California is forging a path for climate disclosure with its series of related legal frameworks requiring covered entities to disclose climate-related information, supporting documentation for certain net zero claims and financial risk frameworks.
In October 2023, California became the first state to enact such broad climate disclosure legislation, with the passage of the:
- Climate-Related Financial Risk Act (SB 261),
- Climate Corporate Data Accountability Act (SB 253), and
- California’s Voluntary Carbon Market Disclosures Act (AB 1305).
Entities covered by these three programs generally include those that do business in the state of California and either (1) make certain climate related claims about the business, its products, etc.; (2) market and/or purchase certain voluntary carbon offsets; and/or (3) meet certain monetary thresholds (for purposes of SB 253 and SB 261).
With compliance deadlines already in place or approaching quickly, implementation has been challenging for industry. The California Air Resources Board (CARB) is responsible for promulgating regulations associated with the three statutory programs, but has yet to do so. AB 1305 has already gone into effect, with its first deadline occurring as of January 1, 2025. SB 253 and SB 261 have deadlines starting in 2026. Like AB 1305, SB 261’s climate-related financial risk disclosure requirement does not depend on CARB completing its rulemaking prior to when the first reports are due on January 1, 2026. However, SB 253 differs from the other two in that no reporting obligations are imposed without CARB’s adoption of implementing regulations. Regulated entities needs to be prepared to comply while remaining flexible given pending publication of regulations in December.
To assist, this three part series provides a high-level guide on the three programs, including the applicability, the program’s coverage, steps for compliance, timing and other miscellaneous information based on current regulatory guidance. Here we focus on disclosure under California’s Climate Corporate Data Accountability Act (SB 253), which has an anticipated reporting deadline of July 30, 2026 (pending promulgation of implementing regulations).
California SB 253; Cal. Health & Safety Code § 38532
(Climate Corporate Data Accountability Act)
What – SB 253 requires CARB to development regulations that will require public disclosures of scope one, two and three greenhouse gas (GHG) emissions for certain covered entities doing business in California, and that have global revenues exceeding US$1 billion dollars. The first reporting period is expected to begin in 2026. Scope one emissions are defined as “all direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities.” Scope two emissions are defined as “indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a reporting entity, regardless of location.” Scope three emissions are defined as “indirect upstream and downstream greenhouse gas emissions, other than scope two emissions, from sources that the reporting entity does not own or directly control and may include, but are not limited to, purchased goods and services, business travel, employee commutes and processing and use of sold products.”
Who – A reporting entity is a partnership, corporation, LLC, or other business entity with total annual global revenues exceeding US$1 billion, and that does business in California. CARB is exploring the development of a database of companies it believes are “doing business in California’” and will likely refer to the California Revenue & Taxation Code for its initial concept. Subsidiary GHG emission reports may be consolidated at the parent company level. CARB has published a preliminary list of potentially covered entities that may be subject to SB 261 and SB 253.
Timing – SB 253 set a deadline of July 1, 2025, for CARB to adopt regulations for the GHG reporting; however, CARB is running behind. During a recent CARB webinar, CARB is expected to propose a June 30, 2026 implementation deadline for SB 253-required scope one and two reporting. Scope three emissions reporting is anticipated to begin in 2027.
How – SB 253 requires entities to seek third-party assurance of their GHG reporting. CARB plans to use existing assurance frameworks, such as ISSA 5000 (IAASB), AA1000, ISO 14060 family and AICPA. It also welcomes public feedback on how to incorporate assurance requirements into the forthcoming regulations. The GHG reports must adhere to the standards articulated in the Greenhouse Gas Protocol developed by the World Resources Institute and the World Business Council for Sustainable Development. We also anticipate CARB will prepare a portal for links to these disclosures to be submitted (comparable to SB 261 above). CARB’s Q&A guidance provides the Agency’s initial responses to frequently asked questions regarding this program.
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Questions about the Climate-Related Financial Risk Act (SB 261) requirements? Check out Part 1 of our series here.
