California has enacted a ground-breaking set of climate disclosure regulations that will affect thousands of companies doing business in the state. The laws - SB 253, SB 261, and AB 1305 - require businesses to disclose greenhouse gas (GHG) emissions and climate-related financial risks, with enforcement beginning as early as January 2026. In this article, we’re taking a closer look at what the California climate disclosure laws mean for businesses in California, who’s impacted by them, and how firms can prepare for the new legislation.
Understanding the California Climate Disclosure Laws
The California Climate Disclosure Laws include three key pieces of environmental, social, and governance (ESG) legislation:
• SB 253 – Climate Corporate Data Accountability Act: Requires public and private companies with over $1 billion in annual revenue doing business in California to disclose Scope 1, Scope 2, and Scope 3 GHG emissions.
• SB 261 – Climate-Related Financial Risk Disclosure: Requires companies with over $500 million in annual revenue to publish reports every two years on climate-related financial risks.
• AB 1305 – Voluntary Carbon Market Disclosures Act: Covers transparency around climate claims and participation in voluntary carbon disclosures.
Which businesses must comply with the new climate regulations?
Any public or private company in California with an annual revenue exceeding $500 million may be subject to these laws when they come into effect in January 2026. This includes companies headquartered outside of the state, provided they were formed in the U.S. and run operations or make sales within California.
When do the California Climate Disclosure Laws come into effect?
The first reports for Scope 1 and 2 emissions will be due by 2026, so it’s important that companies begin monitoring their data now. Climate-related financial risk reports must be published by 1st January 2026 and then updated every two years. Although Scope 3 emissions don’t need to be reported until 2027, it’s recommended that firms begin tracking these metrics as soon as possible.
Scope 3 is often the most complex and resource-intensive to calculate, making early preparation essential. This not only enables companies to obtain more data from which they can extrapolate findings, but it also gives stakeholders and managers time to get accustomed to the new sustainability reporting requirements, before they’re legally enforced.
What are Scope 1, 2, and 3 emissions?
• Scope 1: Direct emissions from company-owned facilities or vehicles.
• Scope 2: Indirect emissions from purchased electricity, heating, or cooling.
• Scope 3: All other indirect emissions, including those from the supply chain, business travel, and product lifecycle.
For a closer look at the difference between Scopes 1, 2, and 3, take a look at our blog.
Are there penalties for non-compliance?
Companies can be fined up to $500,000 per year for noncompliance under SB 253. They could also be charged up to $50,000 per year for failing to submit or submitting inadequate SB 261 reports. Scope 3 emissions are subject to limited enforcement until 2030, so there are no set fines, provided disclosures are made in good faith.
Despite ongoing legal challenges - most notably from the U.S. Chamber of Commerce - California’s laws remain in effect. A federal court ruling in November 2024 allowed lawsuits to proceed but denied all motions to block enforcement, meaning companies must still comply while the legal process unfolds.
How to get started with sustainability reporting
The California Climate Disclosure Laws represent the most comprehensive state-level climate regulations in the U.S. To stay ahead of enforcement and investor expectations, businesses need to take proactive steps now.
Companies that need to comply with these regulations should audit existing emissions data and identify gaps. They also need to reach out to their suppliers to collect Scope 3 data and choose third-party assurance providers. Internally, they should be establishing processes that align with TCFD risk reporting.
Manual tools will struggle to scale to meet California’s detailed disclosure rules. Fortunately, sustainability software is here to help businesses to automate GHG data collection across Scope 1, 2, and 3 and manage climate risk disclosures in line with TCFD standards.
KEY ESG’s sustainability software provides audit-ready reports and allows stakeholders to not only track changes in regulatory requirements, but adapt to accommodate them quickly.
Request a free demo of our ESG software today to see how we can help your business comply with the California Climate Disclosure Laws efficiently and confidently.
California has enacted a ground-breaking set of climate disclosure regulations that will affect thousands of companies doing business in the state. The laws - SB 253, SB 261, and AB 1305 - require businesses to disclose greenhouse gas (GHG) emissions and climate-related financial risks, with enforcement beginning as early as January 2026. In this article, we’re taking a closer look at what the California climate disclosure laws mean for businesses in California, who’s impacted by them, and how firms can prepare for the new legislation.
Understanding the California Climate Disclosure Laws
The California Climate Disclosure Laws include three key pieces of environmental, social, and governance (ESG) legislation:
• SB 253 – Climate Corporate Data Accountability Act: Requires public and private companies with over $1 billion in annual revenue doing business in California to disclose Scope 1, Scope 2, and Scope 3 GHG emissions.
• SB 261 – Climate-Related Financial Risk Disclosure: Requires companies with over $500 million in annual revenue to publish reports every two years on climate-related financial risks.
• AB 1305 – Voluntary Carbon Market Disclosures Act: Covers transparency around climate claims and participation in voluntary carbon disclosures.
Which businesses must comply with the new climate regulations?
Any public or private company in California with an annual revenue exceeding $500 million may be subject to these laws when they come into effect in January 2026. This includes companies headquartered outside of the state, provided they were formed in the U.S. and run operations or make sales within California.
When do the California Climate Disclosure Laws come into effect?
The first reports for Scope 1 and 2 emissions will be due by 2026, so it’s important that companies begin monitoring their data now. Climate-related financial risk reports must be published by 1st January 2026 and then updated every two years. Although Scope 3 emissions don’t need to be reported until 2027, it’s recommended that firms begin tracking these metrics as soon as possible.
Scope 3 is often the most complex and resource-intensive to calculate, making early preparation essential. This not only enables companies to obtain more data from which they can extrapolate findings, but it also gives stakeholders and managers time to get accustomed to the new sustainability reporting requirements, before they’re legally enforced.
What are Scope 1, 2, and 3 emissions?
• Scope 1: Direct emissions from company-owned facilities or vehicles.
• Scope 2: Indirect emissions from purchased electricity, heating, or cooling.
• Scope 3: All other indirect emissions, including those from the supply chain, business travel, and product lifecycle.
For a closer look at the difference between Scopes 1, 2, and 3, take a look at our blog.
Are there penalties for non-compliance?
Companies can be fined up to $500,000 per year for noncompliance under SB 253. They could also be charged up to $50,000 per year for failing to submit or submitting inadequate SB 261 reports. Scope 3 emissions are subject to limited enforcement until 2030, so there are no set fines, provided disclosures are made in good faith.
Despite ongoing legal challenges - most notably from the U.S. Chamber of Commerce - California’s laws remain in effect. A federal court ruling in November 2024 allowed lawsuits to proceed but denied all motions to block enforcement, meaning companies must still comply while the legal process unfolds.
How to get started with sustainability reporting
The California Climate Disclosure Laws represent the most comprehensive state-level climate regulations in the U.S. To stay ahead of enforcement and investor expectations, businesses need to take proactive steps now.
Companies that need to comply with these regulations should audit existing emissions data and identify gaps. They also need to reach out to their suppliers to collect Scope 3 data and choose third-party assurance providers. Internally, they should be establishing processes that align with TCFD risk reporting.
Manual tools will struggle to scale to meet California’s detailed disclosure rules. Fortunately, sustainability software is here to help businesses to automate GHG data collection across Scope 1, 2, and 3 and manage climate risk disclosures in line with TCFD standards.
KEY ESG’s sustainability software provides audit-ready reports and allows stakeholders to not only track changes in regulatory requirements, but adapt to accommodate them quickly.
Request a free demo of our ESG software today to see how we can help your business comply with the California Climate Disclosure Laws efficiently and confidently.
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