California has moved climate reporting from voluntary ESG commitments into something closer to regulatory disclosure. Two laws adopted in 2023 that are coming into full effect from 10 August 2026 now require large companies doing business in the state to report their emissions and assess climate-related financial risks. Together they create one of the most far-reaching corporate climate transparency regimes in the United States.
For compliance teams, the significance is not limited to California. The rules apply to companies headquartered anywhere in the world if they meet revenue thresholds and conduct business in the state. In practice this potentially brings thousands of US and international firms into scope.
The California ESG laws behind the climate disclosure regime
California’s new ESG framework rests on two statutes. The Climate Corporate Data Accountability Act (SB 253) requires large companies to publicly disclose their greenhouse gas emissions. Any company with more than $1 billion in annual revenue that does business in California must report emissions annually under the rules overseen by the California Air Resources Board (CARB).
Reporting begins from 10 August 2026, initially covering Scope 1 and Scope 2 emissions. These include emissions from direct operations such as fuel use and industrial processes, as well as emissions associated with purchased energy. Scope 3 supply-chain emissions are expected to be added from 2027, which will extend the reporting obligation across corporate value chains.
The companion statute, the Climate-Related Financial Risk Act (SB 261), addresses a different question. It requires companies with more than $500 million in revenue doing business in California to publish biennial reports on climate-related financial risks, including the measures they are taking to mitigate those risks.
These disclosures are typically expected to follow frameworks similar to the Task Force on Climate-related Financial Disclosures (TCFD) or comparable international standards.
Who is affected?
One of the striking features of the legislation is its extraterritorial reach. The laws do not apply only to companies headquartered in California. Instead they apply to entities that “do business in California.” This concept is interpreted broadly and can include companies generating substantial revenue from the state even if they have no headquarters or primary operations there.
Estimates suggest that roughly 2,600 companies may fall within the emissions disclosure regime under SB 253, while more than 4,000 could be subject to the climate-risk reporting requirements under SB 261.
The rules apply to both public and private organisations and cover corporations, partnerships and limited liability companies that meet the revenue thresholds. For multinational firms, this means that a state-level regulation can create global reporting obligations. Scope 3 disclosures alone may require data collection across suppliers, logistics networks and downstream product use.
Key compliance milestones
The first deadlines are already approaching. CARB has set 10 August 2026 as the deadline for the first emissions disclosures under SB 253. Those reports will initially cover Scope 1 and Scope 2 emissions for the relevant reporting year.
Over time the regime is expected to expand in two ways:
- Scope 3 reporting from 2027, extending emissions disclosure to supply chains and product lifecycle impacts.
- Third-party assurance requirements for emissions data in future reporting cycles.
The climate-risk reporting regime under SB 261 is less certain. A federal appeals court has temporarily paused enforcement of mandatory reporting while litigation proceeds. Companies can still publish reports voluntarily, and many organisations are preparing for eventual enforcement on the assumption that the rule will ultimately take effect.
What compliance teams should be doing now
Even with litigation ongoing, the practical work of compliance has already begun for many organisations. The most immediate challenge is data governance. Companies that have never produced emissions inventories will need to build systems capable of measuring and documenting operational emissions. For groups with complex supply chains, preparing for Scope 3 reporting may require supplier engagement programmes and new data-collection frameworks.
The second challenge concerns internal ownership. Climate disclosure touches finance, sustainability, procurement and risk management functions simultaneously. In practice many organisations are creating governance structures that resemble financial reporting controls.
A third priority is alignment with recognised reporting frameworks. While California does not prescribe a single methodology for climate-risk disclosures, regulators expect companies to follow established standards such as TCFD or similar frameworks used in global sustainability reporting.
How this fits into the wider ESG reporting landscape
California’s rules have emerged during a period of fragmentation in climate disclosure regulation. At the federal level in the United States, proposed Securities and Exchange Commission climate disclosure rules have faced political opposition and legal uncertainty. Several have been scaled back or delayed. At the same time, courts are increasingly shaping the trajectory of climate reporting through litigation.
Meanwhile, outside the US the regulatory direction is moving toward more comprehensive disclosure regimes despite the cutting back of some elements through the EU’s ESG Omnibus. The Corporate Sustainability Reporting Directive (CSRD) and the IFRS Sustainability Disclosure Standards are expanding climate-related reporting obligations for large companies and financial institutions.
California’s framework sits somewhere between these models. It resembles the European approach in its emphasis on emissions transparency and risk disclosure. Yet it operates as a state-level rule applied within a federal system that remains divided over ESG regulation.
The practical result is that global companies may face overlapping disclosure expectations. A firm operating in Europe, the United States and Asia may need to reconcile California’s requirements with EU sustainability reporting rules, voluntary frameworks such as TCFD and emerging international standards.
