Preparing for California’s climate disclosure laws

In recent years, states across the U.S. have introduced legislation aimed at fostering transparency and accountability in greenhouse gas (GHG) emissions and climate-related financial risk reporting. California was first to pass mandatory climate disclosure laws, with SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-related Financial Risk Act). Next year, many companies doing business in California will be required to disclose their greenhouse gas emissions, and their climate-related financial risks.

California’s climate disclosure laws: SB 253 and SB 261

Under SB 253, business entities with annual global revenues greater than $1B US doing business in California are required to report their emissions comprehensively, including scope 1 and 2 emissions beginning in 2026 (for 2025 data), and scope 3 in 2027. SB 253 also requires reporting companies to get third-party assurance of their reports. SB 261 requires U.S. businesses with annual global revenues over $500M US doing business in California to disclose climate-related financial risks and their mitigation strategies to the public bi-annually.

Who will have to report?

Both SB 253 and SB 261 require companies doing business in California to report on their emissions and climate-related financial risks. Based on the current guidance, it is expected that as many as 10,000 publicly and privately held companies will be subject to the 2026 reporting requirements.

Are companies ready?

While many companies are prepared, some companies doing business in California will have to complete a GHG inventory and climate risk assessment for the first time. For many companies, the depth and quality of their disclosures will have to increase, as regulations require companies to expand their GHG inventories to scope 3 emissions, and to pursue third party assurance for their reports.

For large publicly traded companies, CA 253 and 261 may not require any major change in their current climate inventories and disclosure practices. In 2024, 86% of companies on the S&P 500 had measured and disclosed their scope 1 and 2 GHG emissions, more than 70% were measuring and disclosing some scope 3 emissions, and more than 74% were disclosing some material climate risks.

While the largest publicly traded companies will have the experience to comply with California’s climate disclosure laws, many smaller companies, subsidiaries, and private companies may be less prepared to report by the 2026 deadline. In 2023, only half of the Russell 3000 companies were disclosing scope 1 and 2 GHG emissions, less than 35% of these companies were disclosing scope 3 emissions, and only 51% of S&P midcap companies and 40% of the Russell 3000 were disclosing climate risk. Smaller companies were also less likely to have earned third party assurance for their climate disclosures, with only 14% of Russell 3000 and 13% of S&P midcap 400 pursuing 3rd party assurance of their climate disclosures in 2023.

What should companies do to meet California’s 2026 compliance deadline?

To prepare for soon-approaching compliance obligations, companies should assume that the compliance deadline of January 1, 2026 will not change, and that additional guidance will be provided by the California Air Resources Board (CARB) near the end of 2025.

Companies that determine that they do not meet the criteria for reporting under CA 253 and 261 may still want to begin preparing for climate disclosure regulation. New York, Colorado, New Jersey, and Illinois have introduced similar climate disclosure regulations to California in their 2025 legislative sessions, with disclosure deadlines set for 2027 and 2028. If signed into law, these regulations would cover more than half of all business operating in the U.S. with annual revenues over $500 million.

Companies can access free resources and tools to help them complete a GHG inventory, including a range of free tools and guidance from the Greenhouse Gas Protocol. Companies looking to conduct a climate vulnerability assessment can also start with free tools that include the U.S. Climate Resilience Toolkit and the Task Force on Climate-related Financial Disclosures (TCFD) toolkits.

Companies looking to pursue a more detailed assessment of their GHG emissions and climate vulnerabilities could consider working with a firm like ICF, who is helping clients across industries assess their climate impacts and risks with an eye towards long-term value creation.