Two California bills, SB 253 and SB 261, task businesses operating or doing business in the state with greater climate accountability, starting June 30, 2026:
California Governor Gavin Newsom signed the "California Climate Accountability Package" (CCAP) in October 2023. These two bills, SB 253 and SB 261, aim to increase transparency around corporate greenhouse gas (GHG) emissions and climate-related financial risks. State lawmakers are following global sustainability initiatives like the SEC Climate Disclosure proposal and the European Union's Corporate Sustainability Reporting Directive (CSRD) to mandate climate accountability.
Given California's economic and cultural influence, these bills will likely set a benchmark for corporate environmental accountability, affecting companies in the U.S. and globally. The CCAP requires companies (“reporting entities”) with more than $500 million in total annual global revenue (SB 261) and those with more than $1 billion in total annual global revenue (SB 253) to adjust to regulatory updates and disclose their carbon emissions. The aim is to foster informed decision-making and enable the transition to a low-emissions economy.
As SB 253’s first annual reporting deadline is approaching, this guide outlines the reporting requirements, key dates and potential business impacts.
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SB 253 is the first state law in the nation to require large organizations to report their carbon impact on a tiered level. The California Air Resource Board (CARB) has drafted and circulated the detailed ruling, which is currently being revised based on public comment. The reporting format and final detailed rules are expected to be issued before Q1 2026.
The first disclosures under SB 253 will be due June 30, 2026, covering public reporting and assurance review, based on the most recent fiscal year-end data. These initial reports will include Scope 1 and Scope 2 greenhouse gas emissions (direct and indirect emissions), with Scope 3 (upstream and downstream value-chain emissions) reporting beginning in 2027.
For SB 253 purposes, a “reporting entity” is defined as any partnership, corporation, limited liability company or other business entity formed under U.S. law with annual revenues of $1 billion or more that does business in California.
SB 253 outlines three scopes of greenhouse gas emissions that companies must report:
Non-compliant companies could incur administrative penalties with fines of up to $500,000 annually. The state will consider the company's past and present compliance and good faith efforts. Safe harbors exist for Scope 3 emissions, shielding companies from penalties for reasonable, good-faith misstatements between 2027 and 2030.
Beyond potential penalties, non-compliance with SB 253 carries a broader business risk. Most contracts with clients and vendors include a commitment to comply with all applicable laws and regulations. External auditors are required to assess and disclose any known instances of non-compliance.
If companies are unprepared or unable to meet the upcoming SB 253 reporting deadlines, they could find themselves in breach of contractual obligations and required to notify clients, vendors and auditors of their non-compliance.
SB 253 could affect you if you are a public or private company with an annual turnover exceeding $1 billion operating or doing business in California. The state's criteria for "doing business" includes any of the following:
If you do business broadly defined under California tax code, i.e., you have customers, suppliers or subsidiaries in California or exceed a certain threshold of California Sales, property or payroll, expect that you will have to report climate data, particularly if you're part of the supply chain for these companies.
SB 261 follows multiple federal, industry and international climate-risk reporting standards, such as the:
Following these still-voluntary precedents on reporting climate risk, SB 261 was passed to establish what California lawmakers call an "opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient and prosperous future for California."
A "covered entity" under SB 261 is defined as a corporation, partnership, limited liability company or other business entity formed under the laws of the state, the laws of any other state of the U.S. or the District of Columbia with total annual revenues exceeding $500 million and that does business in California. Covered entities will be required to submit a climate-related financial risk report every two years.
Borrowing from the TCFD framework on climate-related financial risk, California's climate-related financial risk reporting will begin in 2026. Both private and public companies will be required to disclose:
SB 261 requires the covered entity to publish its biennial climate-related financial risk disclosure publicly on its own website.
Insurance companies regulated by the California Department of Insurance are exempt from this required financial risk report because they already have a similar requirement.
The California climate-related financial risk reporting will allow for some overlap of existing disclosures for companies that provide publicly accessible reports, including climate-related financial risk disclosure information.
SB 261 also calls for the state to contract with a third-party "climate reporting organization" to produce a public report every two years, reviewing the reported climate-related financial risks and analyzing those facing California.
Failure to comply will result in administrative fines of up to $50,000 per reporting year. The state will consider the entity's compliance history and good faith efforts.
Climate disclosure regulations are increasingly aligning across the globe. The EU's CSRD is expected to have a broad impact, with 60,000 companies affected worldwide; the SEC's proposed Climate Disclosure Rule would impact thousands of the largest publicly traded U.S. companies.
It’s important to note that on March 27, 2025, the SEC voted to end its defense of the Climate Rule. However, despite the withdrawal of defense, the rules are not formally rescinded; they currently remain legally in place. Let’s examine how California’s SB 253 aligns/differs from the SEC’s Climate Rule:
California’s bill likewise has convergence and divergence from the Corporate Sustainability Reporting Directive (CSRD):
The takeaway? By meeting California's SB 253 requirements, companies will be well-positioned to comply with other major global regulations.
In SB 253, the term “independent third-party assurance provider” — sometimes called an “independent assessor” — reviews and verifies the greenhouse gas emissions disclosures that companies make under the law.
The independent assessor’s role is somewhat analogous to that of an auditor in financial reporting; they lend credibility and confidence to the emissions data by performing an assurance engagement. In a limited assurance review, the assessor verifies that what is reported is materially correct, that the processes are robust and that controls and methodologies are sound, rather than just accepting disclosures at face value.
In 2026, a limited assurance review will be required on Scope 1 and Scope 2 emissions data on previous fiscal year-end data. In 2027, Scope 3 emissions will be added on a limited assurance review basis. Beginning in 2028, these reviews will transition to reasonable assurance — a full audit involving deeper testing and validation of the underlying data and controls.
Although the final rule has been delayed to Q1 2026, the first reporting date remains June 30, 2026. Waiting for the final rule before taking action could make it difficult to meet the reporting deadline, especially given the number of assessments expected during that period.
SB 253 compliance can feel daunting but also presents opportunities to uncover cost-saving insights and enhance your sustainability reputation. For that reason, it’s wise to consider SB 253 and other climate accountability laws as a “friend” to the environment as well as your organization’s efficiency and bottom line.
California SB 253 as well as SB 261 will require a detailed review of a host of data. The ESG experts at Armanino — the only certified B corporation among the nation's top 20 accounting and business consulting firms — can assist with data audits, risk assurance and regulatory compliance as these new laws roll out. Contact Armanino’s ESG consultants today for an ESG assessment.
From risk assessments and framework selection to report guidance and independent assurance of data, our team can assist your ESG strategy and efforts.