California’s SB 253 and 261: Climate Regs are coming January 1. Is your company ready?

A Brief Overview

To say this is a strange time for climate reporting and data in this country would be an understatement. The Environmental Protection Agency is set to throw away years of precedent and cease the regulation of greenhouse gas emissions. Basic terms like “green”, “climate”, and “sustainability” are all being banned from use in official government settings. Yet, in the midst of all this, California is set to become the first government, state or federal, in the United States to roll out a regulated climate disclosure and reporting framework. Senate Bills (SB) 253 & 261, signed into law on October 7th, 2023, will go into effect January 1, 2026.

Developed by the California Air Resources Board (CARB), the two bills reflect the efforts of the most populous state in the union to implement its own climate reporting mandates. Devastated by wildfires and with hundreds of miles of coastline at risk from sea-level rise, it is no surprise that California is looking to take matters into its own hands, especially after the SEC’s long-awaited attempt at mandatory climate rules died on the vine earlier this year.

SB 253 requires all “business entities” that do business in California and have annual revenues in excess of $1 billion to biennially disclose their Scopes 1, 2, and 3 GHG emissions from the previous year. Reporting for Scopes 1 & 2 would be required as soon as January 1st, 2026, with the Scope 3 requirement kicking in the following year. Alternatively, SB 261 is centered around climate risk disclosure. Companies doing business in California with revenues over $500 million must biennially release a public report detailing the climate-related financial risks facing the company and the measures in place to tackle those risks. Based heavily on the Task Force on Climate-Related Financial Disclosures (TCFD) framework, SB 261 requires five main components: framework, governance, strategy, risk management, and metrics & targets.

SB 261 Basics

A basic overview of how to get ready for SB261.

Just Pay the Fine?

Clearly, the passage of these two bills represents a significant shift in Corporate America, as many companies will be required to adhere to California’s new guidelines. Large Fortune 500 firms who already have SBTi’s and other climate frameworks in place will be well-situated to meet the standards outlined in SB 253 & 261. The biggest lift will likely be for the mid-sized businesses, ones with revenues just over the $500 million threshold. Even if they are under $1 billion in revenue and thus freed from SB 253 reporting, these firms may not have the requisite infrastructure in place to disclose climate risk at a level sufficient for SB 261.

This feels like a good time to note that the fine for not filing a SB261 report is only $50,000.

Which of course begs the question – how many companies will simply bite the bullet, pay the small fine, and conduct business as usual? As the first reporting year passes in 2026, CARB will need to monitor the amount of firms actually reporting vs paying the fine. Subsequent revisions to SB 261 (like matching the $500,000 fine associated with a non-filing of SB 253) may be necessary to ensure the overall goal of the bill is achieved.

A Lack of Attention

You would not know from a quick scan of CNN or the New York Times that the fourth largest economy in the world is less than two months away from implementing a set of major mandatory climate regulations. Outside of a flurry of straightforward recaps published in the wake of SBs 253 & 261 being signed into law back in 2023, mainstream media outlets have largely been silent on the two bills. The lack of editorializing has been surprising – perhaps a result of the Trump Administration’s efforts to push sustainability to the sidelines. Similarly, a number of food and agricultural companies that Grow Well has spoken with seemed equally caught off guard by the pending legislation. Yet, consumers and corporates alike still consider sustainability a priority (contrary to what the current federal government might want you to think). A recent MIT survey found that 85% of businesses are continuing to implement sustainability practices in their supply

chains. The continued rise of globalization and interconnected economic markets have only served to increase the risk exposure supply chains face from climate change. Disclosing GHG emissions and climate risks creates a transparent environment for investors and helps to strength the chains of commerce that feed the economy. Consumers too understand these issues. According to the Financial Times, 64% of global consumers are worried about sustainability, but only 28% trust large corporations to create sustainable products. This gap between consumer attitudes and trust creates an opportunity that SB 253 & 261 may help fill. The more companies are disclosing climate risk and tracking their emissions, the more consumers may trust those companies on sustainability. Whether on Wall Street or at the supermarket, more transparency is never a bad thing.

A Potential Blueprint

In this current time of uncertainty, states are under increasing pressure to develop and pass legislation their constituents want – especially items that are traditionally handled by the federal government. California has decided to stop waiting for Washington to act, opting instead to take ownership and try to address an on-going problem. If it works, CARB and the other legislative forces in Sacramento will be looked at honorably, perhaps setting a tone for other states to follow. This could be a potential blueprint to fight federal inaction and regression: states with high-powered economies taking more ownership on large-scale policy issues. While this is certainly not an ideal outcome and one that will surely produce growing pains, consumers value government action on items they care about. It’s not hard to envision this state-empowered model expanded to bi-partisan issues like health care costs or political spending. Mandating climate disclosure obviously pales in comparison, but states must start somewhere.

So, who’s ready to talk about it?

Need help or just have more questions? Shoot us an email at info@growwellconsulting.com. We’re happy to help!