California's new climate legislation

Overview

In October 2023, California signed into law two Senate Bills: the Climate Corporate Data Accountability Act (SB 253), and the Climate-Related Financial Risk Act (SB 261), collectively known as the ‘California climate legislation.’ ₁ These landmark laws, which are being implemented by the California Air Resources Board (CARB), require large companies doing business in California to publicly report comprehensive greenhouse gas (GHG) emissions, and to publish climate-related financial risk disclosures.1 CARB has released a preliminary list of 4,159 private and publicly-traded companies thought to fall within scope.₂

These new Californian laws introduce mandatory reporting to a US system that before now was largely voluntary3, and create both compliance pressure and a strategic opportunity for organisations to demonstrate credible, transparent climate leadership.

What are the new regulations?

SB 253: Climate Corporate Data Accountability Act

SB 253 applies to all US-formed business entities doing business in California with total annual revenues exceeding $1 billion, requiring them to annually disclose their greenhouse gas emissions based on the framework of the GHG Protocol.₁

The first reporting deadline falls on 10 August 2026, with companies expected to report on scope 1 (direct emissions from owned and controlled sources) and scope 2 (indirect emissions from purchased energy) for the prior fiscal year with limited assurance. Scope 3 (all other indirect emissions across a company’s value chain) is expected to be included from 2027, but further information on this should be provided later this year. From 2030, companies will also be required to obtain reasonable assurance over their scope 1 and 2 disclosures, with possible limited assurance extending to scope 3._4,5

For this first cycle, CARB has signalled flexibility with an enforcement notice that confirmed it will not penalise incomplete disclosures where companies demonstrate a good-faith effort to comply and retain all relevant GHG data.₆ Beyond this grace period, non-compliance can result in fines of up to $500,000 per reporting year.₁

SB 261: Climate-Related Financial Risk Act

SB 261 applies to US companies with annual revenues exceeding $500 million that do business in California. It requires companies to disclose the climate-related financial risks they face, spanning physical risks (such as floods, droughts, and wildfires) and transition risks (shifts in policy, technology, and market demand) that could materially affect their business.₁

Disclosures are to be structured around the Task Force on Climate-Related Financial Disclosures (TCFD) framework’s four pillars: governance, strategy, risk management, and metrics and targets. Non-compliance carries penalties of $2500 per day per violation, capped at $50,000.₄

Exempt entities

Some categories are exempt from reporting under both laws: non-profit and charitable organisations tax-exempt under the Internal Revenue Code; companies whose sole California presence consists of teleworking employees; federal, state and local government entities, including companies more than 50% owned by governmental bodies; businesses regulated by the California Department of Insurance or engaged in insurance in any other state; and wholesale electricity entities whose only California activity consists of interstate electricity transactions.₄

Legal challenges

In November 2025, the United States Court of Appeals for the Ninth Circuit granted an injunction halting enforcement of SB 261, just weeks before its January 2026 compliance deadline. The injunction stems from a lawsuit led by the U.S. Chamber of Commerce, arguing that both bills violate the First Amendment by compelling companies to speak on contested policy matters.₇

Exxon-Mobil, an American multinational oil and gas corporation, also filed a lawsuit against these two Californian laws in October 2025, arguing that these laws unfairly target large firms.₈

SB 261 is still currently on hold, but despite these lawsuits and stakeholder calls to delay, SB 253 remains on track for a reporting deadline in August this year.₇

The bigger picture

California’s disclosure laws form one strand of a broader regulatory ecosystem, including their Cap-and-Invest programme, Greenhouse Gas Reduction Fund (GGRF) and other bills that support climate technology innovation, including carbon capture, removal and permanent storage (SBs 840 and 614).₉

As the world’s fifth-largest economy, California’s influence also extends well beyond its borders.₁₀ New York, Colorado, New Jersey and Illinois have all introduced similar bills to SB 253, none have yet advanced to become law, but they all follow the same format and requirements for companies to initially disclose scope 1 and 2 (direct) emissions, followed by scope 3 the following year.₁₁

California’s use of the GHG Protocol and TCFD, both internationally recognised standards, means companies complying with SB 253 and SB 261 are simultaneously building capacity to meet requirements in other jurisdictions.

How can Nature Positive help you navigate these new regulations?

A leading global climate, carbon and nature consultant, Nature Positive’s practice combines environmental science, data analytics, and regulatory expertise to deliver high-quality, actionable insights. Our global verification and sustainability team has supported hundreds of clients in multiple sectors and public bodies across complex reporting frameworks including TCFD, the Science Based Targets initiative (SBTi) and the Corporate Sustainability Reporting Directive (CSRD).

We can provide end-to-end support for companies navigating California’s SB 253 and SB 261 climate disclosure requirements. On GHG reporting, we help clients build accurate, audit-ready GHG inventories across all scopes, supporting with data collection, methodology, supplier engagement, and independent assurance in line with the GHG Protocol. For climate risk disclosure, we can assess physical and transition risks, conduct scenario analysis, and prepare reports that meet regulatory requirements and stakeholder expectations.