Time is Running Out: Are You Ready for California's New Climate Disclosure Rules?

Companies generating $500MM or more in revenue will soon face mandatory carbon emissions and climate risk reporting in California (SB 261 and SB 253). Over 5,000 businesses— even those without a physical presence in the state—will be impacted, and the clock is ticking.

The Biggest Risk? 

Most companies don’t realize how much time it takes to collect, validate, and analyze emissions and climate risk data. When deadlines are tight, a missing data point can mean the difference between compliance and failure.

For example: In a recent project call, we identified two critical gaps in a client's GHG emissions data. The person responsible for the missing data was on extended leave, and no one knew how to retrieve the information. This put the entire reporting timeline in jeopardy—an all-too-common scenario for companies unprepared for the complexity of climate disclosures.

What This Means for Your Business

• Companies with $1BN+ in revenue must report Scope 1, 2, and 3 emissions under the Climate Corporate Data Accountability Act (SB 253).
• Companies with $500MM+ in revenue must disclose climate-related financial risks under the Climate-Related Financial Risk Act (SB 261).
• Reporting begins January 1, 2026—and delays in preparation could leave you scrambling.

Key Updates You Need to Know

While ongoing rule-making procedures have introduced more flexibility into the original CA reporting requirements, the task at hand still remains – companies must collect a complex set of data and prepare to publicly disclose material climate risks.  Here are some of the biggest updates to the original proposals: 

• Definition of Doing Business in CA: The California Air Resources Board (CARB) defined "doing business" in alignment with CA Franchise Tax Board, which states that companies must be domiciled or organized in the state, exceeding $735,019 in annual sales, possessing property greater than $73,502 (or 25% of total), and exceeding $73,502 (or 25% of total) of total compensation paid, all in the state of CA. Additionally, CARB defined annual revenue as "gross receipts", and companies exceeding the $500M threshold must comply even if the majority of revenue is outside of CA. 
• Public Docket = Public Visibility: CARB announced that companies will be required to post the location of their first climate-related financial risk report publicly through a newly created public docket. The central hub will "help support transparency by providing one location for the public to be able to review all climate risk reports". 
• SB 253 Schedule: Scope 1 and 2 emissions disclosures will be due in calendar year 2026, while Scope 3 emissions disclosures will be due in 2027. Limited assurance will be required in 2026 while reasonable assurance will be required in 2030. Collecting Scope 3 data is often the most time-consuming process—start now.
• SB 261 Schedule: Climate-related financial risk reports are due January 1, 2026 and will be submitted biennially thereafter. Companies can choose to submit existing data and information from other popular reporting frameworks, such as TCFD (Task Force on Climate-related Financial Disclosures). 
• Consolidated Reporting: Companies can now report emissions at the parent company level, simplifying compliance for subsidiaries.
• Good Faith Efforts: CARB made special mention of honiring companies that take "good faith" measures to comply with the laws if and when they might enforce penalties for reporting violations. It's assumed that companies that disclose upon prior years' data (even if incomplete) and make plans to improve and increase data quality and sources in future years will avoid non-compliance. 

What You Need to Do Now

• Assess Your Reporting Obligations—Know what data you need and where to find it.
• Develop and Test Your Compliance Strategy—Avoid last-minute surprises.
• Ensure Your Data is Accurate—Errors can lead to costly compliance risks.

Start Preparing Now

Third Economy has helped companies like yours navigate complex reporting regulations. We can help you get ahead of SB 253 and SB 261 (and all of SB 219's amendments) before the deadlines put your business at risk.

Abbe Billings, Partner, Third Economy

abbe.billings@thirdeconomy.com

Disclaimer: The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only.