California climate reporting regulations are impacting many U.S. companies

California is a global leader in addressing climate risk through state policy. As the world’s fifth largest economy,[1] the state is now setting the precedent for climate reporting in the U.S. with the introduction of the Climate Accountability Package signed into law on Oct. 7, 2023. Comprehensively, the package requires many middle market companies to disclose greenhouse gas (GHG) emissions and climate-related financial risks, which is a major step towards increased transparency and accountability. Failing to prepare and report could result in financial penalties, profitability issues, compliance risks, and may cultivate a negative perception among stakeholders.

What is the California Climate Accountability package?

California’s Climate Accountability Package includes two pieces of regulations, SB 253 and SB 261, that require US-based public and private companies that do business in California to report their GHG emissions (SB 253) and disclose their climate-related financial risks and governance processes (SB 261). Reporting begins in 2026 for 2025 reporting, and will include assurance over reported GHG emission data as early as Jan. 1, 2026.

1. SB 253 California Climate Corporate Data Accountability Act

Senate Bill 253 applies to United States businesses with more than $1B in domestic revenue that conduct business in California (reporting entities[1]). These entities will be required to annually report their GHG emission inventories (scope 1, 2 and 3 emissions) in line with the GHG Protocol Corporate Accounting and Reporting Standard and Corporate Value Chain (scope 3) standard. The act requires gradual increases in the level of assurance to ensure the credibility of information. Additionally, to enhance transparency, the act requires companies to provide a copy of the completed assurance provider’s report and the provider’s name to the digital platform that will be utilized, ensuring public access to the data.

The California Air Resources Board (CARB) is expected to finalize greenhouse gas reporting and assurance timelines no later than July 1, 2025.

Proposed reporting and assurance timeline for greenhouse gas reporting (SB 253)

2. SB 261 Greenhouse gasses: climate-related risk

Senate Bill 261 applies to US businesses with more than $500M in domestic revenue that conduct business in California (covered entities[2]). Beginning on or before Jan. 1, 2026, these entities will be required to prepare a climate-related financial risk report disclosing:

1. Climate-related financial risk, aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) framework.
2. Measures adopted to reduce and adapt to climate-related financial risk. Reporting and disclosure must align with the Task Force on Climate-Related Financial Disclosures (TCFD).

Covered entities are required to report every two years and make a copy of the report available to the public via their website. If a covered entity does not complete a report consistent with all required disclosures, the entity will need to provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps and describe steps it will take to prepare complete disclosures.

3. The impact of SB 219

Senate Bill 219 was signed into law on Sept. 27, 2024, resulting in amendments to SB 253 and SB 261 with a goal of providing additional flexibility for those companies subject to the California Climate Accountability package. Major amendments include the increased rulemaking ability of the California Air Resources Board (CARB) to determine the final reporting requirements and timeline for greenhouse gas emissions (SB 253). The greenhouse gas emission reporting requirements and assurance timelines are expected to be finalized no later than July 1, 2025. Proposed timing indicates greenhouse gas emissions reporting and assurance may be required as early as Jan. 1, 2026.

What happens if a company doesn’t comply?

For companies that do not comply with greenhouse gas emission reporting requirements and climate-related financial risk reporting, penalties of up to $500,000 and $50,000, respectively, can be imposed. Penalties assessed on scope 3 reporting, between 2027 and 2030, will only occur for non-filing. In addition to penalties, companies that do not report may experience reputational risks, which can have financial impacts.

Is your company prepared?

1. Are you currently reporting on climate-related data or scopes 1, 2 and 3 emissions?
2. Have you conducted a climate risk assessment?
3. Have you established risk management processes and integrated climate-related risks?
4. Do you know what data is needed and where to collect it within your company to prepare for disclosure?
5. Have you established a team to support reporting efforts?

Take action

Companies impacted, both directly and indirectly, by the California Climate Accountability package will be subject to disclosures as early as January 1st, 2026. Get started with these 3 steps.

1. Identify: Determine who will lead this effort at your company, identify the resources needed to support the reporting and disclosure requirements, and consider the stakeholders across your company that need to be engaged. Then, assemble a cross-functional team to support your initiatives and reporting, leverage existing enterprise risk management steering committees, protocols, reporting and communication processes, as applicable.
2. Educate: Understand the standards, which include GHG Protocol Corporate Accounting and Reporting Standard, GHG Protocol Corporate Value Chain (Scope 3) and Task Force on Climate-related Financial Disclosures.
3. Evaluate: Review current reporting performed to date, requests from third parties and applicability of forthcoming regulatory reporting requirements.

The announcement of the California climate-related regulation and related requirements for your company may feel overwhelming. But by taking action today, your company can strategically prepare. Lean on our specialists to meet you where you are, help navigate reporting requirements one step at a time and turn compliance activities into business opportunities. Get started today.