California’s sweeping climate disclosure laws—SB 253 and SB 261—are starting to take shape. On July 9, 2025, the California Air Resources Board (CARB) released an updated FAQ clarifying the state’s direction and timeline. The laws will require thousands of large companies to report their greenhouse gas emissions and climate-related financial risks.
This blog outlines what we know based on CARB’s latest guidance and what your company can do now to prepare. Keep in mind that the formal rulemaking process is still in progress, and requirements may evolve. Final regulations are expected by the end of 2025. For the most current updates, visit the CARB Climate Disclosure Program website.
Blog last updated on July 16, 2025.
Which companies must report under California’s climate laws?
Based on current guidance from CARB, a company will be required to report under California’s climate disclosure laws if it meets two conditions:
- It is considered to be “doing business in California”
- It meets the annual revenue threshold for SB 253 or SB 261
A company does not need to be headquartered in California to be considered as doing business in the state. Under CARB’s current proposal, a business would meet that definition if any of the following conditions are true, based on definitions from the state’s Franchise Tax Board:
- The entity is organized or commercially domiciled in California
- The entity has more than $735,000 in California sales
- The entity holds more than $73,500 in real or tangible property in California
- The entity pays more than $73,500 in California payroll
The proposed revenue thresholds for each bill are:
- SB 253 would apply to companies with more than $1 billion in annual revenue.
- SB 261 would apply to companies with more than $500 million in annual revenue.
SB 253: GHG reporting timelines and expectations
Under SB 253, covered companies will need to publicly report their greenhouse gas emissions on an annual basis:
- Scope 1 and 2 emissions must be reported starting in 2026
- Scope 3 emissions reporting begins in 2027
CARB has built flexibility into the first reporting cycle. In 2026, companies may report Scope 1 and 2 emissions from any fiscal year for which they already have data, whether that’s 2023, 2024, or 2025. This is intended to reduce compliance pressure while companies build their reporting infrastructure.
In addition, emissions disclosures must be verified by an independent third party:
- Limited assurance is required starting in 2026
- Reasonable assurance will be required beginning in 2030
CARB has indicated that the program will align with the GHG Protocol and seek to minimize duplication for companies already reporting under other frameworks, such as CDP.
SB 261: Climate-related financial risk disclosures
SB 261 requires companies to publish a climate-related financial risk report every two years, with the first report due January 1, 2026.
These reports will need to outline how climate risks—such as extreme weather, supply chain volatility, or changing market conditions—could materially impact a company’s financial performance and strategy. Companies are encouraged to use frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) or the ISSB standards to guide their reporting.
Other key details:
- Companies may base their first reports on fiscal year 2023/24 or 2024/25, depending on data availability.
- Beginning December 1, 2025, CARB is expected to open a public docket—an online repository for report links—where companies would submit a URL to their climate risk disclosure, either as a stand-alone document or as part of an ESG or annual report; the docket would remain open through July 1, 2026.
CARB’s approach: Flexibility and “good faith” compliance
CARB is currently in the informal rulemaking phase. It held its first public workshop on May 29, 2025, and is expected to release formal regulations by the end of 2025. Until then, the agency is gathering stakeholder feedback on definitions, compliance expectations, and enforcement strategy.
One of the most important themes in the July 2025 FAQ is flexibility. CARB has acknowledged that companies will need time to build systems, develop reporting capabilities, and interpret the requirements.
That flexibility is reflected in several aspects of the initial reporting expectations:
- Companies may use the best available data for their initial disclosures.
- CARB will evaluate “good faith efforts” when considering compliance and potential penalties.
- Enforcement will be guided by reasonableness, particularly in the first reporting cycle.
CARB has also signaled that the program is designed to be both effective and workable, serving as a model for other jurisdictions while minimizing the burden on reporting entities.
How to prepare for SB 253 and SB 261
If your organization may be subject to SB 253 or SB 261, here are steps you can take now to prepare.
1. Assess whether you’re in scope
Confirm whether your company meets the revenue thresholds and qualifies as “doing business in California.” This is the first filter for determining whether SB 253 or SB 261 (or both) apply.
2. Get your internal teams aligned
Reporting under SB 253 and SB 261 will require input from multiple teams, including sustainability, finance, legal, and operations. Begin building cross-functional alignment so responsibilities and timelines are clear ahead of 2026.
3. Evaluate your existing data
For SB 253, companies can report Scope 1 and 2 emissions data from any of the past three fiscal years (2023, 2024, or 2025) in their first report. Start by assessing what GHG data you already have and where gaps remain, especially if you haven’t yet begun collecting Scope 3 emissions.
For SB 261, review how your company currently identifies and assesses climate-related financial risks, and determine if those processes are aligned with disclosure expectations.
4. Select your reporting frameworks
SB 261 allows flexibility in how companies structure their climate risk reports. Consider adopting a widely used framework such as TCFD or ISSB to guide your disclosures. For SB 253, confirm your emissions reporting aligns with the GHG Protocol.
5. Stay engaged with CARB
CARB is actively gathering public feedback and hosting workshops as it develops the final regulations. Following the rulemaking process—and participating when possible—can help you stay ahead of emerging requirements.
6. Get support and stay informed
Optera is actively helping companies prepare for SB 253 and SB 261 reporting, including emissions calculations, data readiness, and climate risk disclosures. See how we can help.
You can also subscribe to CARB’s email updates to stay on top of future guidance and workshop announcements.
