California SB 253 Explained: The Corporate Climate Disclosure Law

California Senate Bill 253, the Climate Corporate Data Accountability Act, is one of the most significant corporate climate disclosure laws ever enacted in the United States. Signed by Governor Newsom in October 2023, it will require thousands of large companies to publicly disclose their greenhouse gas emissions starting in 2026, covering not just direct factory emissions but supply chains, employee travel, and product use.

The Background: Why California Acted

For years, corporate climate disclosure in the US has been largely voluntary. While the SEC has proposed climate disclosure rules for public companies (still subject to legal challenges as of 2024), private companies, including many of the largest emitters, faced no federal mandate to report. California legislators argued this created an enormous transparency gap: consumers, employees, investors, and policymakers couldn't verify corporate climate claims.

The bill was championed by Senator Scott Wiener and supported by environmental groups, institutional investors, and sustainability professionals who argued that consistent, comparable data is a prerequisite for holding corporations accountable for their climate commitments.

SB 253 applies not just to California-headquartered companies but to any company doing business in California, a broad standard that captures most large US and multinational corporations. Given California's economic size (~5th largest economy globally), this effectively means thousands of companies across the country face the requirement.

Who Is Covered by SB 253?

SB 253 applies to any US or foreign corporation, limited partnership, limited liability company, or other business entity formed under the laws of any state or foreign jurisdiction that:

1. Has annual revenues exceeding $1 billion
2. Does business in California (using California's standard doing-business test)

This captures an estimated 5,300+ companies including Fortune 500 corporations, large private companies, major subsidiaries of foreign firms, and privately held US companies with significant operations. Nonprofits and government entities are generally exempt.

What Must Be Disclosed?

SB 253 requires covered companies to prepare and submit annual reports disclosing their Scope 1, 2, and 3 greenhouse gas emissions in conformance with the GHG Protocol Corporate Accounting and Reporting Standard.

Third-Party Assurance Requirements

SB 253 doesn't just require disclosure, it requires independent verification. This is a critical feature that distinguishes it from purely voluntary reporting, where companies could publish unaudited numbers.

• •Scope 1 and 2: Limited assurance from an independent third-party assurance provider, required starting 2026. By 2030, this escalates to reasonable assurance (the higher standard).
• •Scope 3: Limited assurance required by 2030 (three years after Scope 3 reporting begins).

The assurance provider must meet independence standards set by the California Air Resources Board (CARB). Major accounting firms (Deloitte, PwC, EY, KPMG) and specialized sustainability assurance firms are positioned to provide this service, though demand is expected to strain capacity significantly.

Penalties and Enforcement

The California Air Resources Board (CARB) is the primary enforcement agency. SB 253 creates civil penalties:

• •Up to $500,000 per reporting year for failure to disclose, late filing, or material misstatements
• •CARB can develop penalty schedules with guidance on what constitutes violations
• •CARB has discretion to consider good-faith compliance efforts and size of the company

While $500,000 may seem modest for a billion-dollar company, reputational risks and investor pressure are likely to be larger motivators for compliance than the penalty itself. Companies that fail to disclose while competitors do will face scrutiny.

SB 253 vs. SB 261: California's Twin Climate Laws

SB 253 was signed alongside SB 261 (the Climate-Related Financial Risk Act), also authored by Senator Wiener. Together they form a comprehensive framework:

How SB 253 Compares to the SEC Climate Rule

The SEC finalized its climate disclosure rule in March 2024, but it was immediately challenged in court and placed under a voluntary stay. SB 253 differs in key ways:

• •Coverage: SEC targets US-listed public companies. SB 253 covers public AND private companies.
• •Scope 3: The SEC's final rule dropped mandatory Scope 3 disclosures (from its original proposal). SB 253 requires Scope 3.
• •Legal status: SEC rule faces federal court challenges. SB 253 was also challenged (a First Amendment claim in Chamber of Commerce v. Sanchez); the Ninth Circuit declined to enjoin SB 253 pending appeal, though it did enjoin the related SB 261 climate-risk law.
• •Disclosure venue: SEC requires filings in 10-K and other SEC reports. SB 253 requires submission to CARB and public availability.