How bills SB 253 & SB 261 are reshaping California’s climate disclosure landscape
18 August 2025
Authors
Lauren Wye
Associate DirectorLauren@orbisadvisory.com
Nagadarsan Suresh
Associate DirectorNaga@orbisadvisory.comSustainability reporting obligations have been very much in the news in the EU and UK in recent times, but another extremely important jurisdiction is starting to move the needle significantly in this area. In October 2023, sunny California passed two new groundbreaking laws that are set to reshape corporate climate reporting requirements in the U.S. The new regulations, Senate Bill 253 and Senate Bill 261, require both public and private companies above certain revenue thresholds to disclose their carbon emissions and climate-related financial risks, creating the most comprehensive climate reporting framework in U.S. history.
Although the final wording is still being finalised, the California Air Resources Board (CARB) confirmed in their latest workshop in May that the timeline remains unchanged, and first reports will be due starting January 1, 2026. With thousands of companies expected to fall in scope of these regulations, and many headquartered far beyond California, these changes mark a major turning point in the evolution of U.S. climate legislation.
Overview of the Two Requirements
The two regulations, referred to as SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-related Financial Risk Act), are collectively known as the Climate Accountability Package.
SB 253 requires companies to report their greenhouse gas emissions annually on their website, while SB 261 mandates biennial disclosure of climate-related financial risks and mitigation strategies, in line with the recommended framework and disclosures of the Task Force on Climate-related Financial Disclosures (TCFD).
Pending finalisation, each law has a specific set of requirements, with the key points listed below.
SB 253: Greenhouse Gas Emissions Disclosure
SB 253 applies to companies with over $1 billion in global annual revenue and "doing business” in California. Companies in scope must disclose Scope 1 and 2 emissions starting in 2026 and Scope 3 emissions starting in 2027, with all emissions data requiring independent third-party assurance. Although CARB have not confirmed precisely when in 2026 reports are due, companies are expected to show a “good faith effort” in preparing for next year's reporting requirements.
This implies that businesses will need to adopt globally accepted methodologies for recording and reporting emissions, thereby enhancing stakeholder transparency and accountability.
Emissions measurement and reporting is based on the widely adopted Greenhouse Gas (GHG) Protocol, which categorises emissions into three scopes:
Scope 1 (direct): direct emissions from sources the company owns or controls (e.g. on-site fuel combustion)
Scope 2 (indirect): indirect emissions from purchased energy the company consumes (e.g. electricity)
Scope 3 (value-chain): all other indirect emissions across the upstream and downstream value chain (e.g. employee commuting, purchased goods & services)
Companies that do not comply may be subject to penalties of up to US$500,000, albeit CARB have reiterated that there is some flexibility in year one as companies adapt to the new requirements.
SB 261: Climate Risk Financial Disclosure
Companies with over $500 million in global annual revenue and operating in California must publish biennial reports from January 1, 2026, aligned with the recommended framework and disclosures from the Task Force on Climate-Related Financial Disclosures (TCFD), or a comparable framework (see table below). Reports will need to align with the four disclosure pillars, namely governance, strategy, risk management, and metrics and targets.
Companies are required to integrate climate risk into governance structures, assess the impact of physical and transition risks and explain how they plan to measure and mitigate identified risks with metrics and measurable targets. This approach aligns closely with the UK’s incoming Sustainability Reporting Standards (UK SRS), which are based on the IFRS requirements and expected to succeed TCFD as the UK’s primary disclosure framework.
For each regulation we have summarised some of the key requirements below:
Who is in scope?
The two climate laws require large companies “doing business” in California* to comply subject to specific revenue thresholds. Due to this requirement and California’s position as the world’s fifth-largest economy by GDP, the new laws are expected to impact companies far beyond those that only operate in the state.
As it stands, there is no agreed definition of “doing business”, however the California Franchise Tax Board (CFTB) definition is being widely used as a proxy. Given the concerns raised regarding the potential impact of these thresholds, CARB have reiterated that specific thresholds will be looked at in more detail to ensure the requirements are not unnecessarily impacting companies with minimal ties to the state.
For more information on potential applicability, you can connect with one of our team to learn more about the new laws and whether your business may fall in scope.
Key areas still to be finalised
Although several aspects of SB 253 and SB 261 are still being finalised, in the latest May workshop representatives from CARB announced that the draft regulations are expected by the end of 2025 . While the final documentation is yet to be published, given the alignment to globally recognised standards, these being the GHG protocol for SB 253 and TCFD for SB 261, companies are encouraged to begin preparations for the 2026 timelines to ensure ample time to meet next year's deadlines and avoid penalties.
Getting started
With an estimated 5,400 companies in scope of SB 253, and around 10,000 for SB 261, these laws are far-reaching and will impact a wide range of companies, including those not headquartered in California. Orbis Advisory have supported companies in various sectors to calculate both GHG emissions (across all scopes), and develop TCFD compliant reports. Feel free to get in touch with a member of the team to discuss how we can help you get ready for the upcoming reporting timelines.
Disclaimer
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
Footnotes
* Doing business in California refers to actively engaging in transactions for financial or pecuniary gain within the state and meeting certain thresholds during a reporting year. This includes being organised or commercially domiciled in California, or exceeding specific limits for sales, property, or payroll within the state. For 2024, these thresholds are $735,019 in sales, $73,502 in property, or $73,502 in payroll, or 25% of the entity’s respective total sales, property, or payroll. Companies that meet any of these criteria are considered to be doing business in California for the purposes of SB 253 and SB 261
References
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB261
https://ww2.arb.ca.gov/sites/default/files/2025-07/FAQs%20Regarding%20California%20Climate%20Disclosure%20Requirements_ver1.pdf
https://www.cov.com/en/news-and-insights/insights/2023/10/preparing-for-compliance-with-californias-new-landmark-climate-disclosure-laws
https://www.youtube.com/watch?v=PF-obXuy-w4
https://www.ftb.ca.gov/file/business/doing-business-in-california.html
