Prepare Now: California Climate Laws Impact Thousands of Businesses

California’s slew of new climate reporting laws will require thousands of public and private companies to disclose details like their Scope 3 emissions, climate risks and use of voluntary carbon offsets.

If companies impacted by these laws want to keep doing business in California — a $3.6 trillion economy — without paying penalties, they’ll have to meet reporting requirements for some or all of the state’s three new climate disclosure laws.

If your company is one of the many that needs to comply with any or all of the three new laws, you should begin to prepare now.

Emissions and Climate Risk Reporting

Two of California’s climate reporting laws, the Climate Corporate Data Accountability Act (SB 253) and Greenhouse Gases: Climate-Related Financial Risk (SB 261), apply to large companies that do business in the state and exceed certain revenue requirements.

SB 253 requires companies to disclose their Scope 1, 2 and 3 emissions and to obtain independent third-party assurance of their data. SB 261 requires companies to publish climate-related financial risk reports.

Reporting under both laws is set to begin in 2026, and as the state moves toward implementation, some details and deadlines may be updated. 

In September 2024, the laws were amended slightly. Reporting still begins in 2026; however, the deadline for the California Air Resources Board (CARB) to develop and adopt emissions reporting requirements was pushed back from January to July 2025. This further compresses the timeline for companies to prepare reports, making planning ahead even more crucial. 

The amendments allow for emissions reporting to be consolidated at the parent company level, and they remove a deadline for Scope 3 emissions to be reported within 180 days of Scope 1 and 2 data. Instead, the Scope 3 deadline will be determined by CARB. In addition to the recent updates, California’s requirements are being challenged in federal court. 

Voluntary Carbon Offsets and “Net Zero” Claims

The third law, Voluntary Carbon Market Disclosures (AB 1305), increases transparency around voluntary carbon offsets. 

Some portions of AB 1305 apply only to companies that market or sell voluntary offsets in California. However, several of its requirements apply to companies that purchase these offsets or claim that their business or product does not add net carbon dioxide or greenhouse gas emissions to the atmosphere — a status often referred to as “net zero” or “carbon neutral.”

How to Prepare

If your company will be impacted by California’s climate reporting laws, here are some steps you can take to get ready. 

1. Conduct Your Gap Analysis

First, evaluate your organization’s existing sustainability reporting program, if one is in place. Your company may already be fulfilling some of the California laws’ requirements through voluntary disclosures or other mandatory reporting. 

Take inventory of any climate-related disclosures, including any TCFD and emissions reporting. Additionally, determine if your company is already obtaining assurance over some or all of your emissions data or claims. If not, determine whether processes for assurance readiness are in place.

After establishing this baseline, identify the gaps in your data, processes, controls and reporting that you will need to address to comply with California’s requirements.

2. Design Your Roadmap 

Next, formalize your plan to establish leadership, processes, controls and protocols to comply with California’s laws. This will likely require a team that represents business functions across your organization. Members of your team and their roles may include:

• Sustainability, Operations and/or Finance — Conduct greenhouse gas inventory assessments and collate required information for disclosure, including execution of controls to validate data.  Also lead coordination with a third-party assurance provider.
• Internal Audit — Lead efforts toward assurance readiness. Evaluate controls and processes.
• Investor Relations and/or Communications — Manage disclosure drafting, publication and filing.
• Enterprise Risk Management — Integrate the climate risk assessment into broader risk management functions. 
• Legal — Oversee compliance and legal risk exposure.
• IT — Implement the necessary software for emissions data collection.
  
  

3. Collect and Report Your Data

Finally, your company will be ready to execute your roadmap. 

This step may include more work to define your emission sources or other relevant climate-related information, and it may require collecting additional data. It will also require the design and/or evaluation of internal data collection controls and processes around metrics. A flowchart and risk control matrix will be helpful in this effort. 

Engagement with an independent third party to obtain assurance before reporting your disclosures will also be part of this step.

Efficiencies for Future Rulemaking, Business Performance

While the initial administrative and operational demands of California’s requirements may seem onerous, there are clear benefits and efficiencies, despite the laws being challenged in the courts. 

Companies can leverage the information they gather and report to enhance decision-making rather than viewing the process as simply a compliance exercise. For example, the data can inform key risk management functions, identify business opportunities, and improve discourse with investors and other stakeholders. California’s new disclosure requirements also look to establish a baseline of climate reporting that will allow companies to fulfill their jurisdictional requirements for global reporting. 

¹ The law defines a reporting entity as a partnership, corporation, limited liability company or other business entity formed under the laws of California, the laws of any other U.S. state or the District of Columbia, or under an act of U.S. Congress, with total annual revenues of more than $1 billion and that does business in California. 

² The laws do not clarify what it means to ‘do business’ in California. This will be established by CARB as it develops regulations to carry out the laws. Criteria could potentially align with amounts set by the California Franchise Tax Board.

³ CARB will determine an exact date. Reporting period covers previous fiscal year.

⁴  Beginning in 2027 and annually thereafter, on a schedule specified by CARB. Reporting period covers previous fiscal year.

⁵ CARB may establish an assurance requirement for third-party assurance engagements of Scope 3 by Jan. 1, 2027.

⁶ The law defines a covered entity as a corporation, partnership, limited liability company or other business entity formed under the laws of California, the laws of any other U.S. state or the District of Columbia, or under an act of U.S. Congress, with total annual revenues of more than $500 million and that does business in California. Insurance entities are excluded due to TCFD reporting requirements through the National Association of Insurance Commissioners.