 2; CARB will now define the reporting schedule.
• Disclosure fee eliminated. Upfront disclosure fee is removed, though companies will still owe an annual fee set by CARB to cover administrative costs.
• Updated assurance requirements. Assurance for Scope 1 and 2 begins in 2026 (limited), with reasonable assurance expected by 2030. Scope 3 assurance may be introduced by 2027.
• Penalty considerations clarified. Good faith efforts to comply will be considered in enforcement. Penalty caps apply: $500K for emissions violations and $50K for risk disclosure violations.

We’re Here to Help

To learn how your organization can proactively plan for ESG regulations, contact your firm professional.

Additional Resources

• Assurance Practice
• Environmental, Social & Governance (ESG) Services