California’s new climate laws press companies to prepare for mandatory disclosures amid legal challenges

California’s 2023 climate laws are shifting climate reporting from voluntary corporate practice toward a mandatory disclosure regime that will affect thousands of companies doing business in the state and, by extension, their global operations. Together, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261) establish requirements to publish greenhouse gas inventories and to assess climate-related financial exposures, but implementation and enforcement remain contested and uneven.

SB 253: emissions disclosure and scope
Under SB 253, businesses with at least $1 billion in annual revenue that “do business in California” must disclose greenhouse gas emissions. The first set of obligations targets Scope 1 and Scope 2 emissions , direct emissions from operations and emissions associated with purchased energy , with public reporting due from 10 August 2026. Scope 3 disclosures, which capture upstream and downstream value‑chain emissions, are scheduled to be added in a later reporting cycle in 2027.

Industry estimates of how many firms fall within SB 253 vary. The Associated Press has reported figures of roughly 2,600 companies for the emissions regime, while another AP account cited a broader estimate of more than 5,300 companies affected by the law. This divergence reflects different methodologies for counting entities that “do business in California” and underscores the law’s wide extraterritorial reach: multinational groups headquartered outside the United States may nonetheless be swept in if they meet revenue thresholds and transact materially in the state.

SB 261: climate-risk reporting on hold
SB 261 requires companies with $500 million or more in revenue doing business in California to publish a climate-related financial risk report every two years, generally expected to follow frameworks like the Task Force on Climate-related Financial Disclosures. Enforcement of SB 261, however, has been temporarily enjoined by a federal appeals court amid litigation brought by a coalition of business groups led by the U.S. Chamber of Commerce, which argues the laws unconstitutionally burden commercial speech and impose excessive costs. The appeals court pause was reported by the Associated Press; the U.S. Chamber has also petitioned the U.S. Supreme Court to intervene.

Regulatory posture and enforcement
California regulators and CARB have signalled a pragmatic approach to the early phase of implementation. The California Air Resources Board has told companies it will not fully enforce SB 253 in 2026 and has said organisations demonstrating a “good faith” effort to comply will not face penalties for incomplete Scope 1 and Scope 2 disclosures during that first year, according to CARB guidance summarised by Dechert LLP and Global Environmental Law Reports. At the same time, legal advisers note that the statute carries the potential for significant sanctions for non‑compliance in later years, with penalties reported as high as $500,000 per reporting year depending on the circumstances.

What this means for compliance teams
The measures, whether fully enforced immediately or phased, demand early and sustained attention from compliance, finance and sustainability functions. Three practical imperatives stand out.

• Data governance: Companies that have not previously compiled emissions inventories must build systems to measure, validate and report operational emissions. Preparing for Scope 3 will require extensive supplier engagement, new data‑collection protocols and tighter controls over procurement and logistics data.

• Internal controls and ownership: Climate reporting sits at the intersection of finance, risk and procurement. Many organisations are creating governance frameworks akin to financial reporting controls, assigning clear ownership for emissions data, assurance and public disclosure.

• Alignment with recognised standards: Although California does not mandate a single disclosure framework, regulators expect disclosures to be consistent with established standards such as TCFD or other internationally recognised approaches; aligning internal processes with those frameworks will reduce duplication and ease cross‑jurisdictional reconciliation.

Overlap with other regimes and business impact
California’s laws sit amid a fragmented regulatory landscape. Domestic federal rule‑making on climate disclosures has faced legal and political headwinds, while international regimes , including the EU’s Corporate Sustainability Reporting Directive and IFRS sustainability standards , are imposing their own, often more prescriptive, obligations. Companies operating across regions will therefore confront overlapping reporting expectations and may need to reconcile different metric definitions, assurance requirements and timelines.

The extraterritorial design of the California statutes means multinational firms should treat compliance as a global exercise. Scope 3 reporting in particular will require cross‑border supplier data, product‑use information and lifecycle analysis capabilities that many organisations do not yet possess.

Conflicting accounts and the path ahead
Public reporting on the laws contains some conflicting accounts. Different outlets and legal advisers have produced varying estimates of the number of companies affected and differing characterisations of enforcement intent. For example, the Associated Press and other outlets have published different company counts for SB 253’s reach, while CARB’s stated 2026 enforcement leniency has been emphasised by legal commentators as a temporary, implementation‑focused approach. Compliance teams should therefore plan on the basis that enforcement will tighten over time and that litigation outcomes could alter the timetable for SB 261.

Practical next steps
Given the uncertainty, prudent organisations are already treating the requirements as effectively live. Typical immediate actions include: mapping whether revenue and California activity thresholds are met; conducting scoping exercises for Scope 1 and Scope 2 inventories; initiating supplier engagement to prepare for Scope 3; establishing cross‑functional governance and audit‑ready controls; and documenting policies and processes in line with established disclosure frameworks.

As California advances one of the most comprehensive state‑level disclosure regimes in the United States, corporate compliance programmes that begin building robust measurement, governance and assurance now will be better positioned to manage both regulatory risk and the operational adjustments that deeper transparency is likely to demand.