California SB 253 and SB 261: what you need to know
With a GDP of over $4 trillion (a figure which would make it the fourth largest economy in the world) California’s climate governance inevitably has worldwide implications. Now, this region is taking positive steps on corporate climate responsibility with the introduction of two California Senate Bills that come into force from 2026: California SB 253 and 261.
- SB 253 (Climate Corporate Data Accountability Act), requiring disclosures of greenhouse gas (GHG) emissions
- SB 261 (Climate-Related Financial Risk Act), requiring disclosures of climate-related financial risks.
These two laws, which were passed in 2023 and updated in 2024, create a two-pronged, mandatory disclosure system. They require companies doing business in the state to report on their scope 1, 2, and 3 greenhouse gas emissions and/or climate-related financial risks.
Overall, they aim to increase corporate transparency regarding climate responsibility, and reduce climate risk exposure, ultimately helping to increase the resilience of the state and the businesses operating within it – which makes sense given the scale of business in the region.
Below, we’ve put together a table showing key facts about the updated legislation including who is impacted, deadlines for compliance, and penalties for non-compliance.
| | SB 253 | SB 261 |
| Companies in scope | Companies with over $1 billion annual revenue doing business in California | Companies with over $500 million annual revenue doing business in California |
| Requirements | Disclose Scope 1-3 emissions | Report on climate risks using TCFD, ISSB, or other regulatory frameworks |
| Deadlines | Scope 1 & 2 reporting by June 30, 2026 Scope 3 reporting by 2027 | First disclosure January 1, 2026 Biennial reporting thereafter |
| Penalties | Up to $500,000 per year | Up to $50,000 per year |
What does California Climate Legislation mean for businesses?
While the legislation is detailed, and can be found on the State of California website, there are some important things to note.
California SB 253 requires companies with an annual revenue over $1B to disclose their Scope 1 & 2 greenhouse gas (GHG) emissions. This includes any emissions that result directly from a company's activities (Scope 1), plus any emissions that are released indirectly, for example, from electricity purchased and used by the company (Scope 2). To comply with the legislation, these Scope 1 & 2 disclosures will need to be assured by an independent third party.
To help you report on Scope 1 and 2 emissions under SB 253, CARB has now published a proposed template for disclosure, which you can find here.
Scope 3 reporting is required in 2027. This means affected companies will be required to report all indirect emissions produced across their entire supply chain. This is crucial as Scope 3 emissions can account for the majority of an organization’s climate impact and are often difficult to measure accurately.
As of right now, SB 253 applies to over 5,000 companies doing business in the State and although companies with subsidiaries can roll up data into a single parent-level disclosure, it’s important to assess whether you are impacted. The California Air Resources Board (CARB) has released a preliminary list of companies that may be impacted by SB 253 and/or SB 261, but companies are responsible for determining if they are within scope, so making your own checks is advisable.
California SB 261 requires companies doing business in California with revenue over $500M to submit climate-related financial risk reports. These reports should comply with either the Task Force on Climate-Related Financial Disclosure (TCFD) or the International Financial Reporting Standards Sustainability Disclosure Standards (IFRS S2).
Companies can select which framework they use to structure their disclosures but must identify their chosen framework and specify which recommendations have been addressed.
These reports must be published on the company's website and submitted to a public docket which CARB will open on December 1, 2026. The first report must be prepared by January 1, 2026, and then refreshed biennially.
Why compliance is good business: the benefits of proactive reporting
Although the details around compliance can seem overwhelming, compliance with climate disclosure legislation has several benefits and can even unlock significant competitive advantages:
Risk Management & Resilience: SB 261 forces you to identify and assess physical risks (like drought and wildfires) as well as transition risks (like new carbon taxes). Proactive reporting is therefore a blueprint for business resilience and long-term planning since it can help you spot:
- Potential impacts of climate-related events, such as wildfires and severe storms
- Impacts of climate-related risks on financial performance in the short-, medium-, and long-term
- Any changes in business operations taken to mitigate climate-related risks
- Processes for analyzing and preparing a strategy for climate-related risk management
Access to Capital: Investors increasingly favor companies with a transparent ESG strategy. As a result, they are looking for consistent, comparable, reliable climate information so they can make informed decisions. Robust reporting under the GHG Protocol (for SB 253) and TCFD (for SB 261) attracts "green capital" and lowers your cost of financing.
Operational Efficiency & Cost Savings: Measuring Scope 1, 2, and especially complex Scope 3 emissions reveals vital insights about your company. With this information, you can quickly identify energy intensive hotspots and high emitting suppliers, revealing opportunities to improve efficiency and reduce costs that were previously hidden in your supply chain and operations.
Enhanced Reputation & Trust: Public, assured disclosure builds credibility with consumers, regulators, and stakeholders. With thousands of businesses now required to publicly disclose their emissions profiles, action on reduction is bound to follow. This will deliver the change our planet urgently requires, but demonstrating a clear commitment to climate action also strengthens your brand and helps you attract purpose-driven talent.
Take action today
Corporate sustainability and climate reporting are important, whether you are directly impacted by California’s climate legislation or not. As the deadlines for SB 253 and SB 261 hit home, it’s vital to use this urgency to position your company as a climate leader, not just a compliant entity.
At Quentic, we know it can seem complex – but with the right software, it doesn’t have to be. To learn more about the Quentic ESG Solution for climate data collection, management, and reporting, speak to a Quentic expert today.
