Quick Guide: Key Sustainability Disclosure Regimes: California climate disclosure laws

In October 2023, Senate Bill 253 and Senate Bill 261 were signed into law in California. Both Senate Bills have now been codified as amendments to Health and Safety Code Sections 38532 and 38533 as the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, respectively. 

The laws will require certain large public and private U.S. entities that conduct business in California to publicly disclose their Scope 1, 2 and 3 greenhouse gas (“GHG”) emissions, and climate-related financial risks starting in 2026.

The California laws are informed by globally recognised frameworks. SB 253 requires GHG emissions disclosures in accordance with the Greenhouse Gas Protocol standards and guidance (“GHG Protocol”). SB 261 requires climate-related financial risk disclosures and is based in part on the recommended framework and disclosures of the Task Force on Climate-Related Financial Disclosures (“TCFD”). Both the TCFD and GHG Protocol are already familiar disclosure standards for many companies. The laws aim to increase transparency and consistency needed by investors, consumers, and other stakeholders to fully understand climate risks and inform their decision making. Accurate and comprehensive data will also assist in effectively identifying sources of emissions and develop means to reduce those emissions.

Note the California laws are subject to ongoing legal challenge. However, to date, these challenges have not been successful. 

Unlike the U.S. Securities and Exchange Commission’s (“SEC”) final climate disclosure rules, which have been voluntarily stayed pending various legal challenges, the California laws currently remain in place.

The SB 253 GHG emissions disclosure requirements apply to “reporting entities”, which are defined as: 

• partnerships, corporations, limited liability companies, or other business entities formed under the laws of California or any other U.S. state or District of Columbia, or under an act of the U.S. Congress,
• with total annual revenues in excess of $1 billion (based on revenue for the prior fiscal year), 
• that do business in California.

The SB 261 climate-related financial risk disclosure requirements apply to “covered entities,” which are defined as: 

• partnerships, corporations, limited liability companies, or other business entities formed under the laws of California or any other U.S. state or District of Columbia, or under an act of the U.S. Congress (but excluding business entities subject to regulation by California’s Department of Insurance, or that are in the business of insurance in any other U.S. state),
• with total annual revenues in excess of $500 million (based on revenue for the prior fiscal year), 
• that do business in California.

Definitions of “revenue”, “doing business in California” as well as “parent” and “subsidiaries” (see below in relation to consolidation) are being developed by the California Air Resources Board (“CARB”). 

Initial concepts that were considered by CARB were presented and discussed during public workshops in May 2025. At the August 2025 public workshop, CARB stated it is accepting public comments on its most recent proposed definitions and approach for “revenue”, “parent”, and “subsidiary” as well as others (see FAQ document and “Next steps” below for further details).

CARB plans to post a list of entities that it believes are subject to SB 253 and SB 261 in September 2025.

SB 253 requires all reporting entities to disclose Scope 1 and Scope 2 emissions beginning in 2026 (on or by a date determined by CARB) and Scope 3 emissions beginning in 2027 (on a schedule to be specified by CARB). 

The timeline for emissions disclosure and verification will be determined through additional public consultation and through the rulemaking process. 

Note that CARB is currently considering a June 30, 2026 initial reporting deadline for SB 253 Scope 1 and 2 data for fiscal 2025 (see further updates from CARB below in “Next steps”). 

SB 261 requires covered entities to begin making their climate-related financial risk disclosures on or before January 1, 2026. 

SB 253 requires reporting entities to: 

• Disclose publicly each year either to the relevant emissions reporting organization (if contracted) , or CARB itself, the Scope 1, Scope 2 and (from 2027) Scope 3 emissions in conformance with the Greenhouse Gas Protocol standards including Scope 3 guidance (or an alternative standard, if one is adopted after 2033).
• Obtain an assurance engagement, performed by an independent third-party assurance provider, on all of the reporting entity’s Scope 1, Scope 2 and Scope 3 emissions. See details of assurance requirements below. 

SB 261 requires covered entities to:  

• Publish biennially (i.e., every 2 years) on its website a climate-related financial risk report disclosing:
  • its climate-related financial risk, in accordance with the recommended framework and disclosures contained in the Final Report of Recommendations of the TCFD (June 2017) or pursuant to an equivalent reporting requirement; and 
  • the measures it has adopted to reduce and adapt to the disclosed climate-related financial risk. 
• If a covered entity does not complete a report consistent with all required disclosures, it must provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures.

“Climate-related financial risk” is defined as the “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.”

On September 2, 2025, CARB issued a Draft Checklist to assist covered entities with developing their initial climate-related financial risk reports. Amongst other things, CARB clarifies that although SB 261 does not specify use of calendar year or fiscal year data, entities should use the most recent / best available data for the first report. 

Note on December 1, 2025, CARB will also post a public docket for covered entities to post the location of their public link to their first-climate related financial risk report. 

The assurance engagement for Scope 1 and Scope 2 emissions must be performed by an independent third-party assurer at a “limited assurance” level (i.e., negative assurance) beginning in 2026 and at a “reasonable assurance” level (i.e., affirmative attestation) beginning in 2030. 

A copy of the full assurance provider’s report must be provided to the emissions reporting organisation or (if such an organisation is not contracted for this purpose by CARB), CARB.

On or before January 1, 2027, CARB may establish a requirement for limited assurance of Scope 3 emissions beginning in 2030.

CARB has indicated that the applicable assurance standard will be included in SB 253 implementing regulations (see further updates from CARB below in “Next steps”). 

Substituted compliance 

SB 261 provides that a covered entity satisfies its climate-related financial risk reporting requirements if it prepares a publicly accessible biennial report that includes climate-related financial risk disclosure information either: 

• pursuant to existing laws, regulations or listing requirements issued by any regulated exchange, national government, or other governmental entity that incorporates SB 261’s disclosure requirements, including the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board; or 
• voluntarily using a framework that meets SB 261’s disclosure requirements or the International Financial Reporting Standards Sustainability (“ISSB”) disclosure standards.

Scope 1, Scope 2 and Scope 3 emissions, and climate-related financial risk reports may be consolidated at the parent level. 

If a subsidiary of a parent qualifies as a reporting/covered entity, the subsidiary is not required to prepare a separate emissions disclosure or a separate climate-related financial risk report.

SB 253 directs CARB to adopt regulations authorizing it to seek administrative penalties for non-filing, late filing, or other failure to meet the law’s requirements not exceeding $500,000 in a reporting year. Reporting entities will not be subject to an administrative penalty for any misstatements regarding Scope 3 emissions disclosures made with a reasonable basis and disclosed in good faith. Further, any penalties assessed on Scope 3 reporting between 2027 and 2030 will only be for non-filing.

SB 261 directs CARB to adopt regulations authorizing it to seek administrative penalties from a covered entity that fails to publish the required climate-related financial risk report or publishes an inadequate or insufficient report, not exceeding $50,000 in a reporting year.

CARB has held two public workshops to support the development of the California laws and may hold additional workshops in the coming months. 

In its most recent workshop, CARB provided various updates, including on:

• the regulatory development timeline, including proposing a June 30, 2026 initial reporting deadline for SB 253 Scope 1 and 2 data for fiscal 2025; 
• scoping assessments, including key definitions and a new proposal to exempt some entities from compliance, such as non-profits; 
• initial considerations for assurance requirements, which may rely on existing assurance standards and is expected to be included in implementing regulations; 
• reporting templates, with CARB expecting to post draft reporting templates for Scope 1 and 2 emissions reporting; and
• implementation fees.

CARB has requested written feedback from stakeholders and is opening the public docket for comments for a 3-week period from 22 August 2025 to 11 September 2025.

CARB is planning to release its draft implementing regulations by December 2025 and final regulations in 2026, which will address key definitions, assurance requirements, and fees. 

• Climate Corporate Data Accountability Act (SB 253)
• Greenhouse Gases: Climate-Related Financial Risk (SB 261)
• Greenhouse Gases: Climate Corporate Accountability: Climate-related financial risk (SB 219)
• Enforcement Notice: The Climate Corporate Data Accountability Act 
• Climate Related Financial Risk Disclosures: Draft Checklist
• California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure Programs: Frequently Asked Questions Related to Regulatory Development and Initial Reports

• Blog post - California Legislature Passes Landmark Climate Disclosure Laws
• Blog post - US: The SEC’s Climate Disclosure Rules: detailed analysis
• Blog post - SEC Voluntarily Stays Climate Disclosure Rules