Tracking and reporting greenhouse gas (GHG) emissions is becoming a standard requirement for businesses. Investors, regulators, and customers want clearer data on corporate emissions, and governments are introducing stricter reporting laws. Organizations that operate across multiple regions now face a growing patchwork of disclosure requirements.
For large businesses, this means investing in better emissions tracking, improving supplier engagement, and preparing for external audits. Reporting rules are expanding beyond direct operations to include emissions across supply chains. Some organizations already report voluntarily, but for many, compliance will be a new challenge as new laws like California’s SB 253 and SB 261 emerge.
What is SB 253?
SB 253, also called the Climate Corporate Data Accountability Act, is a California law that requires large organizations to report their GHG emissions. It applies to businesses that operate in California and have at least $1 billion in annual revenue.
The law covers Scope 1, 2, and 3 emissions, meaning organizations must report direct emissions from their operations, indirect emissions from purchased energy, and emissions from their value chain. Reports must follow the Greenhouse Gas Protocol (GHGP) and be verified by an independent third party.
SB 253 is one of the strictest climate disclosure laws in the US and aligns with global sustainability reporting frameworks. Organizations that fall under its requirements will need to start reporting emissions data in 2026.
Who Needs to Comply?
SB 253 applies to large businesses operating in California that meet specific revenue thresholds. It covers US-domiciled corporations, limited-liability companies, and partnerships, including public and private organizations. Businesses with at least $1 billion in annual revenue must comply, even if headquartered outside California. An estimated 5,400 organizations fall under the law based on these criteria.
A company is considered to be doing business in California if it meets any of the state’s existing thresholds, such as exceeding a certain level of sales, payroll, or property value in the state. This means that even organizations with limited physical presence in California may still be required to comply if they have significant business activity there.
What Are SB 253’s Requirements?
Organizations subject to SB 253 must report their greenhouse gas emissions every year. This includes:
- Scope 1 emissions come from sources a company directly owns or controls, such as manufacturing facilities and company vehicles
- Scope 2 emissions cover indirect emissions from purchased electricity, heating, or cooling
- Scope 3 emissions include all other indirect emissions across a company’s value chain, such as those from suppliers, transportation, product use, and waste disposal
Reports must follow the GHG Protocol, the widely recognized standard for measuring and managing emissions. The reported data must also be made publicly accessible to meet transparency requirements.
How is SB 253 Different from SB 261?
SB 261, also known as the Climate-Related Financial Risk Act, applies to organizations with over $500 million in annual revenue in California. It mandates a biennial climate-related financial risk report, detailing how climate change impacts the company’s financial health and the strategies in place to mitigate these risks.
Unlike SB 253, SB 261 does not require any third-party verification, but organizations must follow global risk disclosure frameworks. Penalties for non-compliance with SB 261 are lower than SB 253, with fines of up to $50,000 per year (compared to SB 253’s $500,000 per year) for failing to submit financial risk reports.
While the two are different, SB 253 and SB 261 create a dual reporting system in California. SB 253 tracks emissions, while SB 261 tracks financial exposure to climate risks. Many organizations will need to comply with both, which means integrating emissions tracking with broader climate risk assessments.
| SB 253 | SB 261 | |
| Applies to | Organizations with $1B+ revenue | Organizations with $500M+ revenue |
| What is reported | GHG emissions (Scope 1, 2, 3) | Climate-related financial risks |
| Reporting frequency | Annually | Biennially (every two years) |
| Reporting standard | Greenhouse Gas Protocol | Task Force on Climate-Related Financial Disclosures (TCFD) |
| Third-party verification | Yes, required for emissions data | No, but organizations must follow disclosure frameworks |
| Regulator | California Air Resources Board (CARB) | California Air Resources Board (CARB) |
| Penalties | Up to $500,000 per year | Up to $50,000 per year |
SB 253 Compliance Timeline & Key Milestones
SB 253 introduces a phased approach to emissions reporting, with different requirements taking effect over several years.
| Year | Requirement |
| 2026 | Scope 1 & 2 reporting (FY 2025 data) with limited third-party assurance |
| 2027 | Scope 3 reporting (FY 2026 data) under a safe harbor provision until 2030 |
| 2030 | Transition to reasonable assurance for Scope 1 & 2, and limited assurance for Scope 3. Final year of no penalties for Scope 3 misstatements |
In 2026, organizations must begin reporting Scope 1 and 2 emissions for fiscal year 2025 data. This data must be verified through limited third-party assurance to confirm its accuracy.
By 2027, organizations must start reporting Scope 3 emissions, covering indirect emissions across their value chains. These disclosures will be protected under a safe harbor provision until 2030, meaning organizations will not be penalized for unintentional misstatements as they refine their reporting processes.
By 2030, assurance requirements become stricter. Organizations must provide reasonable assurance for Scope 1 and 2 emissions, a higher level of verification than before. Scope 3 emissions must also undergo limited third-party assurance.
SB 253 Enforcement & Penalties
The California Air Resources Board (CARB) is responsible for overseeing compliance with SB 253. Organizations that fail to submit their required emissions reports may face financial penalties of up to $500,000 per year.
CARB has indicated that leniency will be granted until 2026 for organizations that make good-faith efforts to comply. However, after this period, enforcement is expected to become more rigorous, particularly as assurance requirements increase.
Compliance Challenges & Risks
Meeting SB 253’s requirements will be difficult for many organizations. Tracking emissions across operations, securing third-party assurance, and managing changing regulations all present challenges. The cost of compliance will also be significant, particularly for organizations that have never tracked emissions at this level of detail.
Scope 3 Reporting Complexities
For many industries, Scope 3 emissions make up 70% to 90% of total emissions, making them the most difficult to track. These emissions come from sources outside a company’s direct control, such as suppliers, transportation, product use, and disposal.
Gathering accurate data requires strong engagement with suppliers and partners across global value chains, many of whom may not have their own emissions tracking systems. Organizations will have to rely on estimates and industry averages, increasing the risk of errors. The issue here is that inaccurate disclosures could lead to legal challenges, particularly as regulatory enforcement tightens over time, so organizations need to do more to ensure that the figures they’re relying on are as accurate as possible.
Third-Party Assurance Bottlenecks
SB 253 requires organizations to have their emissions data verified by an independent third party, but the number of qualified auditors is limited. As demand for verification services increases, organizations could face long delays and higher costs.
Current estimates suggest that assurance costs could range from $150,000 to $500,000 per year, depending on the complexity of a company’s emissions profile. Securing auditors early will be important to avoid bottlenecks as reporting deadlines approach.
Legal & Regulatory Uncertainty
SB 253 is already facing legal challenges that could affect enforcement. Some business groups argue that the law violates constitutional protections by forcing organizations to disclose politically sensitive information. Ongoing litigation could delay or alter key provisions.
Additionally, SB 253’s Scope 3 requirements exceed those in the abandoned SEC’s climate disclosure rule, creating compliance challenges for organizations that must report under both frameworks. Businesses will need to track regulatory developments and adjust their reporting strategies as needed.
Best Practices for SB 253 Compliance
Preparing for SB 253 will require organizations to improve data tracking, secure independent verification, and align reporting with other regulations. The earlier businesses start, the better positioned they will be to manage costs, avoid penalties, and reduce reporting risks. Taking the following steps can help streamline compliance.
Invest in Data Collection & AI-Powered Tracking
Tracking emissions across operations and supply chains requires robust data management. Organizations should implement GHG data management platforms to centralize emissions reporting and ensure accuracy. AI-powered tools can help with real-time tracking, supplier engagement, and data validation, reducing reliance on manual estimates. These systems can also flag inconsistencies early, improving data reliability before reports are submitted.
Secure Third-Party Assurance Early
With the limited availability of qualified auditors, organizations should identify and contract with GHG assurance providers well before reporting deadlines. As demand increases, delays and cost spikes are likely. Conducting internal audits before third-party reviews can help uncover data gaps and prevent compliance issues before formal verification begins. Those who act early will have more flexibility and access to top-tier assurance services.
Align SB 253 with Other Regulations
Many organizations already report emissions under other frameworks, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) or the SEC’s climate disclosure rules. Integrating SB 253 reporting with these existing regulatory frameworks can reduce duplication, simplify compliance, and improve efficiency. Organizations with multiple subsidiaries may also benefit from parent-level reporting, which can consolidate emissions disclosures and lower administrative burdens.
The Future of Climate Reporting
SB 253 marks a significant shift in corporate climate disclosure in the US. As regulatory expectations increase, organizations must take proactive steps to stay compliant and manage risks. This law sets a new standard for emissions transparency, and similar regulations may follow in other states or at the federal level.
How EcoVadis Can Help
EcoVadis provides sustainability solutions to help businesses streamline compliance, improve emissions tracking, and integrate reporting with global standards. Our experts can guide you through SB 253 requirements and help you develop a structured approach to climate disclosure.
With the right tools and approach, organizations can easily meet SB 253 requirements while building a long-term strategy for cutting their emissions. Get in touch with our team to begin preparing today.