The clock is ticking on California climate disclosure

California has once again positioned itself at the forefront of climate policy. With the passage of SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act), the state is signaling a new era of climate accountability for business that stretches far beyond its borders.

Even if your company isn’t headquartered in California, these laws matter as they are based on a broad definition of “doing business in California.” They’ll affect investor expectations, supply chain practices, and reputational standing on a global scale. And with compliance deadlines set for 2026, the runway is shorter than it looks. Gathering reliable data, analyzing risks, and preparing disclosures will take multiple reporting cycles. The time to act is now.

What does SB 253 require?

At its core, SB 253 mandates that companies quantify their carbon footprint and report on it with investor-grade rigor. For companies doing business in California with more than $1 billion in annual revenue, SB 253 requires:

• Disclosure of scope 1 and scope 2 GHG emissions by June 30, 2026

• Disclosure of scope 3 emissions starting in 2027

The law includes annual reporting obligations and assurance standards. Recent updates from the California Air Resources Board (CARB) clarify timelines, methodologies, and verification processes, adding specificity but also raising the compliance burden. Regulators can impose penalties for inaccurate or delayed disclosures.

What does SB 261 require?

SB 261 requires companies to assess how climate change affects their financial resilience. For companies doing business in California with more than $500 million in annual revenue, SB 261 requires:

• Disclosure of climate-related financial risks, aligned with the Task Force on Climate-related Financial Disclosures (TCFD) or an equivalent framework, such as IFRS Sustainability Disclosure Standards (ISSB) by January 1, 2026.

SB 261 creates a biennial reporting requirement. Currently, limited assurance is not required, but this could change as other global disclosure requirements (ISSB, CSRD) have included this requirement.

Who must comply with California climate disclosure?

Nearly 2,600 US and international companies must comply with SB 253, and over 4,100 must comply with SB 261. These laws apply to companies doing business in California, regardless of where they maintain their headquarters.

Why companies must act now

With 2026 just around the corner, it’s essential that companies start putting these analyses in motion now. Assessing climate-related risks and measuring GHG emissions takes time and requires input from multiple stakeholders. 

• Risk analysis requires iteration. Climate risk assessment and scenario modeling require board-level conversations, financial planning updates, and ongoing alignment with investor expectations. With a January 1, 2026, deadline, there’s no time to waste.

• Data collection moves slowly. Engaging suppliers, gathering scope 1 and scope 2 data, validating inputs, and refining estimates requires extensive coordination and planning. Even though scope 3 isn’t required until 2027, companies are advised to begin collecting that data now to prepare.

• Delays bring penalties. Non-compliance can trigger financial penalties, regulatory scrutiny, and negative press coverage. This can be particularly damaging in an era of rising investor activism and stakeholder attention to climate risk.

Even if your company isn’t directly affected yet, your external stakeholders (such as investors or customers) may be, and it’s likely that you’ll be asked to provide an understanding of your own emissions and climate-related risks. Acting now can help you uncover cost savings and operational efficiency improvements while gaining credibility with stakeholders.

Challenges companies face in preparing

Despite the urgency, many companies face significant barriers to readiness.

1. Data gaps: Emissions data is often incomplete, inconsistent, or unavailable from external partners. Companies may rely on estimates or industry averages, which may not meet investor-grade standards.

2. Integration difficulties: SB 253 requires emissions disclosure; SB 261 requires risk disclosure. Treating these as separate workstreams creates duplication and missed insights. Emissions inventories should feed directly into financial risk modeling.

3. Resourcing constraints: Internal teams may lack the time, expertise, or technology to manage the complexity of compliance. Competing business priorities can push climate disclosure down the list until it’s too late.

4. Assurance requirements: Investors and regulators are increasingly demanding audit-ready data. Cutting corners today may lead to painful restatements and credibility gaps tomorrow.

Four steps companies can take now

To prepare effectively, companies should move quickly on four fronts:

1. Assess readiness: Benchmark current emissions inventories and climate risk analyses against SB 253 and SB 261 requirements. Identify gaps in data, process, and governance.

2. Start data collection: Supplier engagement is the longest-lead item. Begin outreach, build reporting expectations into contracts, and deploy technology to streamline collection.

3. Integrate risk scenarios: Use emissions data to run initial transition and physical risk analyses. Even preliminary results can inform strategic planning and investor communication.

4. Engage leadership and investors: Support boards and executive teams in engaging early, and seek to align disclosures with broader financial and strategic planning. Investors increasingly view climate disclosure as core to fiduciary responsibility.

How to comply with SB 253 and SB 261: Linking emissions to risk

The most effective path forward is to treat SB 253 and SB 261 as two sides of the same coin.

• Emissions disclosure (SB 253) provides the hard data on a company’s carbon footprint.

• Risk disclosure (SB 261) uses that data as inputs for modeling the financial impacts of climate risk.

This is a closed-loop system: emissions inform risk, risk informs strategy, and strategy drives emissions reductions.

Carbon Direct and Risilience are collaborating to help companies manage this cycle end-to-end:

• Carbon Direct builds robust, assurance-ready GHG inventories across scope 1, 2, and 3 emissions.

• Risilience leverages that data to run forward-looking scenario analyses aligned with TCFD and other global standards, identifying the impacts of transition and physical risks to operations and financials.

Together, these capabilities provide a compliance-ready toolkit that transforms disclosure into strategic planning.

Compliance creates competitive advantage

It’s easy to view SB 253 and SB 261 as compliance burdens. But for companies that move early, there are also opportunities for advantage.

• Stronger investor relationships through credible, transparent reporting.

• Better supply chain management by engaging suppliers on carbon data.

• Improved resilience to climate shocks through proactive risk planning.

• Future-proofing as disclosure expands globally and investor scrutiny intensifies.

California’s laws are the opening act of a broader shift toward mandatory climate disclosure. Companies that lead now will not only avoid penalties but also earn trust, reduce costs, and strengthen long-term competitiveness.

The clock is ticking. Partner with Carbon Direct and Risilience today to prepare for SB 253 and SB 261 and turn compliance into a driver of business value.