California SB 253 and SB 261: The 2026 Climate Disclosure Compliance Playbook
If your company has crossed $500 million in annual revenue and sells anything in California, the clock is already running. CARB — California's Air Resources Board — adopted its initial implementing regulations on February 26, 2026, and the first SB 253 emissions report is due August 10, 2026. For thousands of mid-market and large companies that never thought of themselves as "emissions reporters," this is the year climate disclosure became a U.S. legal obligation rather than a voluntary sustainability gesture.
The two laws — Senate Bill 253 (the Climate Corporate Data Accountability Act) and Senate Bill 261 (the Climate-Related Financial Risk Act) — together create the broadest mandatory climate disclosure regime in the country. They apply regardless of whether your company is headquartered in California, publicly traded, or has ever filed a sustainability report before. And because they reach roughly 5,300 SB 253 reporters and 10,000+ SB 261 reporters, they effectively become a national standard for any large company with even a modest California footprint.
Here's a practical guide to what the laws require, who is in scope, how the rules have shifted since the original 2023 statutes, and what to actually do between now and the first deadline.
A Quick History: Three Laws, One Framework
California's climate accountability package is a stack of three statutes:
- SB 253 (2023) — the Climate Corporate Data Accountability Act. Requires large companies to disclose Scope 1, 2, and 3 greenhouse gas (GHG) emissions annually.
- SB 261 (2023) — the Climate-Related Financial Risk Act. Requires medium-and-large companies to publish biennial climate-related financial risk reports aligned with the TCFD framework (or IFRS S2 or any successor).
- SB 219 (2024) — a clean-up bill that extended CARB's regulation-writing deadline, gave CARB flexibility on the first reporting date, and clarified that affiliated reporting at the parent level satisfies subsidiaries' obligations.
After two years of rulemaking, three public workshops, and a Ninth Circuit injunction skirmish, CARB approved the initial regulations on February 26, 2026, fixing reporting timelines and clarifying scope, definitions, and enforcement posture for the first reporting year.
Who Has to Report
Both laws share the same hook — an entity must be "doing business in California" — but apply different revenue thresholds.
"Doing business in California" — narrower than you might think
CARB borrowed the concept from California Revenue & Tax Code § 23101 but stripped out the property and payroll prongs. Under the climate rules, your company is "doing business in California" if you actively engage in any transaction for financial gain in California and any of the following are true during the reporting year:
- You are organized or commercially domiciled in California, or
- Your California sales exceed the statutory sales threshold (currently $735,019 at 2024 levels, indexed annually).
That sales-only test matters. A Texas-based manufacturer with no California offices or employees can still be in scope simply by shipping enough product to California customers.
SB 253: $1 billion revenue, U.S.-only
SB 253 reaches U.S. parent entities with more than $1 billion in total annual revenue (not just California revenue) that do business in California. CARB applies a "lesser of the two previous fiscal years" rule — both prior years must exceed the threshold for the current year to be in scope, which gives short reprieve to companies whose revenue temporarily spikes.
Subsidiaries of in-scope parents do not file separately; one consolidated report from the ultimate parent covers the whole corporate group.
SB 261: $500 million revenue, U.S.-only
SB 261's threshold is half of SB 253's — more than $500 million in revenue. Insurance companies are excluded (their climate risk is regulated by the California Department of Insurance), but otherwise the test is the same.
If you cross $500 million but not $1 billion, you are SB 261-only. If you cross $1 billion, you are both.
SB 253: What You Have to Disclose
SB 253 requires Scope 1, 2, and 3 greenhouse gas emissions calculated in conformance with the Greenhouse Gas Protocol — the global standard managed by WRI and WBCSD.
A quick refresher on the three scopes:
- Scope 1 — direct emissions from sources your company owns or controls. Boilers, company vehicles, refrigerant leaks, on-site fuel combustion.
- Scope 2 — indirect emissions from purchased electricity, steam, heat, and cooling.
- Scope 3 — all other indirect emissions across your value chain: purchased goods and services, business travel, employee commuting, transportation and distribution, use of sold products, end-of-life treatment, investments, and 9 other categories defined by the GHG Protocol.
For most companies, Scope 3 is 70-90% of the total carbon footprint, but it's also by far the hardest to quantify because it depends on data from suppliers and customers.
The phased timeline
| Reporting Year | What's Due | When |
|---|---|---|
| First report | Scope 1 + Scope 2 only | August 10, 2026 |
| Second report | Scope 1 + 2 + 3 | 2027 (date TBD by CARB) |
| 2030 and beyond | Scope 1, 2, 3 with reasonable assurance | annually |
Assurance requirements are phased separately. Limited assurance for Scope 1 and 2 starts with the 2026 report. Reasonable assurance (a much higher bar — closer to a financial audit) kicks in for Scope 1 and 2 in 2030. Limited assurance for Scope 3 begins in 2030. Practically, you need a third-party assurance provider lined up before you publish.
The Scope 3 safe harbor
The legislature acknowledged that Scope 3 data is messy and partially dependent on factors outside the reporting company's control. SB 253 includes a safe harbor protecting good-faith Scope 3 disclosures from administrative penalties through 2030, provided the disclosure has a "reasonable basis" and is made in good faith. That doesn't mean you can omit Scope 3 — it just means honest mistakes don't trigger fines.
Penalties
CARB can impose administrative penalties up to $500,000 per reporting year for SB 253 violations, scaled by the reporter's compliance history. However, CARB's December 2024 Enforcement Notice — reaffirmed in 2026 — states that no penalties will be imposed for the first reporting year as long as companies make a "good faith effort" and disclose information they already possess.
That "good faith" carve-out is the most important practical fact about the August 10, 2026 deadline. CARB is signaling that publishing an imperfect report is far better than missing the deadline.
SB 261: Climate-Related Financial Risk Reports
SB 261 is a different animal. Rather than counting tons of CO₂e, it asks companies to describe how climate change could materially affect their business and what they're doing about it.
The report must be prepared in conformance with the TCFD (Task Force on Climate-related Financial Disclosures) framework or IFRS S2 (which builds on TCFD) — or any framework CARB later deems equivalent. Both frameworks organize disclosures around four pillars:
- Governance — board and management oversight of climate risk
- Strategy — climate-related risks and opportunities and their impact on business strategy and financial planning
- Risk management — processes for identifying, assessing, and managing climate risks
- Metrics and targets — measurements used to track climate risk and any targets the company has set
Reports are biennial and must be made publicly available on the company's website. CARB will maintain a public registry of links.
The injunction wrinkle
A federal lawsuit (filed by the U.S. Chamber of Commerce) led to a Ninth Circuit injunction affecting SB 261's January 1, 2026 deadline. CARB has stated it will not enforce the January 1, 2026 deadline while the appeal proceeds, and plans to issue an alternate reporting date after the litigation resolves.
Practical translation: SB 261 reporting is still required, but the deadline is in flux. The smart move is to keep preparing the report as if the original deadline applies — when CARB names a new date, it will be measured in months, not years.
How the Two Laws Interact
Companies subject to both laws publish two artifacts:
- A climate-related financial risk report (SB 261) every other year — a narrative document organized around the TCFD pillars.
- A GHG emissions report (SB 253) every year — a quantitative inventory of Scope 1, 2, and 3 emissions submitted to a CARB-designated reporting entity.
SB 253 has separate, more demanding assurance and data requirements. SB 261 is lighter on quantitative data but requires deeper strategic thinking about scenario analysis and risk management.
If you already publish a CDP response, an ESG report, or a 10-K with climate sections, much of that content is reusable — but neither law lets you simply submit your existing materials. The format, scope, and timing requirements are specific.
The First-Year Action Plan
If you've established that you're in scope, here's the minimum viable path to a credible August 10, 2026 SB 253 report:
1. Confirm scope and assemble the team (Now)
Cross-functional from day one: Finance owns the revenue threshold determination, Legal owns "doing business in California" analysis, Sustainability or Operations owns emissions data, IT owns data systems, and someone senior (often the CFO or General Counsel) owns the executive sign-off.
2. Define your organizational boundary
GHG Protocol allows three approaches: equity share, financial control, or operational control. Pick one — usually operational control — and apply it consistently across your reporting entities. Document your choice and the entities included.
3. Build your Scope 1 and 2 inventory
For Scope 1, gather fuel consumption data (natural gas, diesel, gasoline, propane, refrigerants) across all owned/operated facilities. For Scope 2, gather purchased electricity, steam, heat, and cooling. Apply emission factors from authoritative sources (EPA eGRID for U.S. electricity, IPCC or EPA for fuels).
You'll need a calculation methodology document explaining what you included, what factors you used, and how you handled estimated or missing data.
4. Begin Scope 3 scoping
Even though Scope 3 isn't due until 2027, start the screening exercise now. The 15 Scope 3 categories range from purchased goods (Category 1) to investments (Category 15). Identify which categories are likely material for your business — typically purchased goods and services, business travel, employee commuting, transportation, and use of sold products top the list. Set up data-collection workflows with your largest suppliers because supply-chain data is the slowest piece to gather.
5. Engage a third-party assurance provider
Limited assurance for Scope 1 and 2 is required for the August 2026 report. Major accounting firms and specialty ESG assurance providers (Apex, ERM, Bureau Veritas, SGS, Lloyd's Register) all offer ISAE 3000 / ISAE 3410-aligned assurance. Engage early — capacity is tight as thousands of companies hit the market at the same time.
6. Start the SB 261 narrative
If you're also subject to SB 261, begin drafting the TCFD-aligned report in parallel. Run a basic climate scenario analysis (the IPCC's 1.5°C and 4°C scenarios are common reference points), inventory physical risks (acute and chronic) and transition risks (policy, technology, market, reputation), and document your governance structure.
7. Set up sustained data collection
The biggest mistake first-year reporters make is treating disclosure as a project. It's a process. Build a recurring data-collection cadence — quarterly works for most companies — so next year's report doesn't require another fire drill.
Why Accurate Books Matter More Than You'd Think
Climate disclosure looks like an environmental project, but it runs on financial data. Revenue thresholds are determined from financial statements. Organizational boundaries are drawn around your legal entity structure. Scope 3 Category 1 (purchased goods and services) requires spend data — categorized at a granularity most general ledgers don't natively support. Scope 3 Category 6 (business travel) needs travel-and-entertainment line items broken out by mode. Capital expenditure tracking feeds Category 2 (capital goods) calculations.
Companies with messy chart-of-accounts structures, inconsistent vendor coding, or thin transaction descriptions discover this the hard way during their first climate inventory. The vendors who already tag suppliers by SIC code, who reconcile their travel expense reports monthly, and who maintain consistent categorization across legal entities are months ahead of their peers. Clean, machine-readable financial records aren't just an audit nicety — they're now a regulatory prerequisite for emissions reporting.
Common Pitfalls
A few patterns recur across companies preparing for the first cycle:
- Mistaking the revenue threshold for California-only revenue. It's worldwide revenue, not California sales.
- Excluding subsidiaries. If the U.S. parent is in scope, the entire U.S. controlled group is too.
- Treating SB 261 as optional during the injunction. CARB has not vacated the requirement — only paused enforcement of one specific deadline.
- Underestimating Scope 3 data work. Even with the safe harbor, you still need to disclose. Start now.
- Hiring assurance providers late. The market for climate assurance is capacity-constrained in 2026.
- Building one-off spreadsheets. Next year's report (with Scope 3) will dwarf this year's. Invest in a repeatable data system.
What's Likely Next
Three trends to watch:
- Federal preemption challenges. Lawsuits attacking SB 253 and SB 261 on First Amendment, Supremacy Clause, and dormant Commerce Clause grounds are working through the courts. Expect rulings in 2026-2027.
- Convergence with SEC and international rules. Even though the SEC's climate rule is in flux, the CSRD (EU), IFRS S2 (international), and SB 253/261 (California) are all migrating toward GHG Protocol + TCFD/IFRS S2 as the default architecture. Companies designing systems for one increasingly get the others "for free."
- More states. New York, Illinois, New Jersey, and Washington have all introduced or signaled interest in California-style climate disclosure laws. California is the prototype; expect copies.
Keep Your Financial Records Climate-Ready
California's climate disclosure laws elevate financial record-keeping from a back-office function to a regulatory and reputational asset. Detailed, well-categorized transaction data is what powers emissions calculations, supplier engagement programs, and the assurance work behind every report. Beancount.io provides plain-text accounting that's transparent, version-controlled, and AI-ready — the kind of structured, auditable financial data climate reporting now demands. Get started for free and build the financial foundation your sustainability program will rely on.
