Thousands of companies will face reporting mandates under California’s groundbreaking new climate disclosure laws — and many of them have lingering questions about how and when these rules will be implemented.
To answer these questions, Persefoni’s Chief Sustainability Officer Kristina Wyatt hosted a webinar with one of the architects of California’s legislation, Catherine Atkin. Together, they unpacked the latest legislative developments and shared insights on how businesses can best prepare for compliance.
In this article, we highlight the key takeaways from their discussion.
>> Sign up and get access to the on-demand webinar recording.
Background: Understanding California’s Laws
In October 2023, California Governor Gavin Newsom signed two climate disclosure bills, SB 253 and SB 261, into law. which require thousands of companies to report on their greenhouse gas emissions and climate risks. These laws require thousands of companies to report on their greenhouse gas emissions and climate risks. To further clarify implementation procedures and reporting timelines, California passed an amending bill, SB 219, in September 2024. Below is an overview of the key features of each policy:
SB 253
- Public and private companies with revenues over $1B USD that do business in California must report their scope 1, 2, and 3 emissions and obtain third-party assurance of their reports.
SB 261
- Large U.S. businesses with annual revenues exceeding $500M USD operating in California must disclose their climate-related financial risks and mitigation strategies to the public bi-annually.
SB 219
- SB 219 introduces technical amendments to SB 253 and SB 261, without major changes to their scope or timelines. It gives the California Air Resources Board (CARB) six additional months to finalize the regulations, with a new deadline of July 2025. Notable changes include:
- Provisions allowing CARB to decide whether to manage disclosures in-house or contract with a third party
- Language permitting companies with subsidiaries to roll up their data into a single disclosure at the parent level
- A phased approach to scope 3 reporting, with submissions due later in the fiscal year than scope 1 and 2 data
Preparing for California Climate Disclosure: 5 Expert Insights
California’s climate disclosure laws are part of a global wave of policies aimed at increasing transparency about corporate climate risks and impacts. Though they are state-level bills, SB 253 and SB 261 promise to send a ripple across the United States and supply chains and operations around the world. Below are five key insights from Atkin and Wyatt to help businesses prepare.
1. Early preparation is essential.
Despite efforts to delay reporting deadlines, California legislators ultimately maintained the timelines laid out in the original bills. That means US businesses with over $1B in revenue will have to make scope 1 and 2 greenhouse gas disclosures in 2026 using FY2025 data. Reporting on scope 3 will begin in 2027. As mentioned above, lawmakers recognize the complexity of gathering value chain data and are therefore allowing entities to submit their scope 3 reports later in the year.
Companies are encouraged to begin assessing their current reporting capabilities, identifying gaps, especially in scope 3 data, and enhancing processes. This readiness will ensure smoother compliance once the regulations kick in.
One common question is about how SB 253 and SB 261 define “doing business in California.” While CARB has yet to offer a detailed definition, Atkin does not expect surprises on this front. She recommended that organizations look at the state’s Franchise Tax Board definition to determine whether they are subject to the laws.
Another area of uncertainty is around where, exactly, companies will have to file their SB 253 reports (SB 261 mandates that reports be published on company websites). While CARB is still sorting this out, Atkin said companies shouldn’t spend too much time worrying about this question. “The disclosure requirement is the same regardless. It’s basically a matter of where you’re going to upload that file.”
The best guidance, Wyatt added, is “When in doubt, prepare.” In the worst case, if it turns out you aren’t subject to the laws, you’ll be ready to share your climate data with other jurisdictions, as well as customers, stakeholders, and other reporting bodies like the CDP.
2. Implementation is moving forward despite legal challenges.
Like the SEC Climate Disclosure Rule, both SB 253 and SB 261 have been challenged in federal court. However, while implementation of the SEC Rule was temporarily stayed pending legal proceedings, California is moving full steam ahead with implementation. The Department of Justice is rigorously defending the legislation, and experts are confident it will withstand legal arguments. “We have a good foundation here in California,” Atkin said. “We’re confident we’ll prevail.”
As with the SEC climate rule, opponents have argued that California’s package infringes on the First Amendment. By that reasoning, Atkin pointed out, most national financial disclosure laws would be in violation. Additionally, because SB 253 and SB 261 were passed by California’s legislature, they aren’t vulnerable to the sort of claims of overreach that opponents have tried to level against the SEC as an administrative agency. While challenges to California’s laws aren’t expected to resolve quickly, they haven’t changed compliance deadlines or requirements — and businesses need to be ready to respond.
3. The laws align with global standards for seamless compliance.
Both SB 261 and SB 253 follow globally recognized frameworks. They closely align with the Greenhouse Gas Protocol (GHGP), the Task Force on Climate-Related Financial Disclosures (TCFD), and the International Sustainability Standards Board (ISSB) — frameworks that underpin major laws worldwide, including Europe’s Corporate Sustainability Reporting Directive (CSRD). California’s Air Resources Board is also looking to the International Standard on Sustainability Assurance (ISSA 5000) as it provides further guidance on who will be permitted to provide assurance over disclosures.
The good news: If you’re already following the global standards mentioned above, you’re ready for California reporting. “The handwriting is on the wall,” Wyatt said. “If you report pursuant to ISSB and GHGP, you’re going to be in good shape in California and many other places.”
This alignment is intentional. The bills’ authors wanted to minimize the burden on businesses subject to laws in multiple jurisdictions, including multinational corporations, according to Atkin. “We didn’t want to create our own California flavor of disclosure ice cream,” she explained.
4. Granular carbon data will be crucial over time.
Companies should prepare for a transition from broad, spend-based data to more granular, activity-based data for comprehensive scope 3 reporting. This will enhance their ability to make informed sustainability decisions and track emissions more precisely.
Because SB 253 includes an assurance provision, data quality is paramount. However, Wyatt pointed out, carbon accounting is a journey, and this data will likely improve over time. For example, many organizations may start with spend-based estimates but ultimately move to more granular data. When an entity is armed with activity data, Wyatt noted, it has multiple decarbonization levers available, instead of being forced to meet climate goals by cutting spending, which is often ineffective and not aligned with growth.
5. Technology and innovation will play a vital role in facilitating compliance.
To build confidence in reporting under California’s laws, companies should leverage recent advancements in technology. Carbon accounting software can greatly streamline reporting and make compliance more accessible to companies of different sizes and capabilities.
Importantly, managing supply chain data will be a key component of reporting under SB 253 — and other global policies. When organizations have to report on scope 3, they’re forced to think about their supply chains in a different way. One very real concern is that small and medium-sized suppliers may find it challenging to provide the data large companies will be asking for.
“We want to make sure suppliers have a solution. They don’t have the same resources that a billion-dollar company has,” Atkin explained. Software and AI developments provide a promising solution on this front. For example, Persefoni Pro enables suppliers to share their emissions data with reporting companies at no cost — ultimately democratizing carbon accounting,
What’s Next
California’s Air Resources Board is in the process of providing an economic impact analysis for SB 253 and SB 261. As part of the state’s administrative process, likely in the first quarter of 2025, there will be a formal opportunity for stakeholders to weigh in. Wyatt encouraged companies to submit comments and share their best thinking on how reporting should occur. “CARB is going to be listening,” she said. “There’s a lot of rigor and integrity at that agency. They want to hear from companies about how to make this process work and achieve their goals in the most efficient way.”
This is a big moment for California, but it’s not just about meeting decarbonization goals. The state’s climate package opens the door for organizations to improve efficiency, reduce expenditures, and build value. “We’re starting to see companies use carbon data to drive business value,” Wyatt said. “That’s really exciting.”
Get ready for California climate disclosure. Explore Persefoni’s free carbon accounting and advanced climate solutions.
FAQs
Below is a selection of frequently asked questions about California’s climate disclosure laws. A more comprehensive list of questions and answers is available by signing up for the on-demand webinar here.
What penalties are in place for non-compliance?
For SB 253, penalties are defined as up to $500,000 per year. There is a scope 3 safe harbor if disclosures are made in good faith with reasonable basis. For SB 261, penalties are defined as up to $50,000 per year.
If a company has multiple entities, but only one does business in California, does it need data for all of its entities? For instance, must it report data if one of its entities is located in Europe?
This is dependent on the company's organizational boundaries and CARB's final regulations. However, as the legislative text is currently written, reporting at the parent level will be required, assuming the parent is a US entity.
Would a private equity firm be in scope for SB 261 if it doesn't have an office in CA but has investors in the state?
Yes, under SB 261, even if your private equity firm doesn't have an office in California, it could still fall under the law’s requirements if it meets the annual revenue threshold of $500M USD and is considered to be “doing business” in the state. If your firm is engaging in activities or has sufficient economic ties in California (like fundraising or investments from California-based entities), it might still qualify as "doing business" and thus be subject to biennial reporting requirements starting in 2026. CARB’s official definition of “doing business in California” will provide further guidance.
Will California require reporting on all categories of scope 3, or leave each company to disclose the categories deemed material?
We are waiting for CARB's implementing regulations for a definitive answer. However, we know SB 253 is closely aligned with the GHG Protocol, which allows companies to determine which categories are significant to their business. We also know the intention is for SB 253 to be consistent with other major standards like the ISSB; that would indicate that companies would likely determine which categories are most significant.
Many companies publish TCFD-aligned reports but omit quantified financial risk descriptions or scenario analysis. What is the level of completion necessary to satisfy the regulatory expectation for SB 261?
The legislative text of SB 261 requires disclosure of climate-related financial risks (physical and transition) and measures taken to mitigate the risk in accordance with TCFD or, optionally, ISSB. In this regulated environment, companies are expected to adhere to all of the TCFD’s 11 recommendations, including financial risk descriptions and scenario analysis. If a company is already preparing an ISSB report or wants to take the next step to global interoperability, it can report using the ISSB’s standards, which are rooted in the TCFD.
Will similar laws be implemented in other states?
Several other states have proposed climate disclosure policies. These include:
New York
- S897A: Requires annual disclosure of scope 1, 2, and 3 emissions for public and private entities with $1B+ in revenue, effective two years after the bill becomes law.
- S5437: Mandates annual reporting on climate risks and mitigation strategies for businesses with $500M+ in revenue.
- Both bills need to pass by December 2024 or face reintroduction in 2025.
Illinois
- HB 4268: Requires annual reporting of scopes 1, 2, and 3 emissions for businesses with $1B+ in revenue, starting January 1, 2025.
- Currently in the legislative process, with further consideration expected after November 2024.
Minnesota
- SF 2744: Financial institutions with $1B+ in assets (banks and credit unions) must submit climate risk surveys annually to the Department of Revenue, starting July 30, 2024.
- This bill has been adopted. The Commissioner of Revenue will issue the reporting form to guide the required disclosures.
Washington
- SB 6092: Phased-in reporting requiring scope 1 and 2 emissions by October 2026 and scope 3 emissions by October 2027 for businesses with $1B+ in revenue.
- If not adopted in the 2024 session, the bill will need to be reintroduced in 2025.
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