As California's groundbreaking climate disclosure laws take effect, sustainability professionals across industries are grappling with new reporting requirements that will fundamentally change how U.S. companies communicate their environmental impact.
With the first reporting deadline approaching in 2026, understanding the nuanced implications of Senate Bill 253 (the Climate Corporate Data Accountability Act) and Senate Bill 261 (the Climate-related Financial Risk Act) has never been more critical.
These laws represent the most ambitious climate disclosure requirements at the state level, requiring covered entities to provide unprecedented transparency into their greenhouse gas emissions and climate-related financial risks. The California Air Resources Board (CARB) has been tasked with overseeing implementation, and while final regulations are still being developed, the basic framework is clear: companies must prepare now for comprehensive climate reporting that will reshape corporate accountability.
Understanding the legislative framework
SB-253: Emissions disclosure requirements
California SB 253 requires both global and U.S.-based companies with over $1 billion in annual revenue with business entities in California to report their Scope 1 and 2 greenhouse gas emissions starting in 2026, and Scope 1, 2, and 3 emissions starting in 2027 based on the prior fiscal year emissions. This means companies will need to track and disclose:
- Scope 1 emissions: Direct greenhouse gas emissions from sources owned or controlled by the reporting entity
- Scope 2 emissions: Indirect GHG emissions from purchased electricity, steam, heating, and cooling
- Scope 3 emissions: All other indirect emissions in the value chain, including supply chains and downstream activities
SB-261: Climate risk reporting
Companies subject to California SB 261 (U.S. companies with total annual revenues greater than $500 million and that do business in California) must post a climate-related financial risk report to their company website by January 1, 2026. A new report must be posted every two years. These biennial reports must address how climate change poses financial risks to business operations and strategic planning.
The revenue thresholds are significant: SB-253 captures companies with $1 billion or more in total annual revenues, while SB-261 applies to businesses with $500 million or more. Both laws cover private companies and public entities that conduct business in California, creating a broad net of covered entities across multiple industries.
The compliance timeline and enforcement approach
Recent guidance from CARB provides some relief for companies preparing their initial reports.
As a result, subject companies making a good-faith effort to comply with SB253 will not face penalties for incomplete Scope 1 and Scope 2 GHG emissions disclosures, and may submit initial disclosures in the first reporting year, 2026, based on data they possess, or are in the process of collecting. This enforcement discretion acknowledges the complexity of establishing comprehensive emissions reporting systems, particularly for Scope 3 emissions across complex supply chains.
Companies should use this good faith effort provision strategically while working toward full compliance and net-zero climate action. The Greenhouse Gas Protocol (GHG Protocol )provides the foundational methodology for emissions calculations, and companies already following this framework will be better positioned for the initial reporting period.
Industry-specific impacts and reporting considerations
Technology/software companies
Technology companies face unique challenges under both laws due to their complex global supply chains and energy-intensive data center operations. For SB-253 reporting, tech companies must account for:
Scope 1 and 2 considerations
Data centers, office facilities, and company vehicles represent primary sources. Cloud computing companies will need sophisticated carbon accounting systems to track energy consumption across distributed infrastructure. The shift toward renewable energy procurement strategies becomes not just an environmental initiative but a compliance necessity.
Scope 3 challenges
Supply chains for semiconductors, hardware manufacturing, and software development present significant reporting complexities. Companies will need to work closely with suppliers to obtain emissions data, particularly for manufacturing partners in Asia. Employee commuting, business travel, and end-of-life product disposal also require systematic tracking.
For SB-261 climate risk disclosure, technology companies should focus on physical risks to data center infrastructure from extreme weather events, transition risks from changing energy regulations, and opportunities from growing demand for climate solutions software.
Manufacturing and industrial companies
Manufacturing entities face perhaps the most complex reporting requirements due to energy-intensive operations and multifaceted supply chains. These companies typically have substantial Scope 1 emissions from on-site fuel combustion and industrial processes.
Direct emissions focus
Manufacturing companies must carefully track emissions from production facilities, including process emissions (such as cement production or steel manufacturing), fuel combustion for heating and power generation, and fugitive emissions from equipment leaks.
Supply chain complexity
Scope 3 emissions reporting will require unprecedented collaboration with suppliers across multiple tiers. Raw material extraction, transportation, and waste generated in operations all contribute to the emissions footprint. Companies should prioritize building supplier engagement programs and potentially requiring emissions data sharing in contracts.
Climate risk assessment
Physical risks include potential disruption to operations from extreme weather, water scarcity affecting production processes, and regulatory transition risks as carbon pricing mechanisms expand. Manufacturing companies should also consider opportunities from developing low-carbon products and improving energy efficiency.
Retail and consumer goods
Retail companies face distinctive challenges due to extensive supply chains, numerous physical locations, and product lifecycle considerations. The distributed nature of retail operations creates both reporting complexities and climate risk exposures.
Operational emissions
Retail companies must track emissions from numerous store locations, distribution centers, and transportation fleets. Energy consumption for lighting, heating, cooling, and refrigeration across hundreds or thousands of locations requires sophisticated data collection systems.
Product lifecycle reporting
Scope 3 emissions include upstream manufacturing of sold products, transportation and distribution, and downstream use and disposal by consumers. Fashion retailers face particular challenges given the carbon intensity of textile manufacturing and the global nature of apparel supply chains.
Climate risk implications
Physical risks include supply chain disruptions from extreme weather affecting agricultural commodities or manufacturing regions. Transition risks involve changing consumer preferences toward sustainable products and potential carbon border adjustments affecting imported goods.
Financial services
Financial institutions covered by these laws face unique reporting requirements that differ significantly from other industries. Banks, insurance companies, and investment firms must consider both their operational emissions and the climate impacts of their portfolios.
Operational focus
Direct emissions primarily come from office buildings, data centers for financial technology infrastructure, and business travel. While generally lower than manufacturing or energy companies, financial institutions must still establish comprehensive tracking systems.
Financed emissions
Scope 3 emissions reporting will likely include financed emissions from lending and investment portfolios. This represents one of the most challenging aspects of climate disclosure for financial services, requiring sophisticated methodologies to assess the emissions impact of various asset classes.
TCFD alignment
SB-261 requirements align closely with Task Force on Climate-related Financial Disclosures (TCFD) recommendations, which many financial institutions have already begun implementing. However, the mandatory nature and specific timing requirements create additional compliance considerations.
Energy and utilities
Energy companies face the most direct impact from California's climate disclosure laws, given their central role in the state's decarbonization objectives. These companies typically have significant Scope 1 emissions and face substantial transition risks from evolving energy policies.
Emissions intensity
Oil and gas companies, electric utilities, and renewable energy developers all have different emissions profiles but face comprehensive reporting requirements. Utilities must track emissions from power generation, transmission losses, and distribution infrastructure.
Transition risk focus
Energy companies face the greatest transition risks from policy changes, carbon pricing, and shifting energy demand. SB-261 reporting should emphasize scenario analysis for different energy transition pathways and the financial implications of stranded assets.
Stakeholder engagement
Energy companies will likely face increased scrutiny from stakeholders using disclosure reports to assess climate performance and transition readiness.
Reporting frameworks and assurance requirements
Both laws reference established reporting frameworks while allowing flexibility in implementation. SB-253 incorporates GHG Protocol methodologies, while SB-261 can draw from TCFD recommendations, the International Sustainability Standards Board (ISSB), or the European Union's Corporate Sustainability Reporting Directive (CSRD) framework.
The assurance requirements add another layer of complexity. SB-253 requires limited assurance for Scope 1 and 2 emissions, with third-party assurance providers playing a crucial role in validating emissions data. Companies should begin identifying qualified assurance providers and understanding the verification processes required for their specific industry contexts.
Strategic preparation and implementation
As the 2026 reporting deadline approaches, companies across all industries should focus on several key preparation areas to avoid non-compliance:
- Data infrastructure development: Establishing systems to collect, validate, and report emissions data across all relevant scopes. This includes working with suppliers to improve data quality and coverage.
- Cross-functional coordination: Climate reporting requires coordination between sustainability, finance, legal, and operational teams. Companies should establish clear governance structures and reporting protocols for all climate-related financial risk disclosures.
- Risk assessment integration: Developing climate-related financial risk assessments that integrate with existing enterprise risk management processes while meeting the specific requirements of SB-261.
- Stakeholder communication: Preparing for increased stakeholder attention to climate disclosures, developing communication strategies, and setting metrics that effectively convey both challenges and progress.
The California climate disclosure laws represent a significant shift toward mandatory, standardized climate reporting.
While implementation challenges remain, companies that proactively address these requirements will be better positioned not only for compliance but also for the broader transition toward a low-carbon economy. As other states and federal regulators consider similar measures, California's approach may well become the national standard for corporate climate accountability.
Success in this new regulatory environment requires understanding both the technical requirements and the strategic implications for different industries. Companies that view these disclosure requirements as opportunities to improve climate risk management and stakeholder communication will find themselves ahead of the curve as climate disclosure becomes increasingly central to corporate reporting and accountability.
Nail your industry-specific reporting requirements with Pulsora
Whether you run hyperscale data centers, globe-spanning factories, a national retail footprint, a diversified financial portfolio, or energy infrastructure, Pulsora gives you a single system to operationalize SB-253 emissions disclosure and SB-261 climate-risk reporting.
With centralized data collection, supplier engagement, climate-risk assessment, and assurance prep, you can publish accurate, defensible disclosures on time, with industry-specific depth.
Click here to book a personalized demo to learn how we can tackle your California climate reporting and any other proliferating requirements you’re up against.
