California’s climate disclosure rules: a guide for companies

What this article covers:

• Requirements and timelines for SB 253 and SB 261.
• How to determine whether your company is in scope.
• The latest guidance from CARB.
• Software tools for compliance with California’s climate laws.

California's SB 253 and SB 261, passed in late 2023 and updated by SB 219 in 2024, are the most comprehensive corporate climate disclosure requirements in the US.

Together they require thousands of large companies doing business in California to disclose their greenhouse gas emissions and climate-related financial risks. And because the revenue thresholds capture companies nationally, not just those headquartered in the state, the rules have a reach that extends well beyond California.

What do SB 253 and SB 261 require?

SB 253 requires companies with over $1B in revenue to report their greenhouse gas emissions annually. Scope 1 and 2 emissions must be reported from 2026, with scope 3 (value chain) following in 2027. No third-party assurance is required for the first year; limited assurance kicks in from 2027–2029, upgrading to reasonable assurance from 2030. CARB will decide separately in 2027 whether assurance will eventually be required for scope 3.

SB 261 requires companies with over $500M in revenue to publish a climate-related financial risk report every two years, aligned with TCFD, IFRS S2, or an equivalent regulated framework. Reports must cover all four pillars—governance, strategy, risk management, and metrics & targets—and be submitted to CARB's public docket. Emissions metrics and quantitative scenario analysis are optional in the first cycle.

Note that enforcement of SB 261 is currently paused pending the outcome of litigation—see the legal challenges section below.

Timeline for California's climate disclosure rules

Here’s the schedule for when companies begin reporting:

Which companies are in scope for SB 261 and SB 253?

Companies must be US-based, considered to be “doing business” in California and pass the relevant revenue thresholds (over $500M for SB 261; and over $1B for SB 253) to be in scope.

CARB has provided a flow chart (slides 29 and 30) to help individual entities understand if they are in scope. Companies should refer to this alongside the key term definitions provided.

Key term definitions

• Revenue: Based on “gross receipts” as defined by the California Revenue and Tax Code (RTC) § 25120(f)(2). To support edge cases, applicability for the laws will be determined by lesser of the entity’s two previous fiscal years of revenue.
• Doing business in California: Based on RTC § 23101, though applied on a sales-only basis. i.e. companies must exceed the California sales threshold of $735,019 (2024 levels); the property holdings and payroll tests do not apply.

Parent-subsidiary relationships

“Subsidiary” relationships are aligned with CARB’s Cap-and-Invest rules. A subsidiary relationship exists where one entity has >50% ownership or control through a direct corporate association.

Parent companies are not automatically in scope simply because a subsidiary qualifies. Applicability is assessed at an individual entity level. However, entities in scope can opt to report at the consolidated parent level.

What kinds of entities are exempt from SB 253 and SB 261?

Five categories of entity are exempt from both SB 253 and SB 261:

• Non-profit and charitable organisations that are tax-exempt under the Internal Revenue Code.
• Government entities, including any company more than 50% owned by a federal, state, or local government body.
• Insurance companies regulated by the California Department of Insurance, or in the business of insurance in any other state. Note that this exemption was originally limited to SB 261 by statute; CARB's February 2026 regulations extended it to SB 253 as well, though CARB has been directed to coordinate with the California Department of Insurance to evaluate whether further reporting requirements are appropriate.
• Teleworking-only entities—companies whose only business in California is the presence of remote employees.
• Wholesale electricity entities—companies whose only activity within California consists of wholesale electricity transactions.

Beyond these named exemptions, some companies may effectively fall outside scope if they do not report gross receipts in their California corporate tax filings and therefore cannot meet the revenue thresholds. CARB has mentioned holding companies and mutual funds as examples. Companies in this position should use CARB's published flow charts and take legal advice to confirm their status.

Fees & Penalties

Fee structure

CARB charges a flat annual fee per in-scope entity to cover program administration costs, estimated at $2,000–$7,000 per year depending on final program costs and total entities in scope. Fees apply to both SB 253 and SB 261 annually, even though SB 261 reports are only required every two years.

Parent companies may submit a single consolidated payment on behalf of subsidiaries, but each subsidiary is invoiced separately. CARB will issue fee notices by September 10 each year, with payment due within 60 days. Late payment carries additional fees.

Penalties
CARB can pursue civil penalties for non-compliance: up to $500,000 per year for SB 253 and $50,000 per year for SB 261.

There is a safe harbor for scope 3 misstatements made with reasonable basis and in good faith.

For the first reporting cycle, CARB has confirmed significant flexibility: under the Enforcement Notice issued last year, the expectation is that companies “give what [they] have on hand” in the first year. For example, if a company was not collecting emissions data when the Enforcement Notice was issued in December 2024, it does not need to submit emissions in 2026, only a short statement explaining non collection.

How to prepare for SB 253 and SB 261 in 2026

Confirm whether you're in scope. Work through the revenue and "doing business in California" tests on an entity-by-entity basis, using CARB's published flow charts and the key term definitions.

For SB 253: act now. The August 10, 2026 deadline for scope 1 and 2 reporting is confirmed and approaching fast. Companies that were already collecting emissions data by December 2024 are expected to file. If you weren't, you can submit a non-collection statement for 2026, but this is a last resort—you will be expected to file a full inventory with assurance from 2027.

For SB 261: keep building, don't pause. Enforcement is currently stayed, but the law could be reinstated at short notice following the Ninth Circuit's ruling. Companies with existing TCFD, ISSB, or CSRD disclosures should map these against SB 261's requirements to identify any gaps.

Plan for assurance. No assurance is required for the first SB 253 filing in 2026, but limited assurance becomes mandatory from 2027. Start conversations with assurance providers early — qualified providers need to be independent, and capacity in the market is limited.

Align across frameworks. If you're already reporting under CSRD, SEC rules, or UK TCFD-aligned listing requirements, map those workstreams against SB 253 and SB 261 now. CARB has indicated that existing disclosures can satisfy SB 261 requirements where they cover the required elements, reducing duplication.

What are the best solutions to help prepare for SB 253 and SB 261?

• Companies can leverage sustainability platforms like Watershed to compile their California reports. Using technology as the backbone of your measurement increases the calculation transparency and reduces the manual work needed to complete the exercise. In particular, Watershed's platform:
• Measures every California SB 253 and SB 261 datapoint, including scope 3 emissions.
• Guides customers through drafting narrative with climate risk analysis support, peer benchmarks, expert guidance, and AI-driven tools
• Delivered a 100% pass rate on mandatory disclosures when customers have had their measurements audited and assured.
• Includes tools to enable real action – like supplier engagement or decarbonization modeling – for when your focus turns from compliance to action.

Topics:
• Disclosures
• Climate news
• SEC