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Background of SB253 & SB261
California Doubles Down on Sustainability to Stay the Greenest State
According to WalletHub’s 2024 research, California proudly holds the title of the greenest state in the U.S. This achievement stems from several factors, including low fuel consumption per capita, supported by an extensive network of alternative-fuel stations, and relatively low energy consumption per capita. But California is not stopping there.
In 2023, the state took bold steps toward a more sustainable future by enacting two groundbreaking laws: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). These laws aim to push businesses toward greater transparency in their climate impacts and sustainability efforts, promoting environmentally responsible practices statewide.
So, what exactly do SB 253 and SB 261 mean for your business, and what strategies can you take to stay ahead of these new regulatory challenges? Let’s dive in.
What is SB253 and SB261?
California has introduced two key laws to enhance corporate transparency regarding climate impacts and sustainability efforts: the Climate Corporate Data Accountability Act, known as SB253, and the Climate-Related Financial Risk Act, often referred to as SB261.
Key Details:
SB253:
This law requires large businesses, whether public or private, with annual revenues exceeding $1 billion and operating in California, to publicly disclose their greenhouse gas (GHG) emissions. These disclosures must cover Scope 1, Scope 2, and Scope 3 emissions, ensuring a comprehensive overview of direct, indirect, and supply chain emissions. The first reports are due in 2026, based on 2025 data, and must be verified by an independent third party. While Scope 1 and Scope 2 emissions are required starting in 2026, Scope 3 emissions will only be required for submission starting in 2027, based on 2026 data.
SB261:
Companies with annual revenues of over $500 million and doing business in California must disclose climate-related risks that could affect their financial health. These disclosures are required on a biannual basis and aim to highlight the potential financial impacts of climate risks on business operations.
Is Your Business Required to Submit Reports?
The revenue thresholds for both SB 253 and SB 261 are quite clear, but many businesses are confused by the government’s use of the terms “doing business in California.” What if your company does not have a physical office in the state? Here is an easy breakdown of whether your company is subject to these changing climate laws:
Your company is considered to be “doing business” in California if you meet any of the following criteria (as of 2024):
- Engage in any transaction for the purpose of financial gain within California.
- Are organized or commercially domiciled in California.
- Your California sales, property, or payroll exceed the following amounts:
(Source: State of California, Franchise Tax Board)
Let’s say your company does not have an office or branch in California, but more than 25% of your sales come from the state and your overall annual revenue exceeds $10 billion. In this case, you may still be subject to SB 253. So, even if you feel your company does not have a physical presence in the state, it is worth double-checking your business activities in California. This also applies to SB 261. If you generate significant sales or have other substantial business activities within the state, you may be required to disclose climate-related financial risks. Understanding these definitions is essential to ensuring compliance and avoiding penalties.
What Happens if You Fail to Comply?
Failure to meet the requirements of California’s new climate laws can result in serious financial consequences for businesses. Here is an overview of the penalties for non-compliance:
SB 253:
Failing to submit reports can lead to penalties of up to $500,000 per year. Misstatements made in good faith will not be penalized between 2027 and 2030, as long as there is a reasonable basis for the information.
SB 261:
If a business fails to comply, it can face penalties of up to $50,000 per year.
Non-compliance with these climate laws can result in significant financial penalties, so it is crucial for businesses to understand the scope of these new regulations and take steps to meet the requirements before the deadlines approach.
What is Considered a “Valid” Report?
You may be thinking, “I’ve always disclosed my company’s greenhouse gas emissions! Can I use the disclosures from other jurisdictions for California’s regulations?”
The answer is yes, but only if the existing reports from other jurisdictions meet the specific standards set by California. This applies to both SB 253 and SB 261.
For SB 253 and 261, if your previous disclosures align with California’s requirements, they can be used for the state’s regulations. However, simply providing past disclosures will not automatically satisfy California’s requirements unless they are specifically aligned with the state’s mandated guidelines. Be sure to review and adjust your existing emissions and financial risk disclosures to ensure compliance with California’s laws.
| “That the emissions reporting is structured in a way that minimizes duplication of effort and allows a reporting entity to submit to the emissions reporting organization reports prepared to meet other national and international reporting requirements, including any reports required by the federal government, as long as those reports satisfy all of the requirements of this section.” – SB219 Section 38532 |
Do You Need a Separate Report if Your Parent Company is Submitting One?
Many businesses often get confused about whether they need to prepare a separate report if their parent company is already submitting one.
The answer is no. Both GHG emission reports and climate-related financial risk reports can be filed at the parent company level, as long as the parent company meets the criteria for being a reporting entity and the reports meet the standards set by California.
| “Reports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a reporting entity… the subsidiary is not required to prepare a separate report.” (Section 38532, Health and Safety Code) – SB219 Section 38532 |
Why 2026 Isn’t as Far Off as It Seems: Preparing for SB253 and SB261
Reporting in 2026 may sound like a long time from now, but the truth is, time is ticking. For companies that fall under the purview of California’s new climate laws, SB 253 and SB 261, the clock is already ticking as they require businesses to submit their first reports in 2026, based on 2025 data. This means that waiting until the last minute could result in scrambling to gather the necessary data, verify your reports, and make adjustments to business practices that align with California’s sustainability goals. Here is a breakdown of what businesses need to focus on in the lead-up to the 2026 reporting requirement:
- Start Collecting GHG Emissions Data (Scope 1, 2, and 3)
- Secure Third-Party Verification
- Evaluate and Adapt Business Practices
It is always better to start preparing your report early rather than waiting until the last minute. By planning ahead, you will have the time to address potential issues, refine your data collection processes, and ensure compliance, ultimately saving time and stress as the deadline approaches.
Why Work with Asuene?
When it comes to navigating California’s new climate laws, SB253 and SB261, it is crucial to have the right tools and expertise on your side. That’s where ASUENE USA Inc. comes in.
As the U.S. entity of Asuene Inc., a sustainability-focused startup based in Japan, ASUENE USA specializes in carbon accounting software that helps businesses like yours measure, manage, and mitigate CO2 emissions. We are here to support your company’s efforts in overcoming the significant regulation changes brought by SB 253 and SB 261 while ensuring your alignment with sustainability goals. Our one-stop solution covers everything from data collection to third-party verifications, and even consulting services. We will help you produce the required reports under California’s new climate laws, ensuring your compliance while helping you reduce your environmental impact.
How we can assist:
- Carbon Accounting: Accurately track and manage your emissions (Scope 1, Scope 2, and Scope 3) through our advanced software.
- Third-Party Verifications: Get the necessary independent verification for your GHG emissions reports, ensuring compliance and credibility.
- Consulting Services: Tailored advice to improve your sustainability practices and boost your overall environmental performance.
Our software allows you to automate the data collection process, reducing the man hours spent on manual data input and ultimately saving your company time, costs, and stress. With ASUENE USA’s comprehensive suite of services, you will have everything you need to meet California’s regulations and drive a more sustainable future for your business.
So, why not partner with us to streamline your reporting and environmental efforts? Let ASUENE USA Inc. help you stay ahead of the curve while making a positive impact on both your business and the planet.