California is making big moves with its climate rules, and if your business operates there, you've got some new things to think about. Two laws, SB 253 and SB 261, are coming into play that will require companies to report on their greenhouse gas emissions and how climate change might affect their finances. It sounds like a lot, but understanding these california climate laws now can help you get ready and avoid headaches later. We'll break down what you need to know.

Key Takeaways

• California's new laws, SB 253 and SB 261, require businesses operating in the state to report greenhouse gas emissions and climate-related financial risks.
• SB 253 focuses on reporting Scope 1, 2, and eventually Scope 3 emissions, with deadlines starting in 2026 and 2027.
• SB 261 mandates biennial disclosures of climate-related financial risks, aligning with frameworks like TCFD, with the first reports due by January 1, 2026.
• The definition of "doing business in California" is broad and includes revenue, property, or payroll thresholds, potentially impacting many companies outside the state.
• Preparing now by understanding your emissions, assessing financial risks, and setting up data systems is vital, even with ongoing regulatory and legal developments.

Understanding California's Landmark Climate Laws

California has really stepped up its game when it comes to climate action, rolling out some pretty significant laws that businesses need to pay attention to. We're talking about Senate Bill 253 and Senate Bill 261, both signed into law in October 2023. These aren't just minor updates; they represent a major shift in how companies operating in California, or even just doing business there, will need to report on their environmental impact and financial risks related to climate change. It’s a big deal, especially for larger companies, and frankly, it’s going to affect a lot of businesses nationwide.

Senate Bill 253: The Climate Corporate Data Accountability Act

This law, often called SB 253, is all about greenhouse gas (GHG) emissions. Basically, it requires U.S. companies with over $1 billion in annual revenue that are considered to be "doing business in California" to start reporting their emissions. This includes:

• Scope 1: These are your direct emissions, like the ones from burning fuel in your company vehicles or facilities.
• Scope 2: These are indirect emissions from the electricity you buy. Think about the power plants generating the electricity your offices and factories use.
• Scope 3: This is the big one, covering all other indirect emissions that happen in your company's value chain. This could be anything from emissions from your suppliers and business travel to the emissions generated when your customers use your products. It’s a pretty broad category.

The first reports for Scope 1 and 2 emissions are due in 2026, covering 2025 data. Scope 3 reporting kicks off in 2027. There's also a requirement for third-party assurance, starting with a limited review in 2026 and moving towards a more thorough reasonable assurance over time. It’s a lot to get your head around, but the goal is to make emissions data more reliable and transparent for everyone involved.

Senate Bill 261: The Climate-Related Financial Risk Act

Then there's SB 261, which focuses on climate-related financial risks. This law applies to U.S. companies with over $500 million in annual revenue that are also "doing business in California." These companies will need to report on their climate-related financial risks and how they plan to manage them. The reports are required every two years, with the first ones due by January 1, 2026. The disclosures should follow established frameworks like the Task Force on Climate-related Financial Disclosures (TCFD). This means companies need to think about how climate change could actually impact their bottom line and their business strategy. It’s not just about emissions anymore; it’s about financial resilience in a changing climate. You can find more details on these laws and the California Air Resources Board's work on their development.

Defining "Doing Business in California" for Compliance

So, what exactly does "doing business in California" mean for these laws? It’s broader than you might think. Generally, a company is considered to be doing business in California if it meets certain financial thresholds. For example, having over $735,000 in sales in California (this amount gets adjusted for inflation each year) or having significant property or payroll within the state can trigger these requirements. Even if your company isn't headquartered there, if you have a substantial economic connection to California, you might fall under these new regulations. It’s a key detail that many companies, especially those outside of California, need to clarify for themselves.

Understanding these definitions is the first step. It helps determine if your business is even in the scope of these new reporting mandates. Don't assume you're exempt just because you're not physically located in California; the economic ties are what matter most here.

Key Requirements and Reporting Obligations

So, what exactly are these new California laws asking businesses to do? It boils down to two main areas: tracking your greenhouse gas (GHG) emissions and figuring out how climate change might affect your finances. It sounds like a lot, but let's break it down.

Greenhouse Gas Emissions Reporting Under SB 253

This is where Senate Bill 253 comes in. If your company makes over $1 billion in revenue and does business in California, you'll need to start reporting your GHG emissions. Think of it like a carbon footprint for your business. You'll have to report your Scope 1 (direct emissions from things you own or control) and Scope 2 (indirect emissions from purchased electricity, heat, or steam) emissions. The first reports for 2025 data are due in 2026. For Scope 3 emissions (all other indirect emissions in your value chain), reporting starts in 2027, but there's a catch: it's subject to materiality thresholds that the California Air Resources Board (CARB) will define. This means you might not have to report every single Scope 3 emission if it's not considered significant.

Here's a quick look at the timeline for SB 253:

• 2026: Report Scope 1 and Scope 2 emissions for the 2025 calendar year.
• 2027: Begin reporting Scope 3 emissions, based on materiality thresholds set by CARB.
• 2030: Full assurance requirements for emissions data will be in place.

CARB is encouraging a "best efforts" approach, especially in the early stages. This means that even if your data isn't perfect, showing you've made a genuine attempt to measure and report accurately can go a long way. It's about building a system and improving over time.

Climate-Related Financial Risk Disclosures Under SB 261

Senate Bill 261 is a bit different. It targets companies with over $500 million in annual revenue that are "doing business in California." This law requires you to report on your climate-related financial risks and how you plan to manage them. The reports need to follow guidelines from the Task Force on Climate-related Financial Disclosures (TCFD) or similar frameworks. These disclosures are required every two years, with the first reports due by January 1, 2026. This is about understanding how things like extreme weather, policy changes, or market shifts related to climate could impact your business's bottom line. You can find more information on TCFD recommendations.

Assurance and Verification Standards for Disclosures

Just reporting your numbers isn't enough; they need to be reliable. For SB 253, there will be increasing requirements for third-party assurance of your emissions data. Initially, it's limited assurance, but by 2030, it will move to reasonable assurance. This means an independent party will check your data to make sure it's accurate. For SB 261, while specific assurance standards aren't detailed in the same way as SB 253, the expectation is that the disclosed financial risks and mitigation strategies will be robust and verifiable. Companies should start thinking about who will provide this assurance – whether it's a CPA or another qualified provider – and what standards they'll need to meet. Planning for these assurance projects early is key to meeting compliance deadlines.

Navigating Compliance Timelines and Deadlines

Okay, so California's new climate laws, SB 253 and SB 261, have some deadlines. It's not like everything happens at once, but you definitely don't want to get caught off guard. The state is rolling out these requirements, and understanding when each piece kicks in is pretty important for your business.

Scope 1 and 2 Emissions Reporting Start Date

For Senate Bill 253, which is all about reporting greenhouse gas (GHG) emissions, the first big date is for your direct emissions (Scope 1) and indirect emissions from purchased electricity (Scope 2). Companies need to start reporting this data for the 2025 calendar year, with the first report due in 2026. This means you should already be collecting or figuring out how to collect this information. It's a good idea to get your data systems in place now, even if the official reporting is for last year's activities.

Scope 3 Emissions Reporting and Materiality Thresholds

Scope 3 emissions, which cover all those other indirect emissions in your value chain (think suppliers, transportation, product use), are a bit more complex. These are required starting in 2027. However, the California Air Resources Board (CARB) is still working out the specifics. They're expected to set materiality thresholds, meaning you might not have to report every single Scope 3 emission if it's not significant. Figuring out what's material will be key, and CARB's guidance on this will be something to watch closely.

Biennial Climate Risk Disclosure Due Dates

Senate Bill 261 focuses on climate-related financial risks. This law requires businesses to disclose these risks, and the first deadline is January 1, 2026. This disclosure will happen every two years, so it's a biennial requirement. It's about looking at how climate change could impact your business financially and reporting on that. Think about physical risks like extreme weather or transition risks like changing regulations or market preferences.

Here's a quick rundown of the key dates:

• 2025 Data Collection: Begin collecting Scope 1 and Scope 2 GHG emissions data.
• January 1, 2026: First climate-related financial risk disclosure under SB 261 is due.
• 2026 Reporting: First report for Scope 1 and Scope 2 emissions (based on 2025 data) is due. Limited assurance is also required.
• 2027 Reporting: First report for Scope 3 emissions (based on 2026 data) is due, subject to materiality thresholds set by CARB.

It's important to remember that even with a "soft enforcement" approach in the first year for SB 253, demonstrating a good-faith effort is crucial. Companies that don't start preparing now could face bigger challenges down the road as enforcement becomes more rigorous and penalties are introduced.

Don't wait until the last minute. Getting a handle on these timelines and what they mean for your data collection and reporting processes will save a lot of headaches.

Potential Challenges and Regulatory Developments

Impact of California Air Resources Board Rulemaking

So, California's Air Resources Board, or CARB, is the agency that's actually going to be writing the detailed rules for these new laws. They've got a lot on their plate, and the exact wording of these regulations is still being ironed out. This means definitions, like what exactly counts as "doing business in California" or how to calculate certain emissions, might not be crystal clear until early 2026. This uncertainty can make it tough for businesses to know precisely where they stand and what they need to do. CARB's decisions here will really shape how these laws are applied, and honestly, it's worth keeping a close eye on their progress. They're also figuring out things like how to verify all this data and what happens if you don't get it right.

Ongoing Legal Challenges to Climate Disclosure Laws

It's not just CARB's rulemaking that's a bit up in the air. There's a lawsuit out there, filed by groups like the U.S. Chamber of Commerce, that's challenging these laws altogether. They're arguing that making companies talk about their emissions and climate risks is a form of compelled speech, which they say goes against the First Amendment. A judge is still deciding on this, and while it's moving slowly, it adds another layer of uncertainty for businesses. Even if the lawsuit doesn't stop the laws, it could potentially change how they're implemented. It's a situation many are watching closely.

Interpreting Revenue and Thresholds for Applicability

Figuring out if your business even needs to comply can be a headache. For SB 261, the $500 million revenue threshold is pretty high, but for SB 253, it's a bit lower at $1 billion. Then there's the whole "doing business in California" part. This isn't just about having a physical office there. It can include things like having a certain amount of sales revenue in the state, even if you're based elsewhere. The exact dollar amounts for these thresholds are adjusted each year for inflation, so you have to stay current.

Here's a quick look at some of the thresholds:

• SB 253: Companies with over $1 billion in gross annual revenue.
• SB 261: Companies with over $500 million in gross annual revenue.
• "Doing Business in California" (example thresholds):
  • Over $735,000 in sales in California (this number changes annually).
  • Over $73,502 in property or payroll in California (also subject to change).

It's easy for companies to accidentally fall under these rules, especially if they have a distributed business model or significant online sales into the state. The details matter a lot here.

Strategic Preparation for California Climate Laws

Okay, so California's new climate laws, SB 253 and SB 261, are coming up fast. If your business does business in California, even if you're not headquartered there, you've got some homework to do. It might seem like a lot, but getting a head start now can save you a major headache later. Think of it like prepping for a big trip – you wouldn't just show up at the airport, right? You'd pack, check your itinerary, and make sure you have everything you need. This is kind of the same, but with spreadsheets and emissions data instead of swimsuits.

Conducting a Carbon Footprint Baseline Inventory

First things first, you need to know what you're dealing with. This means figuring out your company's greenhouse gas (GHG) emissions. For SB 253, you'll need to report Scope 1 (stuff you directly emit, like from your company vehicles) and Scope 2 (emissions from the electricity you buy). It's a good idea to get a handle on these right away. For Scope 3 emissions – that's everything else in your supply chain, like your suppliers or how your products are used – it's a bit more complex. Start by mapping out your supply chain. Figure out who your key suppliers are and where the biggest emission sources might be. It doesn't have to be perfect on day one, but you need to start building that picture.

Assessing Climate-Related Financial Risks with TCFD

SB 261 is all about financial risks tied to climate change. The standard here is the Task Force on Climate-related Financial Disclosures (TCFD). This framework asks you to look at two main types of risks: physical risks (like extreme weather events impacting your facilities or supply chains) and transition risks (like changes in regulations, technology, or market demand that could affect your business model). You'll need to think about how these risks could actually impact your company's finances and what you're doing to manage them. This isn't just about environmental impact; it's about business resilience.

Establishing Robust Data Governance and Reporting Systems

This is where the rubber meets the road. You can't just guess at this stuff. You need systems in place to collect, manage, and report your data accurately. This means:

• Data Collection: Figure out where your emissions and risk data will come from. Who is responsible for gathering it?
• Internal Controls: Set up processes to make sure the data is reliable and consistent. Think about checks and balances.
• Reporting Tools: Decide what software or methods you'll use to compile your reports. Will it integrate with your existing financial systems?
• Assurance: Remember, SB 253 requires third-party assurance. Start thinking about what that process will look like and who might provide it.

Building these systems now will make the actual reporting process much smoother. It's about creating a reliable foundation for all your climate-related disclosures, not just for California but potentially for other regulations down the line. Getting your data house in order is key.

It's also smart to keep an eye on what the California Air Resources Board (CARB) is doing. They're still working out the details, like exactly how they'll define certain terms and what the final materiality thresholds for Scope 3 emissions will be. Staying informed about their rulemaking process is important because it could affect how you need to report. Don't wait until the last minute; start planning now.

Beyond Compliance: Opportunities in Climate Disclosure

So, California's making businesses spill the beans on their carbon footprint and climate risks starting in 2026. It sounds like a lot of work, right? But honestly, looking at it just as a chore misses the bigger picture. Think of it as a chance to really get to know your business inside and out, especially when it comes to climate stuff.

Enhancing Enterprise Risk Management Through Disclosure

Getting a handle on your greenhouse gas emissions and figuring out how climate change might mess with your finances isn't just about checking boxes. It's about spotting potential problems before they become big headaches. For example, understanding your supply chain's carbon output might reveal vulnerabilities you didn't know existed. Maybe a key supplier is in an area prone to flooding, or their energy sources are becoming more expensive. Knowing this lets you plan ahead, maybe find backup suppliers or help them reduce their own emissions. This kind of insight helps you build a tougher, more resilient business.

Building Stakeholder Trust with Transparent Reporting

People are paying more attention these days. Investors, customers, even your own employees want to know that companies are doing their part. Putting out clear, honest reports about your climate impact and risks shows you're not hiding anything. It builds confidence. When stakeholders see you're taking this seriously, they're more likely to stick with you. It's like being upfront about a problem with a friend – it usually makes things better in the long run.

Gaining a Competitive Advantage in a Shifting Market

Let's face it, the world is moving towards greener practices. Companies that get ahead of these climate disclosures now will be in a much better spot. You'll be better prepared for future regulations, which are likely to get stricter, not looser. Plus, being transparent can attract customers who care about sustainability and make it easier to get funding from investors who are looking for companies with a long-term view. It's not just about avoiding penalties; it's about positioning your business for success in the years to come.

Here’s a quick look at what you might uncover:

• Supply Chain Weaknesses: Identifying regions or suppliers with high climate risk.
• Operational Efficiencies: Finding ways to reduce energy use and emissions.
• Market Opportunities: Discovering demand for lower-carbon products or services.
• Investor Confidence: Demonstrating proactive management of climate-related issues.

Preparing for these new California laws is more than just a compliance task. It's a strategic move that can reveal hidden risks and opportunities within your operations and supply chain. By proactively measuring, managing, and reporting your climate impact, you're not only meeting regulatory demands but also building a more robust and trustworthy business for the future.

Going beyond just following the rules for climate reporting can actually open up new doors for your business. It's not just about checking boxes; it's about finding smart ways to show your commitment to the environment. Discover how to turn these requirements into chances for growth and innovation. Ready to learn more? Visit our website today!

Wrapping It Up

So, California's new climate laws, SB 253 and SB 261, are a pretty big deal. They're basically saying companies need to get serious about tracking and reporting their greenhouse gas emissions and any climate-related financial risks. Even if your business isn't based in California, if you do business there, you might be affected. The deadlines are coming up fast, with some reports due in 2026. It's not just about following the rules, though. Getting a handle on this stuff can actually help your business in the long run, making it stronger and maybe even more attractive to investors. It’s a lot to take in, but starting now is key.

Frequently Asked Questions

What are these new California climate laws all about?

California has passed two new laws, called SB 253 and SB 261. They want big companies that do business in California to share information about their greenhouse gas emissions (like pollution from burning fuel) and any money-related risks they face because of climate change. Think of it like telling people how your company affects the environment and how the changing climate might affect your business's money.

Which companies have to follow these laws?

If your company makes over $1 billion in yearly sales and does business in California, you'll need to report your greenhouse gas emissions under SB 253. For SB 261, companies with over $500 million in yearly sales that do business in California need to report their climate-related financial risks. 'Doing business in California' can mean a lot of things, even if you're not based there, like having a certain amount of sales or property in the state.

What kind of emissions do companies need to report?

Under SB 253, companies need to report three types of emissions. Scope 1 are emissions your company directly creates, like from your own trucks or factories. Scope 2 are emissions from the electricity you buy. Scope 3 are all the other indirect emissions that happen because of your company's activities, like those from your suppliers or when customers use your products. Reporting of Scope 1 and 2 starts in 2026, and Scope 3 reporting starts in 2027.

What about climate-related financial risks?

SB 261 requires companies to talk about how climate change could hurt their finances. This includes things like floods, heatwaves, or new rules about pollution. Companies need to explain what risks they see and how they plan to deal with them. These reports are due every two years, with the first ones needed by January 1, 2026.

When do companies need to start reporting?

The deadlines are coming up! For greenhouse gas emissions (SB 253), reporting for Scope 1 and 2 starts in 2026 (using 2025 data). Scope 3 emissions reporting begins in 2027. For climate-related financial risks (SB 261), the first reports are due by January 1, 2026.

What happens if a company doesn't follow the rules?

In the first year (2026), California plans to be understanding. If companies make a real effort to follow the rules and use the information they have, they might not face penalties. However, after that, there could be consequences like fines. Plus, not reporting could hurt a company's reputation and make investors nervous.