The Governor officially signed two bills—the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act Senate Bill 261 (SB 261)—into law on October 7, 2023, as part of the Climate Accountability Package that is designed to combat the climate crisis.
These two state bills are an important step towards helping California reduce its greenhouse gas emissions and achieve its ambitious zero-carbon goals. More than 10,000 companies are expected to begin their first disclosures in 2026, but the Governor urged the California Air Resources Board (CARB) to address concerns about the feasibility of implementation deadlines and cost impacts on businesses.
This article offers an overview of what businesses need to know to prepare for the two bills, detailing the overall scope, covered entities, reporting timeline, disclosure requirements, and comparisons to the SEC’s climate-related disclosure rules.
What is the Climate Corporate Data Accountability Act (SB 253)?
Framework and disclosure requirements: Aligned with GHG Protocol‘s Scope 1, 2, and 3 direct and indirect greenhouse gas emissions (GHG) reporting requirements.
Covered entities: Public and private companies operating in California with > $1 billion annual revenue. US subsidiaries and non-US companies meeting these criteria are within scope and not exempt. Estimated to impact 5,000+ companies.
Timing: Annual reporting begins in 2026 with Scope 3 and assurance levels phased-in starting 2027.
Implications: By requiring corporations to publicly report on their climate impact and risks, regulators, investors, and the public can better assess companies’ environmental performance and make informed decisions accordingly. This bill could also set a trend for enhanced climate data transparency for national and global economies.
What is the Climate-Related Financial Risk Act (SB 261)?
Framework and Disclosure Requirements: Aligned with TCFD: 1) climate-related financial risks, and 2) company’s adopted measures to reduce/adapt to such risks.
Covered entities: Public and private companies operating in California with > $500 million annual revenue, including limited liability companies and any other business entity formed under US law. US subsidiaries and non-US companies meeting these criteria are within scope. Estimated to impact 10,000+ companies.
Timing: Reporting on or before January 1, 2026 and biennially thereafter.
Implications: By integrating climate-related risks into financial reporting, SB 261 resources investors and consumers in their decision-making in the face of a changing climate. It may also push institutions to consider long-term climate implications, potentially diverting capital towards more sustainable ventures and away from risk-prone sectors.
How do SB 253 and SB 261 compare to the SEC Climate Proposal?
These state bills coincide with a larger global movement of reporting transparent climate-related data, which includes the US’ proposed climate change disclosure from the Securities and Exchange Commission (SEC). Under the SEC proposal, all publicly traded U.S. companies will need to report—an estimated 7,000 entities. The reporting framework is based on a combination of the TCFD and the GHG Protocol: 1) narrative of climate-related financial risks, 2) GHG emissions, and 3) a note about financial impacts of climate change in financial statements. Scope 3 emissions are only required if considered material or included in company’s target.
SB 253 vs. SEC
Scope: SEC’s proposal will only affect public companies, while SB 253 (and SB 261) will impact both public and private companies. However, the SEC proposal will impact about 2,000 more companies than SB 253.
Reporting framework: Both SB 253 and the SEC proposal require reporting based on the GHG Protocol’s climate disclosure rules, but the SEC requirements are more flexible and allow companies to decide on their own calculation methods. In contrast, companies under SB 253 must follow calculations as detailed in the GHG Protocol. Also, companies must report on Scope 3 under SB 253, but may not need to under the SEC.
SB 261 vs. SEC
Scope: SB 261 is estimated to cover more than 10,000+ companies—a broader scope than the estimated 7,000 public companies under the SEC’s proposal.
Reporting framework: If you are compliant with the SEC’s proposal, your company will still need to report additional information under SB 261 about the company strategy to adopt to and reduce your reported climate-related risks.
When should companies report?
Under SB 253, corporations within scope will need to begin reporting in 2026 (using 2025 data), with a phased-in approach for indirect emissions (Scope 3) and mandated assurance levels.
Starting 2026: Report Scope 1 and 2 emissions from prior fiscal year following GHG Protocol using 2025 data, and obtain limited 3rd party assurance for Scope 1 and 2.
Starting 2027: Report Scope 3 emissions following GHG Protocol using 2026 data.
Starting 2030: Obtain reasonable 3rd party assurance for Scope 1 and 2 using 2029 data.
Under SB 261, all corporations within scope will need to report on climate-related financial risk and make this report available to the public on or before January 1, 2026, using data from 2025.
What do SB 253 and SB 261 require for disclosures?
Corporations are required to provide standardized annual climate data reports that meet the following requirements:
In-line with the GHG Protocol: Companies will need to measure and report Scope 1, 2, and 3 emissions in accordance with the Greenhouse Gas Protocol standards, following the Scope 3 calculations that detail acceptable primary and secondary data sources such as the use of industry averages, proxy data, and other generic data for Scope 3 emissions calculations.
Public availability: Public disclosures must be easily accessed and understandable for consumers, investors, and other stakeholders and should include detailed GHG emissions data across Scope 1, 2, and 3 emissions. Disclosures will be published/available on the digital platform developed by the state board’s contracted emissions reporting organization.
Assurance: Starting in the first year of disclosure, assurance on emissions will be required, with a phased-in approach for reasonable third-party assurance for Scope 1 and 2 and limited assurance on Scope 3 in 2030.
Fees: When filing disclosures, note that you will also need to pay an annual fee to the state board for administration and implementation (an amount that is yet to be established by the state board).
Penalties: Administrative penalties for non-filing, late filing, or failure to meet requirements in other regards will be regulated and authorized by the state board. These penalties will not exceed $500,000 per reporting year.
Covered entities must biennially prepare a climate-related financial risk report that meets these requirements:
In-line with the TCFD: Companies must follow the framework and disclosures of the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) from TCFD, or another equivalent reporting requirement (e.g., International Sustainability Standards Board—ISSB—Standards).
Disclose climate risk mitigation efforts: Reporting entities must disclose the measures you plan to take to reduce and adapt to your reported climate-related financial risk.
Disclose missing data: Provide a detailed explanation of any reporting gaps and your strategy to complete future disclosures.
Public availability: Corporations will need to biennially publish their reports on their own website.
Consolidated vs. individual reports: Risk reports can be consolidated at the parent company level, and subsidiaries with a qualifying parent company do not need to report separately.
Assurance: A climate reporting organization will be contracted to identify inadequate or insufficient reports. If identified, the administrative penalty may be up to $50,000.
What future assessments will the State Board conduct?
It should be noted that under SB 253, the state board also committed to future assessments of deadlines and assurance provider qualifications, the development of a digital platform, and a large-scale report:
Deadlines and assurance: On or before January 1, 2030, the state board will review and update, as needed:
Public disclosure deadlines to ensure companies can submit Scope 3 emissions disclosures on time.
The qualifications for third-party assurance providers, “based on an evaluation of trends in education relating to the emission of greenhouse gases and the qualifications of third-party assurance providers.”
Reporting standards: Starting in 2033 and every five years thereafter, the state board will assess current GHG accounting and reporting standards. If deemed appropriate, it may develop and adopt new regulations accordingly.
Digital platform: Although a date has not been determined, the state board committed to developing a digital platform/reporting program by contracting with an emissions reporting organization that will receive and make publicly available corporate disclosures. This platform is intended to provide companies’ aggregated data in various ways and cross-linearly in an electronic format for public access and use.
Public report: On or before July 1, 2027, the state board will also contract with an academic institution or lab to prepare a report of the submitted public disclosures, which will likewise be made publicly available on the digital platform.
How can Aligned Incentives help you get ready?
Aligned Incentives provides a science-based sustainability platform that helps global organizations effectively measure, report, and mitigate environmental impacts and climate-related financial risks while ensuring compliance with SB 253 and SB 261.
Efficient Scope 3 Reporting: Collecting primary data for Scope 3 emissions from global suppliers can be challenging and potentially less accurate than secondary sources. Our AITrack platform can help you comply with SB 253 Scope 3 requirements by efficiently integrating primary and secondary data in line with the GHG Protocol. Grounded in process-based life cycle assessments that cover over 300,000 Scope 3 activities, our solution provides accurate, granular footprint estimates of your value chain emissions and minimizes reliance on primary supplier data.
TCFD Risk Assessment: Aligned Incentives’ TCFD module enables you to seamlessly leverage your footprint and combine it with a variety of Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency (IEA) scenarios to assess your transition/financial and physical risks. We do so following TCFD guidance, enabling you to meet SB 261 requirements.
Transparency and Assurance: The robustness of AITrack and our accounting system ensures auditability, traceability, and security. It offers detailed documentation down to the line-item level, simplifying the auditing and assurance processes and setting you up for success.