California ESG Reporting Requirements: SB 253, SB 261, and AB 1305

California’s ESG reporting requirements center on three climate disclosure laws that apply to any qualifying company doing business in the state, not just those headquartered there. SB 253 requires large companies to publicly report greenhouse gas emissions, with the first filing due August 10, 2026. SB 261 requires biennial climate-related financial risk reports, though enforcement is currently paused by a federal court injunction. AB 1305 targets companies that sell carbon offsets or make “net zero” and “carbon neutral” claims. Together, these rules reach thousands of public and private businesses across the country.

Who Has to Comply

California’s climate laws apply to U.S. business entities that “do business” in the state and meet revenue thresholds. The definition of doing business comes from the Franchise Tax Board. A company qualifies if it engages in any transaction for financial gain in California, is organized or commercially domiciled there, or exceeds any of the annual dollar thresholds for California-sourced sales, property, or payroll.¹

For 2025, the thresholds are $757,070 in California sales, or $75,707 in California property or payroll, adjusted annually for inflation.¹ Meeting any one of these tests, combined with the revenue threshold for the specific law, triggers compliance. A Texas-based company with no California office but more than $757,070 in California sales and over $1 billion in total revenue is covered by SB 253.

SB 253 kicks in at $1 billion in total annual revenue. SB 261 kicks in at $500 million.² Revenue is measured against the prior fiscal year. AB 1305 has no revenue floor at all.

SB 253: Greenhouse Gas Emissions Reporting

The Climate Corporate Data Accountability Act requires covered companies to publicly disclose their greenhouse gas emissions each year.³ CARB approved implementing regulations in early 2026, and the first reporting deadline is August 10, 2026.⁴ SB 253 is not subject to any court injunction and is fully in effect.

Emissions reporting is divided into three categories:

Scope 1 covers direct emissions from sources a company owns or controls, such as fuel burned in company vehicles or on-site manufacturing processes.
Scope 2 covers indirect emissions from purchased electricity, steam, heating, or cooling.
Scope 3 covers all other indirect emissions across the value chain, including supply chain activity, employee commuting, business travel, and downstream use of sold products.

Scope 1 and Scope 2 disclosures are due by August 10, 2026, covering the prior fiscal year. Scope 3 reporting starts in 2027, with disclosures due no later than 180 days after the corresponding Scope 1 and Scope 2 report is filed.³ CARB is expected to finalize additional rules for Scope 3 reporting mechanics later in 2026.⁴

Third-Party Assurance

Emissions disclosures must be verified by independent third-party assurance providers. For Scope 1 and Scope 2, limited assurance is required starting in 2026, escalating to reasonable assurance beginning in 2030.⁵ Limited assurance is roughly equivalent to a financial review; reasonable assurance is closer to a full audit.

For Scope 3, CARB was directed to evaluate assurance trends during 2026 and may establish an assurance requirement by January 1, 2027. If it does, Scope 3 assurance would begin at the limited level starting in 2030.³

Penalties and the Scope 3 Safe Harbor

Scope 3 is difficult because it requires estimating emissions across suppliers, customers, and distributors the company does not control. The law includes a safe harbor that protects companies from penalties for inaccurate Scope 3 disclosures, provided the reporting was done with a reasonable basis and in good faith. Between 2027 and 2030, Scope 3 enforcement is limited to companies that fail to file at all rather than those that get the numbers wrong.

Companies that fail to file face administrative penalties. CARB can seek penalties for nonfiling, late filing, or other failures to meet reporting requirements.³ Penalties can reach up to $500,000 per reporting entity annually.

SB 261: Climate-Related Financial Risk Reporting

The Climate-Related Financial Risk Disclosure Act focuses on how climate change threatens a company’s bottom line rather than on emissions counts. It covers U.S. companies, public and private, with more than $500 million in total annual revenue that do business in California.⁶ Reports must be published on the company’s website and updated every two years.

Each report must address governance, strategy, risk management, and metrics and targets, modeled on the framework used by the Task Force on Climate-related Financial Disclosures. Companies can use the TCFD recommendations, the International Sustainability Standards Board’s IFRS S2, or a framework developed by a regulated exchange or government entity, including one issued by the U.S. federal government.⁷ The report must identify the framework used and explain any omitted disclosures.

Enforcement Is Currently Paused

SB 261 is on hold. On November 18, 2025, the U.S. Court of Appeals for the Ninth Circuit granted a preliminary injunction pausing enforcement, in response to a First Amendment challenge filed by the U.S. Chamber of Commerce and allied business groups. CARB has confirmed it will not enforce SB 261 while the injunction remains in place. The first reports were originally due by January 1, 2026.

The injunction does not affect SB 253. Companies subject to SB 261 should still consider preparing their reports, since the underlying statute has not been struck down. If the injunction is lifted, disclosure obligations and penalties resume. Non-compliance can carry penalties of up to $50,000 per reporting year.⁶

AB 1305: Carbon Offset and Environmental Claims

The Voluntary Carbon Market Disclosures Act targets environmental marketing claims. If your company sells voluntary carbon offsets in California, or makes public claims about being “carbon neutral,” achieving “net zero,” or pursuing significant emissions reductions in reliance on offsets, you have disclosure obligations under this law.⁸

Sellers must publish detailed project information on their website, including the protocol used to estimate emissions reductions, project location and timeline, whether the offsets come from carbon removal or avoided emissions, and whether the project has been independently verified.⁹ Sellers must also disclose accountability measures for projects that fail to deliver or that release stored carbon.

Buyers who use offsets to back public climate claims must disclose how those claims were verified, identify the seller and specific project, and explain their progress toward stated goals. Disclosures must be updated annually.

Violations carry civil penalties of up to $2,500 per day per violation, with a $500,000 maximum.⁸ Penalties are recovered through civil action brought by the California Attorney General or local prosecutors. AB 1305 has no revenue threshold, so any business selling offsets in California or making offset-backed environmental claims can be reached.

How California’s Rules Interact With SEC Disclosure

Companies subject to California’s climate laws may also face federal climate disclosure requirements from the SEC, which adopted its own climate-related reporting rules in 2024. The two regimes overlap but are not identical, and complying with one does not satisfy the other.

The most significant difference is scope. The SEC’s rules require disclosure of Scope 1 and Scope 2 emissions only when material to the company. SB 253 requires Scope 1, 2, and 3 disclosure regardless of materiality. A company might conclude its emissions are not material for SEC purposes and still owe CARB a full accounting of all three scopes.

Reporting formats also differ. SB 261 uses the TCFD framework or equivalents like IFRS S2, while the SEC rules include additional disclosures around governance, transition planning, and climate-related financial statement metrics that California does not require. On the other side, California’s Scope 3 requirement has no federal counterpart. The SEC declined to mandate it. Companies subject to both regimes typically maintain parallel compliance tracks rather than a single unified report.

A Note on California’s Board Diversity Laws

Companies researching California ESG obligations sometimes assume the state’s earlier board diversity statutes still apply. They do not. SB 826 required a minimum number of female directors on the boards of publicly held corporations headquartered in California, scaling up based on board size.¹⁰ AB 979 imposed a similar requirement for directors from underrepresented communities.¹¹

The Los Angeles Superior Court issued permanent injunctions in 2022 finding that both laws violated the Equal Protection Clause of the California Constitution. The Secretary of State is prohibited from spending state funds to implement or enforce them and has stopped collecting the related data.¹² The statutes remain on the books but are permanently unenforceable absent a successful appeal, and no active appeal has been publicly reported.

1
California Franchise Tax Board. Doing Business in California
2
California Air Resources Board. California Corporate Greenhouse Gas and Climate Related Financial Risk Disclosure Programs
3
California Legislative Information. California Senate Bill 253
4
California Air Resources Board. CARB Approves Climate Transparency Regulation for Entities Doing Business in California
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California Legislative Information. California Senate Bill 219
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California Legislative Information. California Senate Bill 261 – Greenhouse Gases: Climate-Related Financial Risk
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California Air Resources Board. Climate Related Financial Risk Report Checklist
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California Legislative Information. California Assembly Bill 1305 – Voluntary Carbon Market Disclosures
9
California Legislative Information. California Health and Safety Code Section 44475
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California Legislative Information. California Senate Bill 826
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California Legislative Information. California Assembly Bill 979 – Corporations: Boards of Directors: Underrepresented Communities
12
California Secretary of State. Diversity on Boards