California SB 261 & SB 253: Preparing for Corporate Climate Disclosures
In 2023, California Governor Gavin Newsom signed SB 261 and SB 253 into law, marking a new era for standardized climate reporting and corporate climate transparency.
Key Takeaways
The two complementary laws require detailed and complex reporting from large companies on climate-related topics.
SB 261 requires climate-related financial risk reporting, while SB 253 requires greenhouse gas (GHG) emissions reporting.
Fines can reach up to $500,000 per reporting year.
As the initial reporting dates loom, companies are struggling with convoluted calculations and rigorous standardized structure demanded by the California Air Resources Board (CARB).
Who Do SB 261 & SB 253 Apply To?
SB 261 applies to companies that do business in California and make more than $500 million in annual revenue.
SB 253 applies to companies doing business in California that make more than $1 billion in revenue.
It’s essential to note that covered companies can be headquartered anywhere in the world and the thresholds are global, considering revenue made in all jurisdictions. These laws aren’t just targeted toward US companies.
Why SB 261 & SB 253 Matter
These laws are part of a push to enhance corporate sustainability through standardized reports that investors can compare and contrast to make investing decisions based on a company’s climate impact and how it handles climate-related risks. As more companies make commitments to net-zero emissions, there has been growing concern that some of them have been over-promising and failing to deliver.
SB 261 and SB 253 demand that companies become more transparent about climate risks and emissions to prevent this type of greenwashing, and the reporting requirements will allow informed decision-making on the part of investors.
While the reporting requirements are stringent, companies that can demonstrate genuine efforts to make good on sustainability efforts are likely to see a growing competitive advantage and capital flow from sustainability-minded investors and consumers.
SB 261 Deep Dive
With a $500 million revenue threshold, SB 261 covers thousands of companies doing business in California. The penalties for noncompliance are significant, and failing to report or presenting misleading information can garner fines up to $50,000 per year. The first reports under SB 261 are due January 1, 2026, and few companies understand the gravity of the requirements. 10,000+ companies are expected to have to report.
Why is SB 261 Reporting So Challenging?
There are countless complications companies must factor in when approaching SB 261 reporting. Here are the top 5.
Compressed Timeline: CARB’s final rule was published on July 1, 2025 while reports are due January 1, 2026. That’s an extremely tight timeframe to gather and analyze the required data and prepare a report that meets standards.
Biennial Reporting: SB 261 is not a one-time box to check. Reporting is required every 2 years, meaning companies must constantly continue gathering data to remain compliant.
Future Speculation: As the report deals with climate-related financial risk, companies must learn how to make reasonable predictions based on their own mitigation measures and prediction of constantly-evolving risks.
Resource & Cost Allocation: Due to the time-consuming nature of reporting as well as the need to acquire new technologies, companies will have to decide whether to make significant investments in internal reporting resources or seek outside expertise.
Complex Reporting Framework: SB 261 reports will need to follow Task Force on Climate-Related Financial Disclosures (TCFD) framework.
The TCFD Framework for SB 261 Reporting
The required framework for SB 261 reporting is notoriously complex and rigorous. The framework covers 11 recommended disclosures in 4 categories called “pillars”:
Governance
Strategy
Risk Management
Metrics & Targets
1. Governance
Board oversight of climate-related risks and opportunities.
Management’s role in assessing climate-related risks and opportunities.
2. Strategy
Climate-related risks and opportunities in the short, medium, and long term.
Impact of risks and opportunities on the organization’s strategy and financial planning.
Resilience of the company’s strategy in multiple climate-related scenarios, including the 2°C or lower scenario.
3. Risk Management
The organization’s processes for identifying and assessing both physical and transitional climate risks.
The organization’s processes for managing said climate-related risks.
How the previous processes integrate with the organization’s overall risk management approach.
4. Metrics & Targets
Metrics used to assess risks and opportunities in the risk management process.
Scope 1, Scope 2, and ideally Scope 3 GHG emissions and related risks.
Targets used to manage climate-related risks and opportunities, and the organization’s performance against these targets.
These recommendations result in an exhaustive insight into how companies are approaching climate-related risks, their plans for mitigating those risks, and in future reports how well they’ve done in achieving targets. The amount of data to gather, process, and analyze only grows more staggering the larger a company is.
Given that most risk management professionals are not well-versed in the complex risk prediction calculations required, companies of all sizes are struggling to find the right way to integrate these reports into existing risk management programs.
SB 261 Best Practices
If your company hasn’t started preparing for SB 261 reporting, the clock is ticking. These 5 best practices are your basis for compliance and avoiding fines.
Ensure relevant parties are familiar with the TCFD framework.
Conduct a climate risk assessment to identify physical risks such as wildfires or drought, and transition risks such as policy shifts and carbon pricing.
Facilitate C-suite and board involvement, and begin documenting oversight.
Develop capabilities for qualitative and quantitative risk scenarios.
Ensure full integration of climate risk into overall risk management.
It’s also critical to decide now if the company should allocate internal resources to new technologies and teams to handle SB 261 compliance from the ground up, or whether it’s more cost effective to seek outside expertise.
SB 253 Overview
SB 253 is a complementary law to SB 261, with rigid requirements for companies with more than $1 billion in revenue doing business in California to report GHG emissions as follows:
Scope 1 & Scope 2: 2026, date to be determined.
Scope 3: 2027, date to be determined.
Scope 1 emissions are direct emissions from anything owned or controlled by a company, such as gas combustion in company vehicles. Scope 2 emissions are indirect, from sources like bought electricity, heating, and cooling. Scope 3 emissions cover all indirect emissions from a company’s upstream and downstream value chain, requiring a staggering amount of resources to track properly. Additionally, Scope 3 emissions account for more than 90% of organizational climate impact, so companies cannot afford to make mistakes in tracking them.
The penalty for failing to report properly is significant, with fines up to $500,000 per year. An estimated 5,400 organizations are expected to be covered under SB 253.
SB 253 Best Practices
Assign dedicated roles for compliance, emissions tracking, and data quality.
Ensure familiarity with the GHG Protocol for accounting.
Start with Scope 1 and Scope 2, and create a roadmap to achieve Scope 3 tracking.
Engage suppliers as soon as possible with guidance or tools to help them report.
Engage with third-party verifiers to help evaluate your data readiness.
Starting today offers your organization the best chance of meeting these intensive requirements.
Get Started With Snaplinc Consulting
SB 261 and SB 253 compliance can easily overwhelm the average risk and compliance team with their complexity. Snaplinc Consulting takes the compliance stress off your plate so you can focus on your organization’s big picture. Our experts perform thorough scenario analysis so you don’t have to worry about hiring and training for brand new roles on this extremely tight timeline.
Contact us today to get your SB 261 and SB 253 compliance on track.