Governor Gavin Newsom's recent signing of two pivotal bills into law has marked a ground-breaking era of Environmental, Social, and Governance (ESG) transparency and accountability in California.
With the passage of Senate Bills 253 & 261, the state has taken a bold step in implementing the most comprehensive greenhouse gas emissions and climate-related disclosure requirements in the United States.
These laws are set to reshape the way companies report and address their environmental impacts.
Senate Bill 253: Climate Corporate Data Accountability Act
TL;DR:
SB 253 obliges companies with annual revenues exceeding $1 billion to report their greenhouse gas emissions (Scope 1 and 2) to the California Air Resources Board starting in 2026, with Scope 3 emissions to be added in 2027. These reports will be publicly disclosed and submitted to a newly established statewide emissions reporting body. Companies are also expected to pay an annual fee to the board, with potential penalties for non-compliance reaching up to $500,000 per year.
Under Senate Bill 253, companies with annual revenues exceeding $1 billion in California are now obligated to report their emissions data to the California Air Resources Board, commencing in 2026.
The reporting mandate covers both Scope 1 and Scope 2 emissions originating from their operations, with an expansion to include Scope 3 emissions within their value chains starting in 2027.
This legislation introduces unprecedented transparency concerning greenhouse gas emissions for major enterprises operating within the state.
Companies affected by SB 253 must publicly disclose their Scope 1 and Scope 2 greenhouse gas emissions starting in 2026 and continue to do so annually, as specified by the state board.
Furthermore, they are required to report their Scope 3 emissions from 2027 onwards, with each report due within 180 days of publishing their Scope 1 and Scope 2 emissions data.
These reports are to be submitted to a newly established statewide emissions reporting body.
In addition to disclosure, affected entities must remit an annual fee to the California Air Resources Board, with the exact amount yet to be disclosed.
To comply with this requirement, most businesses are expected to publish their annual greenhouse gas emissions on their websites.
Simultaneously, they must furnish a complete copy of the assurance provider's verification report to the state emissions reporting agency.
The California State Board retains the authority to establish regulations enabling them to impose administrative penalties on entities failing to meet the climate-related risk disclosure criteria.
These penalties may be applied for reasons such as non-filing, late filing, or other forms of non-compliance.
The penalties will be enforced through administrative hearings and cannot exceed $500,000 in a single reporting year.
It is essential to note that companies will not face penalties for inaccurate statements regarding Scope 3 greenhouse gas emissions if they can demonstrate acting in good faith with a reasonable foundation for their claims.
Furthermore, penalties for failing to report Scope 3 emissions will not take effect until 2030.
Senate Bill 261: Climate-Related Financial Risk Act
TL;DR
SB 261 mandates that large companies operating in California report their climate-related financial risks and actions taken to address them to the California Air Resources Board every two years, starting in 2026. The reports must adhere to the TFCD framework and include independent verification of emissions-related information. The reports will be made publicly available, with penalties of up to $50,000 for non-compliance.
The second bill, SB 261, introduces a biennial climate risk reporting requirement, effective from 2026, for companies with annual revenues exceeding $500 million in California.
These companies are now mandated to report financial risks associated with climate change and outline the actions they are taking to address them to the California Air Resources Board.
Starting in January 2026, qualifying companies must submit a climate-related financial risk report every two years.
These reports should adhere to the recommended framework of the Task Force on Climate-Related Financial Disclosures (TFCD) and must include independent verification for emissions-related information.
These reports will be made publicly available, and the California Air Resources Board will contract a non-profit organisation to prepare a biennial public report analysing the disclosures to identify any inadequate or insufficient reports.
Companies found in violation may face penalties of up to $50,000 in a reporting year.
Conclusion
These ground-breaking regulations set essential benchmarks for investors, policymakers, and the public to assess companies' environmental and social performance.
At Expect, we're dedicated to simplifying carbon emissions reporting for our customers and facilitating their path to Net Zero. As an Expect customer, you'll experience rapid, transparent access to your organisation's emissions data, ensuring accurate and compliant reporting in this new era of California climate disclosure laws.
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