California has quietly passed the most consequential corporate climate disclosure laws in the United States.
Beginning in 2026, thousands of companies doing business in California will be required to publicly disclose greenhouse gas emissions and climate related financial risks under two new laws:
These regulations will affect companies across the United States and globally, not just those headquartered in California.
If your company sells products, operates facilities, or generates revenue in California, there is a strong chance you will fall within the scope of these rules.
For many sustainability teams, the biggest challenge is not understanding the law itself. The challenge is figuring out how to operationalize compliance across complex organizations, supply chains, and data systems.
This article provides a practical guide for sustainability leaders preparing for California’s climate disclosure rules, including who must comply, what must be reported, and how to begin building a defensible implementation plan.
California has historically set environmental regulations that eventually influence national and global markets.
Automobile emissions standards are a classic example. California regulations often become the benchmark that other states and regulators follow.
SB 253 and SB 261 could have a similar impact on corporate climate disclosure. The laws introduce several important shifts:
First, they require mandatory disclosure of greenhouse gas emissions, including Scope 3 emissions.
Second, they require companies to disclose climate related financial risks and mitigation strategies.
Third, they introduce the expectation of third party verification for emissions data.
Taken together, these rules push corporate climate reporting closer to the rigor and accountability traditionally associated with financial reporting.
For sustainability teams that have historically relied on spreadsheets and informal processes, this shift represents a significant operational challenge.
Although the two laws are often discussed together, they focus on different aspects of climate disclosure.
SB 253 focuses on greenhouse gas emissions reporting.
Companies that fall within its scope must disclose:
The law applies to companies that:
Scope 1 and Scope 2 emissions must be reported beginning in 2026, based on 2025 emissions data.
Scope 3 emissions must be reported beginning in 2027, based on 2026 emissions data.
Emissions disclosures must also undergo third party assurance.
SB 261 focuses on climate related financial risks.
Companies that fall within its scope must publish a climate risk report every two years describing:
The law applies to companies that:
The first climate risk report were originally scheduled to be required by January 1, 2026 but that has now been delayed.
Many companies are expected to align these disclosures with frameworks such as the Task Force on Climate Related Financial Disclosures (TCFD) or the International Sustainability Standards Board (ISSB) standards.
One of the most common sources of confusion is determining whether a company is considered to be “doing business in California.”
The definition is intentionally broad.
Companies may fall under the law if they:
Many companies headquartered outside California will still be required to comply.
Large global corporations often meet the threshold simply by selling products into the California market.
Because California represents one of the largest economies in the world, these laws will likely impact companies across:
For sustainability teams, the key step is to conduct a regulatory applicability assessment early in the process.
SB 253 requires companies to disclose greenhouse gas emissions across the three major categories defined by the Greenhouse Gas Protocol.
Scope 1 emissions are direct emissions from company owned or controlled operations.
Examples include:
These emissions are typically calculated using fuel consumption data and emission factors.
Scope 2 emissions represent indirect emissions from purchased energy.
This includes:
Companies will need to report Scope 2 emissions using both:
This requires gathering utility data across facilities and applying appropriate emission factors.
Scope 3 emissions include indirect emissions across the value chain.
For many companies, Scope 3 represents the largest portion of their total carbon footprint.
Examples include:
Scope 3 emissions are typically calculated across 15 categories defined by the GHG Protocol.
Collecting this data often requires collaboration with procurement teams, suppliers, and logistics providers.
Scope 3 reporting is where most companies will struggle.
Unlike Scope 1 and Scope 2 emissions, which are based on operational data, Scope 3 emissions often rely on:
Many organizations begin with spend based emission factors, which estimate emissions based on procurement spending.
Over time, companies are expected to improve accuracy by collecting:
Building a scalable Scope 3 methodology is one of the most important steps in preparing for SB 253 compliance.
Although the first disclosures under SB 253 begin in 2026, sustainability teams should already be preparing today. Building a defensible greenhouse gas inventory across a large organization is not something that can be done in a few months. For many companies, the process requires new systems, cross departmental coordination, supplier engagement, and new governance structures.
A realistic preparation timeline typically spans 12 to 24 months, particularly for companies reporting Scope 3 emissions for the first time.
The process generally unfolds in five major phases.
The first step is determining whether your organization falls within the scope of SB 253 or SB 261. While this might seem straightforward, it can be more complex than many companies expect.
Both laws apply to companies that do business in California, which is defined broadly. A company does not need to be headquartered in California to fall under these rules. Many organizations will meet the threshold simply by selling products or services into the California market.
During the applicability assessment phase, sustainability and legal teams typically evaluate several factors.
Revenue thresholds are the most obvious starting point. SB 253 applies to companies generating more than $1 billion in annual revenue, while SB 261 applies to companies generating more than $500 million in annual revenue.
However, revenue alone is not enough to determine applicability. Organizations must also assess their operational footprint in California. This may include physical facilities, employees working in the state, distribution networks, or significant customer sales in California.
Another important factor is value chain exposure. Even if a company does not operate directly in California, it may still fall within scope if its products are widely distributed through retailers or distributors within the state.
This phase typically involves collaboration between sustainability, legal, and finance teams to determine whether the company must comply with the regulation and which entities within the corporate structure will be included in the reporting boundary.
Once applicability is confirmed, the next step is developing a greenhouse gas inventory aligned with the GHG Protocol Corporate Standard, which serves as the global foundation for corporate carbon accounting.
This stage is where most of the heavy lifting begins.
The first task is defining organizational boundaries, which determine which business units, subsidiaries, and operations are included in the inventory. Companies typically apply either the financial control approach or operational control approach defined by the GHG Protocol.
Next, sustainability teams must identify all relevant emission sources across the organization. This includes emissions from fuel use, electricity consumption, refrigerants, transportation activities, and supply chain activities.
After emission sources are identified, teams begin gathering activity data. This might include utility invoices, fuel purchase records, fleet mileage data, refrigerant logs, procurement data, travel records, and logistics information.
Once activity data is collected, emissions are calculated using appropriate emission factors, which convert energy or material consumption into greenhouse gas emissions.
Equally important is documenting the methodology used to calculate emissions. Regulators, auditors, and stakeholders will expect companies to clearly explain how emissions were calculated, which data sources were used, and what assumptions were made.
Developing a complete inventory for the first time can take several months, especially when data must be collected across dozens or even hundreds of facilities and suppliers.
As organizations begin collecting emissions data, they often discover that their existing systems were never designed to support carbon accounting.
Many companies initially rely on spreadsheets to track emissions. While spreadsheets may work for small organizations with limited operations, they quickly become difficult to manage at scale.
Large companies often need systems that can collect data from multiple sources, apply standardized calculations, store documentation, and maintain transparent records for future verification.
At this stage, organizations begin evaluating how emissions data will be managed across the enterprise.
Facility data may need to be collected from energy management systems, procurement platforms, travel systems, fleet management tools, and supplier databases. Emission factors must be stored and referenced consistently across reporting periods. Assumptions and estimates must be documented clearly so that future reporting cycles can replicate the same methodologies.
Equally important is maintaining source documentation, such as invoices, meter readings, supplier data submissions, and logistics records. These documents often become critical evidence during verification.
Companies also need to maintain audit trails that show how emissions were calculated and how data was modified over time. This level of transparency is increasingly expected as climate disclosures move toward financial grade reporting standards.
One of the most significant features of SB 253 is the requirement for third party verification of emissions data. This represents a major shift for many organizations that have historically reported emissions without external assurance.
Verification requires companies to demonstrate that their greenhouse gas inventory is accurate, consistent, and supported by credible evidence.
Auditors will typically review several elements of the inventory. They will examine source data used to calculate emissions, review calculation methodologies, confirm emission factor sources, and test whether assumptions and estimates are reasonable.
To prepare for this process, many companies conduct internal pre audits before engaging verification firms. These internal reviews help identify data gaps, calculation inconsistencies, and documentation issues that could create problems during formal assurance.
Organizations that prepare early for verification often find that this process also strengthens internal confidence in the accuracy of their emissions data.
The final stage of the process involves publishing emissions data and climate risk disclosures in publicly accessible formats.
Under SB 253, companies must disclose their greenhouse gas emissions annually. Under SB 261, companies must publish climate related financial risk reports every two years.
These disclosures are expected to be transparent, consistent, and defensible.
Consistency across reporting years is particularly important. Regulators and investors will expect emissions calculations to follow the same methodology year after year unless there is a clear explanation for methodological changes.
Companies must also ensure that any assumptions or estimates used in the inventory are clearly documented. When disclosures lack transparency, they can create regulatory risk and expose companies to accusations of greenwashing.
For many organizations, this stage requires coordination between sustainability teams, legal departments, investor relations teams, and communications teams to ensure that disclosures are both accurate and appropriately presented.
One of the biggest misconceptions about climate disclosure regulations is that they are solely the responsibility of the sustainability department.
In reality, compliance with SB 253 and SB 261 requires collaboration across multiple functions within the organization. Greenhouse gas emissions data and climate risk information are often distributed across finance systems, operational systems, procurement platforms, and risk management frameworks.
For this reason, successful companies treat climate disclosure as an enterprise wide governance issue, not just a sustainability reporting exercise.
Strong governance begins with leadership engagement.
Senior executives and board members increasingly play a role in overseeing climate disclosure strategies and risk management. Many companies assign responsibility for climate oversight to existing board committees such as audit committees or risk committees.
Executive involvement helps ensure that climate reporting receives the necessary resources and organizational attention. It also helps integrate climate considerations into broader business strategy and risk management discussions.
As regulatory scrutiny increases, leadership teams are recognizing that climate disclosures can carry legal, financial, and reputational implications similar to financial disclosures.
Operational data required for greenhouse gas inventories often resides across many departments.
Energy data may be managed by facilities teams. Procurement teams may hold supplier purchasing data. Logistics teams manage transportation records. Finance teams control enterprise resource planning systems that track expenses and procurement activity.
To effectively gather emissions data, many companies establish cross functional working groups that bring together representatives from key departments.
These working groups typically include stakeholders from sustainability, finance, procurement, facilities management, supply chain, and information technology.
Regular coordination between these teams helps ensure that data is collected consistently, responsibilities are clearly defined, and reporting deadlines are met.
One of the most important elements of effective climate disclosure governance is the development of clear, documented processes.
Without defined procedures, emissions inventories can quickly become inconsistent from one reporting year to the next. Changes in personnel, systems, or organizational structures can introduce errors if processes are not standardized.
Companies preparing for SB 253 compliance should develop written procedures for several core activities.
These include procedures for collecting emissions data from facilities and suppliers, selecting appropriate emission factors, calculating Scope 3 emissions categories, updating inventories annually, and preparing documentation for verification.
Standard operating procedures help ensure that reporting methodologies remain consistent over time. They also make it easier to train new employees and maintain continuity as sustainability programs evolve.
As organizations begin preparing for California’s climate disclosure rules, several common challenges tend to emerge. Recognizing these pitfalls early can help sustainability teams avoid costly delays and reporting errors.
For many organizations, Scope 3 emissions represent the largest portion of their carbon footprint. They also tend to be the most difficult emissions to measure.
Unlike Scope 1 and Scope 2 emissions, which are based on internal operational data, Scope 3 emissions often require data from suppliers, logistics providers, and customers.
Many companies underestimate how long it takes to develop a robust Scope 3 methodology. Early inventories often rely on spend based emission factors or industry averages, but companies are expected to improve data quality over time by collecting more supplier specific data.
Starting early allows sustainability teams to build supplier engagement programs and gradually improve data accuracy.
Spreadsheets remain one of the most common tools used for carbon accounting. However, they often create challenges as reporting requirements become more complex.
Large emissions inventories may require data from hundreds of facilities, thousands of suppliers, and multiple operational systems. Managing this information through spreadsheets can introduce calculation errors, version control problems, and transparency issues.
As disclosure requirements become more rigorous, many organizations are investing in centralized systems that provide better data management, documentation storage, and audit trails.
One of the most common issues identified during emissions verification is inadequate documentation.
Auditors and regulators expect companies to provide clear explanations of how emissions were calculated, which emission factors were used, and what assumptions were made when estimating data.
Without documentation, even technically correct calculations can be difficult to verify.
Strong documentation practices ensure that emissions calculations can be reviewed, replicated, and validated in future reporting cycles.
Perhaps the most common mistake companies make is waiting too long to begin preparing for climate disclosure requirements.
Developing a complete greenhouse gas inventory across a large organization can take 12 to 24 months, especially when data must be gathered from multiple business units and supply chain partners.
Organizations that delay preparation may find themselves scrambling to gather incomplete data as reporting deadlines approach.
Starting early allows companies to build stronger data systems, improve data quality, and establish governance structures that will support consistent reporting for years to come.
SB 253 and SB 261 will reshape how companies measure, manage, and disclose climate impacts.
For sustainability professionals, the key question is no longer whether climate disclosure will become mandatory. It already has.
The real question is whether your organization is prepared to produce credible, transparent, and defensible climate data.
Companies that start building strong carbon accounting foundations today will be far better prepared for the rapidly evolving world of climate disclosure.
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