No Delay, The California Climate Disclosure Bill is Law for 2026
Despite pushback that surfaced in July and threatened to delay the start dates for California SBs 253 and 261, California Governor Gavin Newsom signed a new bill SB 219 into law that retains the original January 1, 2026 effective date for the California climate disclosure laws. This means entities doing business in California with over $500 million in annual revenue will be required to disclose climate-related financial risks and their measures to reduce and adapt to those risks while entities with over $1 billion in annual revenue will additionally be required to disclose their Scope 1, 2, and 3 emissions using data from 2025.
The key changes affecting businesses will be the additional time the California Air Resources Board (CARB) has to implement the regulations to July 1, 2025, meaning businesses will now just have six months to assess the final rules before it becomes time to report. One change that organizations will likely favor is the ability for subsidiaries to consolidate their reports with their parent companies potentially reducing the number of required reports for large entities.
This updated regulation did leave some details open-ended including the due dates for Scope 3 emissions, which were previously required within 180 days of a company’s Scope 1 and Scope 2 disclosures. Additionally, CARB has been granted permission to choose if it will receive the GHG reports directly or from an emission reporting organization. This means the final body receiving the GHG reports is not yet determined. View the bill directly for full details on the updates and to formulate your strategy accordingly.
Broader push from California
California has made other waves recently for its environmental actions including a lawsuit against Exxon Mobil that accuses the oil giant of misleading consumers about the recyclability of plastic products and polluting the state. This comes just over a year after the California Attorney General sued the five largest oil producing companies and the American Petroleum Institute for allegedly engaging in a decades-long campaign of deception and creating statewide climate change-related harm in California.
This push demanding accountability for climate-related economic and social costs from California should not come as a surprise. The state has been devastated by increasingly powerful wildfires over the past decade with total damages over $100B by some estimates. Bankrate.com reported over 2 million properties in California were at wildfire risk in 2022 alone.
What the latest climate bill, SB 219 means for businesses
For companies that were waiting to see if the California rules would get delayed until 2028 or blocked from implementation, it’s all but certain those possibilities have faded. Departing the market to avoid the hassle of compliance is not a reasonable response for most companies given California’s $3.9 trillion in nominal GDP that makes it one of the largest global economies. Maximum fines of $500,000 and $50,000 for SB 253 and SB 261 noncompliance, respectively, are just the beginning for firms that choose to ignore these laws.
Downstream implications of climate laws
Businesses that don’t meet the revenue requirements to comply with the California climate disclosure laws should still expect to receive notice from their corporate customers to provide emissions and climate risk information. This might be as simple as organizing your office energy bills, so you can share them upon request or it could require more thorough tracking of water usage, energy production, and vehicle fleet monitoring. The burden on small businesses was a major force pushing to delay the implementations of these laws including lawsuits from both the US Chamber of Commerce and the American Farm Bureau Federation.
What businesses should do to comply with SB 253
Due to scrutiny companies already face from investors, regulators in jurisdictions like the European Union, and their customers who themselves face scrutiny, a significant number of large companies already track and disclose their Scope 1 and Scope 2 GHG emissions. According to analysis done by S&P Global Sustainable of 2,590 US-based companies of all sizes with data in the Trucost Environmental database, 47% of companies disclosed Scope 1 emissions in 2022 with 45% disclosing Scope 2 emissions.
This means, fortunately, the regulation is not much more than making the voluntary reporting they’ve already done mandatory. However, many companies are still processing this data with at least some manual methods. A February 2024 KPMG report found 47% of surveyed professionals claimed their companies were using spreadsheets to manage ESG data. A lot is still left to be desired when it comes to efficiencies of using dedicated software.
Scope 3 emissions disclosures will be much more challenging for many businesses. To meet these requirements, organizations should take the following steps if they haven’t already:
- Review material impacts of the 15 Scope 3 emissions categories across their businesses.
- Perform a gap analysis to identify which categories are currently being tracked and develop methods for collecting missing data.
- Automate as much of the process as possible for data collection, GHG calculation, and formatting reports.
What businesses should do to comply with SB 261
If your business exceeds $500 million in annual revenue, you’ll be required disclose financial risks associated with climate change that include outlines for strategies they have adopted to mitigate and adapt to climate risks. The most straightforward method of complying with this requirement is to produce a report following International Financial Reporting Standards (IFRS) S1 and S2 guidance set out by the International Sustainability Standards Board (ISSB).
For companies that have yet to begin managing this reporting, the best advice is to just get started and be prepared to follow these steps:
- Perform a materiality assessment to identify the most important topics to disclose
- Measure emissions
- Get third party assurance
- Publish a climate report on your website including this information
- Be prepared to provide the evidence to the California State Air Resources Board