Understanding California Climate Regulations SB 253 & SB 261: Implications for Your Company

California has long been a leader in environmental regulation, and the passing of the Climate Corporate Data Accountability Act (SB253) and the Climate-Related Financial Risk Act (SB261) in late 2023 continues this tradition.

Introduction

Crucial to California's goal of achieving carbon neutrality by 2045, regulations SB253 and SB261 mandate extensive climate-related disclosures from large businesses operating in the state. As a result, thousands of organizations are expected to provide assurance-ready carbon emissions data — including detailed reporting on Scope 3 emissions throughout their value chains.

As the world's fifth-largest economy, California has a track record of reshaping business practices beyond its borders. In this blog post, we unpack the details of California’s latest climate regulations and what they mean for your business.

What are California's SB253 & SB261 climate regulations? 

California’s SB253 Climate Corporate Data Accountability Act mandates that large businesses publicly disclose their greenhouse gas (GHG) emissions. Beginning in 2026, large public and private organizations operating in California must report their direct GHG emissions (Scope 1 and 2). By 2027, they must also include indirect emissions (Scope 3), which often constitute the majority of a company’s carbon footprint.

This policy applies to all large companies doing business in California with annual gross revenues exceeding $1 billion USD. While the law doesn't precisely define what "doing business" in California means, its wording of “business entity” is defined as U.S.-based partnerships, corporations, limited liability companies, and other entities with operations in the state. Based on existing standards, the threshold for "doing business" is quite low, potentially impacting over 5,000 companies.

To comply, businesses must submit their emissions data to a digital reporting platform, ensuring all information is clear and easily understood by stakeholders. SB253 also requires third-party assurance of these reports starting in 2027 onwards, their Scope 3 greenhouse gas emissions requiring “limited” assurance and starting in 2030, “reasonable” assurance. There is also a caveat that if a company is already reporting to the EU’s CSRD in that they can use the exact same report for California. Companies that fail to comply could face civil penalties.

In terms of penalty, and in relation to SB253, it would impose a maximum penalty of $500,000 per reporting year for administrative penalties imposed on a Reporting Entity. However, California regulators have indicated that reporting penalties cannot be subject to an administrative penalty under SB253 for any misstatements with regard to Scope 3 emissions disclosures “made with a reasonable basis and disclosed in good faith.”

Meanwhile, California’s SB261 Climate-related Financial Risk Act requires large public and private companies to disclose the financial risks they face due to climate change. Starting in 2026, companies will have to submit a climate-related financial risk report biannually, in accordance with the Task Force on Climate-related Financial Disclosures (TCFD). Reporting companies will need to detail the physical and transition risks they face as a result of climate change, as well as the measures they’re taking to mitigate and adapt to those risks. 

SB261 affects a broader range of organizations than SB253, as it applies to any corporate or business entity operating in California with annual revenues over $500 million USD.

What's the status of both in 2025?

The enactment of California’s SB253 and SB261 are a significant shift from voluntary to mandatory climate reporting, setting new standards for corporate climate accountability that will extend far beyond the state. 

Within the last six months, SB219 in late September 2024 amended state law to accommodate CARB, moving back the effective date stated of SB253 from January 1, 2025 to July 1, 2025. First reports by reporting entities are still due in 2026, but on a date to be determined by CARB. In the very same report, it has mentioned that it will not administer penalties for incomplete reports when the first disclosures are due in 2026 for Scope 1 and 2 emissions from the prior fiscal year. This 2026 non-penalty policy is, however, conditioned on entities demonstrating “good faith” efforts to comply with the law.

Though SB219 creates some uncertainty for companies on whether they should comply with SB253 and SB261, CARB’s delays and the lawsuits realistically mean there could be delays, changes, or even potentially withdrawals of the reporting requirements.

But this seems to be a bump in the road, and only reinforces the fact that 2025 continues to be a pivotal year for regulatory compliance. After all, the delay of SB219 will give companies a halved timeline for adapting to CARB’s rules, which will necessitate early preparation. Data management frameworks and supplier engagement is still needed to answer to any reporting obligations in time. Instead, they are drafted based on delaying full implementation of the law, and do not substantively reduce the necessity to keep track of Scope 3 emissions. 

Efforts to respond to ongoing public sentiment emphasise that SB253 and SB261 are here to stay. In all of this, California's SB253 and SB261 presents a distinct opportunity for California-based companies to unlock positive business impacts such as: 

1. Effective management of emergent climate risks 
   Climate risks are critical for companies operating in California, with extreme climate events impacting productivity across crops, meats, and fisheries. Accurate climate disclosures such as those required by California’s latest climate laws will equip business leaders and investors with vital information for informed decision-making to safeguard and improve financial stability.
   
   
2. Solving for future global reporting compliance
   By establishing strong climate reporting capabilities with audit-ready carbon accounting to comply with California’s rigorous standards, companies can position themselves to meet comparable emerging regional regulations, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD).
   
   
3. Building green credentials
   Companies that measure and mitigate emissions can leverage California’s reporting framework to showcase reduction initiatives and earn investor trust. Aligning with frameworks like IFRS S2 also grants access to green finance, crucial for sustaining and expanding operations in global markets increasingly focused on decarbonization and sustainability.
   
   
4. Uncovering opportunities for value creation
   The accurate carbon accounting mandated by California’s climate laws can help companies identify and address high-emission areas, uncovering opportunities for cost savings, operational efficiencies, and innovation. Prioritising decarbonisation can also enhance competitiveness by attracting customers committed to reducing their carbon footprints.
   
   

How Terrascope can help your company meet California's climate laws

As the regulatory landscape shifts from voluntary to mandatory climate reporting, emissions data will undergo the same scrutiny as financial data. US-based companies must be confident in their data and able to demonstrate its accuracy. Measuring and reporting Scope 1, 2, and 3 emissions can be challenging, but utilizing software like Terrascope to automate GHG accounting ensures greater accuracy, traceability, and transparency.

Terrascope is an enterprise-grade, end-to-end decarbonization software platform designed to help corporations reduce emissions across their operations and supply chains. By providing credible, auditable emissions data compliant with the GHG Protocol, Terrascope delivers the carbon-related analytics needed for accurate and timely disclosures.

Terrascope specialises in Scope 3 and land-based emissions, supporting both company and product carbon footprinting, reporting, and decarbonization goals. For Land, Nature, and the Net Zero Economy in the US, our focus on Scope 3 emissions includes:

• Mapping emission sources across the value chain
  Moving beyond spend-based data to guide best practice data for robust calculations
  Using location-based or custom emission factors that align with your supply chain, instead of generic global factors

Terrascope also has proprietary capabilities to track data confidence, visualize emission factors in detail, and simulate changes from reduction initiatives. As California leads the way in climate regulation, it’s imperative for US-based companies to stay ahead of the curve.

Contact us today to learn how Terrascope can support your journey towards effective decarbonization.