With the enactment of SB 253 and SB 261, California has introduced game-changing climate disclosure laws that will transform how businesses report on greenhouse gas (GHG) emissions and climate-related risks. These regulations represent a dramatic shift in corporate environmental accountability, requiring thousands of companies to start disclosing their environmental impacts starting in 2026.
Key Challenges for Businesses Under SB 253 and SB 261
The expanded reporting requirements under SB 253 are unprecedented in scope. Companies with revenues over $1 billion will need to report their Scope 1, 2, and 3 GHG emissions annually, with the first reports due in 2026 for direct emissions and purchased electricity, followed by supply chain emissions in 2027. This means tracking everything from your own operations to your suppliers’ carbon footprints – a massive undertaking that requires robust systems and methodologies for accurate carbon accounting.
For companies with over $500 million in revenue, SB 261 adds another layer of complexity. Starting in 2026, these businesses must report on climate-related financial risks every two years. These reports need to align with the Task Force on Climate-Related Financial Disclosures (TCFD) framework and include a comprehensive assessment of how climate risks affect your company’s bottom line, along with concrete strategies for tackling these risks.
One of the biggest challenges? Independent verification. From day one, all emissions data must be verified by independent third parties – this isn’t your typical voluntary disclosure anymore. Companies need to prepare for audit-level scrutiny of their emissions data, making it essential to establish bulletproof data collection and verification systems well in advance.
The supply chain reporting requirement is perhaps the most challenging aspect of these new laws. Gathering reliable Scope 3 emissions data means tracking carbon footprints across your entire value chain. For businesses with complex global supply chains, this means figuring out how to collect consistent, verifiable data from partners and suppliers who might not be equipped to provide it.
How to Prepare: Your Environmental Compliance Timeline
Time is of the essence. To ensure you’re ready for these new requirements, you need to start preparing now. Here’s how to structure your approach:
You should be deep into a gap analysis of your current emissions reporting capabilities by the endof the year (2024). This means taking a hard look at your data collection processes and identifying where you’ll need upgrades to meet the new requirements.
Early 2025 is all about implementation. This is when you need to be rolling out new data collection systems across your business units and supply chain. Focus on creating streamlined workflows that will make emissions tracking and climate risk reporting as efficient as possible.
By mid-2025, you should be engaging with independent auditors and preparing for third-party verification. Remember, all your emissions data needs to be verified from the start – this isn’t something you can phase in gradually.
Use late 2025 for trial runs. Test your reporting systems, ensure your data meets compliance standards, and make sure you’re fully prepared for both the Climate Corporate Data Accountability Act (CCDAA) and financial risk reporting requirements kicking in for 2026.
7Environmental ESG solution for compliance and climate regulation
Future-Proofing Your Compliance Strategy
As these new regulations roll out, staying ahead of the curve is crucial. Your compliance strategy should focus on building scalable, efficient systems that can adapt to evolving requirements. This means investing in robust ESG data management solutions that can:
– Effectively track all categories of emissions
– Generate audit-ready documentation
– Scale up as reporting requirements evolve
– Integrate smoothly with your existing business systems
– Integrate automated workflows and AI modules where needed for effectiveness.
The 2026 compliance deadline might seem distant, but the complexity of these requirements means you need to start preparing now. Focus on building comprehensive data collection systems, establishing strong verification partnerships, and creating efficient reporting workflows. Keep monitoring for regulatory updates and guidance, and don’t hesitate to seek expert advice on specific compliance requirements for your business.
Remember, these laws represent more than just new reporting requirements – they’re reshaping how businesses approach environmental accountability. Companies that get ahead of these requirements now won’t just achieve compliance; they’ll be better positioned for success in an increasingly climate-conscious business environment.
Photo by Paul Hanaoka
To learn more about the regulation and policy status submit your details below.
