California has introduced the most comprehensive corporate climate disclosure rules in the US. A package of laws—SB 253 (emissions) and SB 261 (climate risk), both later updated via SB 219—apply to large companies doing business in California and set clear expectations for what to report, how, and when. This post focuses on SB 253. For details on SB 261 see this blog.
This article covers:
- Which companies are in scope for SB 253: US-based organizations with more than $1B in global revenue that are “doing business in California.”
- What SB 253 requires: annual disclosure of scopes 1 and 2 (from 2026), and scope 3 (from 2027) using the Greenhouse Gas Protocol
- SB 253 assurance requirements:
- Year 1 (per CARB’s Dec 2024 Enforcement Notice): keep the same level of assurance you had at that time. If you had none, none is required in Y1; if you had assurance, continue it.
- Forward timeline: scopes 1–2 are optional in 2026; limited assurance is required 2027–2029; reasonable assurance from 2030. Scope 3 assurance may start in 2030—CARB has not yet finalized those guidelines.
What you need to know about SB 253
1. Scope 1 and scope 2 emissions reporting
- What to report: direct (scope 1) and purchased energy (scope 2) emissions, measured under the Greenhouse Gas Protocol (equity share or control approach).
- Deadline: August 10, 2026. File annually thereafter.
- Which fiscal year’s emissions to report:
- If your FY ends Jan 1–Feb 1, 2026, report the FY that ends in 2026.
- If your FY ends Feb 2–Dec 31, 2026, report the FY that ended in 2025.
- CARB’s proposal gives at least 6 months after FY-end to file.
- Who must file in 2026
- Applicability is based on the lower of your last two fiscal years’ revenue. For 2026, look at FY2025 and FY2026. If the lower figure is under $500M, you don’t need to report in 2026.
2. Scope 3 emissions reporting
- Start year: 2027, covering 2026 data.
- What it means: measure and disclose material value‑chain categories; prioritize high‑impact sources; engage suppliers; document estimation methods.
3. Who is in scope for SB 253
- Separate tests: meeting the $1B revenue threshold is necessary, but you also need to meet California’s “doing business” criteria.
- Watershed’s free assessment can help you identify whether your organization might be in scope.
- Action: confirm applicability with legal and tax teams.
4. How to file SB 253 disclosures
- How to file: CARB has provided an SB 253 reporting template and instructions. This template is optional in the first year, and companies can provide any report which includes scope 1 and 2 emissions in year one.
- Make it audit‑ready: maintain clear data lineage, methods, assumptions, and version control to support verification and potential CARB review.
5. Parent‑level consolidation
- A qualifying parent may file a consolidated report covering subsidiaries when criteria are met.
- Fees still apply: Each captured entity will be subject to the fee, even if the parent submits one consolidated report.
- Action: map your corporate structure, control thresholds (generally >50%), and reporting entity.
6. Penalties, fees, and first year enforcement
- Fees: CARB has proposed flat annual administrative fees per covered entity to fund the program (final amounts to be confirmed).
- Penalties: up to $500,000 per year for SB 253 non‑compliance.
- CARB indicated enforcement discretion in 2026 for good‑faith efforts under SB 253.
7. Data infrastructure and controls
- Build the system: centralize scope 1–3 data, automate calculations where possible, and preserve evidence and approvals.
- Prepare for assurance: establish control checks, error flags, and change management; pilot a pre‑assurance walkthrough before the filing deadline.
Leverage ESG Software for Compliance Readiness: adopt ESG software solutions to streamline data collection, analysis, and reporting processes, ensuring compliance with SB 253.
Comparative table: Top ESG software solutions for SB 253 compliance
Vendor / platform | Strengths / focus | Considerations |
Watershed | Offers an integrated emissions + risk disclosure solution with built-in auditing checks, AI-accelerated report drafting for SB 261, and a Guaranteed Assurance Program for SB 253, support for California disclosures.Companies doing business in California and >$1B total global revenue | Consider whether their scenario modeling depth meets your needs, recognizing Watershed focuses on integrated disclosure and audit readiness rather than bespoke risk simulations. |
Persefoni | Claims to offer a solution for SB 253 emissions reporting and a service for SB 261 risk reporting.Scope 1-3 emissions disclosure | Check whether they offer an out-of-the-box SB 253 reporting template, and assess the quality of their support (chatbot vs. dedicated expert team). |
Optera | The “Operator” platform claims to streamline emissions accounting, and they also support SB 261 risk disclosure. | As this is a newer entrant, check client references and matureness of features. |
Sweep | Known ESG platform, actively writing about SB 253 / SB 261 compliance. | Evaluate the robustness of their peer benchmarking functionality and data traceability from ingestion, to measurement and disclosure. |
ECOonline | Their ESG reporting software explicitly advertises support for SB 253 / SB 261. | Check integration capabilities, engagement tooling, and assurance-readiness. |
S&P Global (Sustainable1) | Strong in advisory, regulatory intelligence, and reporting frameworks. | May be more expensive or bespoke; check software vs consulting splits. |
Other ESG / carbon accounting platforms (e.g. Microsoft Cloud for Sustainability) | Some larger platforms are beginning to incorporate California disclosure-specific features. | Ensure they are explicitly supporting SB 253 / SB 261, not just general ESG. |
In choosing among these, prioritize: (a) domain experience with climate / disclosure laws, (b) success stories in regulated environments, (c) flexibility, (d) ease of integration, and (e) support / consulting as needed.
Your next steps to prepare for SB 253
- Confirm applicability: test revenue and “doing business” criteria; choose parent‑level vs subsidiary‑level reporting.
- Stand up data pipelines: energy, fuel, and activity data for scopes 1–2
- Draft your disclosure: monitor CARB for the official template; prepare a clear narrative that explains methods, year‑over‑year changes, and improvement plans.
- Prepare for future assurance: document methods and data lineage; align with an independent assurer on requests and timing.
Frequently asked questions about California climate laws
- When do scope 3 disclosures start?
- 2027, covering 2026 data.
- What counts as “doing business” in California?
- California applies separate “doing business” tests (for example, sales, property, payroll, or domicile). Meeting the revenue threshold alone isn’t sufficient—you need both. Here are more details from CARB on each test:
- 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 omitting 23101(b)(3-4) on property holdings and payroll. This clarification is an acknowledgement that regulated entities should have a significant economic connection to the state, determined by having Californian sales above $735,019, rather than being based on property or payroll amounts.
- California applies separate “doing business” tests (for example, sales, property, payroll, or domicile). Meeting the revenue threshold alone isn’t sufficient—you need both. Here are more details from CARB on each test:
- Is there a safe harbor for scope 3?
- CARB indicated first‑year (2026) enforcement discretion for SB 253 when companies act in good faith using best‑available data. This is not a blanket scope 3 “safe harbor” and does not apply to SB 261.
How Watershed helps companies prepare for California's SB 253
Watershed is the enterprise sustainability platform for measuring, reporting, and acting on emissions. We help you:
- Centralize scope 1, 2, and 3 data and calculations
- Onboard suppliers with guided workflows and data checks
- Maintain audit‑ready documentation and controls for assurance
- Export SB 253‑ready disclosures aligned to CARB’s template when available
Ready to get ahead of SB 253? Talk to our team about a tailored readiness plan. Note: This article is for information purposes only and does not constitute legal advice. For definitive guidance, follow CARB’s final regulations and consult counsel.
