Beginning in 2026, companies organized under U.S. law that do business in California may be required to comply with two separate climate-reporting laws. Senate Bill (SB) 261 applies to businesses with more than $500 million in annual revenues and requires biennial disclosures of climate-related financial risk. Similarly, SB 253 applies to those with more than $1 billion in annual revenues and requires annual disclosures of greenhouse gas emissions.
Because key terms such as “revenues” and “does business in California” remain undefined in final regulations, determining whether the statutes apply is not straightforward. The California Air Resources Board (CARB) is not expected to finalize any regulations before its meeting on February 26, 2026, leaving companies to make compliance decisions with incomplete information.
SB 261: Climate-Related Financial Risk Act
Companies subject to SB 261 were required to publish a climate-related financial risk report by January 1, 2026, and every two years thereafter. The report must describe (1) material physical and transition risks to its short- and long-term financial outcomes, and (2) measures the business has adopted to mitigate or adapt to those risks. Organizations generally assess the materiality of these risks using the same standards applied to information in their financial filings. Administrative penalties may reach $50,000 per reporting year.
Although companies may choose to voluntarily comply with the January 1 deadline, CARB has stated that it will not enforce SB 261 against covered entities that do not comply. If appropriate, CARB will provide an alternate reporting date after resolution of the appeal challenging SB 261.
SB 253: Climate Corporate Data Accountability Act
Under SB 253, covered businesses must annually disclose their Scope 1 and 2 emissions beginning in 2026, and Scope 3 emissions beginning in 2027. As a reminder, Scope 1 emissions come directly from the company itself, Scope 2 come indirectly from purchased energy, and Scope 3 come indirectly from the value chain. Disclosures ordinarily must be assured by an independent third-party assurance provider, and penalties for noncompliance may reach $500,000 per reporting year.
Because SB 253 imposes obligations solely through CARB regulations, and thus far only draft regulations implementing part of SB 253 have been released, companies face significant uncertainty regarding timing and methodology. Rather than submitting 2026 reporting, reporting entities may submit a letter on company letterhead representing that they were not and were not planning to collect data at the time of CARB’s December 2024 enforcement notice. For reporting entities that cannot make such a representation, CARB has proposed that the deadline to submit reporting be August 10, 2026, and that third-party assurance is not required for 2026 reporting.
What GCs Should Do Now
- Given the volume of work required and the approaching deadlines, companies cannot wait for final regulations. General counsel should:
- Engage specialized counsel to interpret evolving CARB guidance and proposed regulations and shape a defensible compliance posture.
- Determine coverage under SB 261, SB 253, or both, in light of the currently available CARB guidance and draft regulations.
- Companies subject to SB 261 should remember that CARB could provide an alternate reporting deadline as soon as January 2026. They should (1) consider how it will determine whether a risk is material under the applicable guidance and (2) identify its material physical and transition risks.
- Companies subject to SB 253 should determine if they can submit a letter to CARB communicating that they were not planning to collect data at the time of CARB’s December 2024 enforcement notice. Otherwise, for 2026 reporting, these companies should (1) consider whether it will use an equity or control approach to determine organizational boundaries and (2) ensure that they are making a good-faith effort to retain and report Scope 1 and 2 emissions data.
- Implement robust data-retention and documentation practices to substantiate good-faith compliance.
With final rules still forthcoming, early preparation and careful documentation will be critical to managing compliance risk in 2026 and beyond.
Article on Today’s General Counsel: https://todaysgeneralcounsel.com/how-gcs-should-tackle-californias-hazy-climate-reporting-laws/
