Following our recent webinar on California’s upcoming climate disclosure laws (SB 253 & SB 261), we’ve compiled the most pressing questions from the audience along with expert insights from Greenplaces’ sustainability leaders, Corinne Hanson (VP of Sustainability) and Andrew Rizkallah (Director of Sustainability Reporting). 

With mandatory reporting kicking off in January 2026, here’s what you need to know:

Compliance & applicability

1. Which companies fall under SB 253 and SB 261?

Companies with revenues of $500M+ doing business in California must report climate-related financial risks under SB 261 starting January 2026. Under SB 253, entities with revenues over $1B must report Scope 1 and 2 emissions beginning in 2026. Scope 3 emissions reporting will follow shortly after, on a timeline determined by the California Air Resources Board (CARB).

2. What exactly does “doing business in California” mean?

CARB references the California Revenue and Tax Code section 23101 (parts A and B) for clarity. Typically, if your company files tax returns in California or generates substantial revenue there—even without a physical office—you may fall under these reporting obligations.

If your firm is earning money in California and actively pursuing business there, you should assume you are “doing business in California.” One attendee asked whether a consulting or law firm with no physical office in the state but generating California-sourced revenue would qualify?

In this example, it would qualify if that revenue is above the threshold (see below). Given the thresholds, even a few employees generating hundreds of thousands in CA sales would bring the company into scope. It’s intentionally a broad net to catch companies benefiting from the California market.

If you’re on the cusp and unsure, watch for CARB’s final rule—but when in doubt, err on the side of inclusion, since the consequences of being covered (disclosing climate data) are likely more manageable than the consequences of misjudging and facing non-compliance penalties later.

3. Are foreign-based companies with subsidiaries in California required to report?

If you are a foreign-based company, check your U.S. footprint. If you have a U.S. subsidiary doing significant business in CA and above the revenue threshold, assume you’re indirectly covered. That U.S. entity will need to report, or you (the foreign parent) will need to provide a consolidated disclosure. 

Purely foreign companies with no U.S. legal presence are not explicitly bound by SB 253/261, but such cases are rare for large enterprises. For all practical purposes, California’s law will ensnare most large global companies via their U.S. entities—and CARB’s implementation is aimed at making sure “foreign vs domestic” is not a loophole.

Data collection & reporting

4. Is emissions data explicitly required in SB 261 reporting, or can companies reference their SB 253 disclosure?

SB 261 references the TCFD framework, which has a metrics/targets component that typically includes Scope 1,2 and 3 emissions. It’s likely that 2025 emissions data will not be available at this time, so companies can utilize prior year information in their disclosure. If a company has never undertaken an emissions footprint before, or if emissions information is not available by January 1, 2026, companies should prepare a statement in their reports to that effect. Companies may reference their SB 253 emissions data if it is clearly documented and easily accessible. 

5. How should companies handle incomplete emissions data for calendar year 2025 if reports are due January 2026?

CARB clarified that, initially, they will acknowledge good-faith efforts. Companies can leverage prior fiscal year data for initial reporting but should still prepare diligently and transparently document their methodologies.

6. Are there standard industry guidelines for consistent Scope 3 emissions reporting?

Yes, CARB recommends following the GHG Protocol’s Corporate Value Chain (Scope 3) Standard. This standard ensures clear, industry-consistent data reporting across various emission categories.

Scenario analysis & financial risk

7. Is scenario analysis explicitly required under SB 261, and how rigorous must this analysis be?

Scenario analysis is effectively required and is an important part of SB 261 reporting. Companies should include at least one 2°C (or lower) scenario analysis in their 2025 report, and ideally a contrasting higher-warming scenario, describing how each would impact the company’s operations and financials over time.

The detail should be sufficient to give stakeholders insight into the company’s thought process and preparedness—but it doesn’t need to be a precise prediction. Think of it as a risk management exercise: show that you’ve crunched the “what if” scenarios of climate change and that you have strategies in mind to remain viable.

Over time, as methodologies improve, the detail and quantification in scenario analyses will likely deepen (and regulators may expect more). For the first report, a well-reasoned qualitative analysis with some scenario-specific metrics is a solid approach.

Learn about climate scenarios and modeling here.

8. Is a financial materiality assessment required for compliance, or is a good-faith approach acceptable?

A formal financial materiality assessment isn’t explicitly mandated, but companies should clearly demonstrate that they’ve thoroughly considered climate-related financial risks in their disclosures. Good-faith efforts backed by robust documentation are critical. If a company has previously completed a financial materiality assessment that demonstrates climate is not material to their business, they could disclose these findings in lieu of a climate-related financial risk report.

Assurance & third-party validation

9. Can the same entity conducting the carbon footprint also provide limited assurance, or is external assurance mandatory?

An independent external third-party assurance body is required for limited assurance, especially for larger companies. While the organization measuring emissions can support preparation, the verifier must be distinct to ensure objectivity and integrity.

10. If a company is a subsidiary, can its parent company provide reasonable assurance, or must it be an external third party?

The assurance provider must be a qualified external third party, separate from the corporate parent or subsidiary. CARB requires independent verification to maintain transparency and credibility in reported emissions data.

Broader regulatory landscape

11. Beyond California, what other states should companies track regarding climate reporting legislation?

States such as Colorado, Illinois, Washington, Minnesota, New York, and New Jersey are actively developing similar climate disclosure requirements. Companies operating in multiple states should monitor these closely and prepare accordingly.

Strategic advice & internal communication

12. How can companies justify internally the investment in risk assessments and climate reporting?

Clarify the financial and operational risks of non-compliance and highlight benefits—like increased investor confidence, competitive advantage, and reduced long-term costs. As Alexa Zanolli from AMN Healthcare advised in our previous session, involve your finance team early to secure internal buy-in and ensure alignment on cost-benefit analyses.

Questions from the audience

13. Are there special guidance considerations for asset management firms under SB 253 and SB 261?

Asset managers are in scope if they meet the size and California-business criteria. They should prepare to report their own operational emissions (typically modest, from offices, travel, etc.) and engage with frameworks (like the Partnership for Carbon Accounting Financials – PCAF) to estimate financed emissions for Scope 3, if those are material. 

They should also be ready to produce a climate-risk report discussing how climate change might financially affect both the firm and its managed assets. While CARB hasn’t issued asset-manager-specific guidance yet, general advice is to follow the GHG Protocol for emissions (using best efforts on hard-to-measure categories) and TCFD/ISSB standards for risk.

Stay tuned for further clarification as rulemaking continues in 2025.

14. If a company generates over $500M worldwide but employs a few salespeople and has no physical office in California, are they in scope?

High-revenue companies cannot avoid these requirements solely by having a lightweight presence in California. They should assume they’re covered if they have representatives in California generating income, and prepare to comply with SB 253 (if >$1B) and/or SB 261 (if >$500M) accordingly.

15. Regarding SB 261, many point to the new IFRS S2 climate disclosure standard as a way to comply, but examples of companies reporting under IFRS S2 are limited. Are there good disclosure examples? Is TCFD still the expected approach in the interim?

Yes, TCFD remains the expected approach in the near term, and it is the foundation of SB 261 compliance. Companies can confidently use TCFD guidance and examples now. IFRS S2 is essentially TCFD repackaged. So by following TCFD you’re on the right track, and can gradually incorporate IFRS enhancements as best practices develop. See recent guidance from IFRS on the inclusion of transition plans in disclosure, as an example of evolving best practice. 

Keep an eye out for early adopters’ reports in late 2024 and 2025 (and any ISSB guidance materials), but don’t wait for perfect IFRS S2 examples. Leverage the wealth of TCFD reporting experience to jump-start your climate risk disclosure.

16. Given ongoing legal challenges to SB 253/261, does CARB still plan full implementation in 2026? How might these lawsuits affect rollout?

Yes, CARB plans on full implementation in 2026. Companies should proceed as if the law will be in effect on schedule. 

The lawsuits have not (yet) resulted in any delay or suspension. Of course, companies should monitor developments—a court injunction or settlement could change things—but that is speculative. Many experts advise treating the compliance deadlines as firm, given the strong stance California’s lawmakers and CARB have taken. If the litigation ultimately invalidates or modifies the laws, adjustments can be made then, but waiting for that outcome could leave a company flat-footed. Preparing now is the safest course.

17. Do companies have to report Scope 1 & 2 emissions by January 1, 2026? If so, how should they handle incomplete data for CY 2025?

Companies do need to report 2025 emissions in 2026 (Scopes 1 and 2). You should try to compile complete 2025 data, but if it’s not fully complete, report what you have—CARB will not punish first-year incompleteness if you’re making sincere efforts.

Use this grace period wisely to establish internal data systems so that by 2026 you can capture a full year’s emissions with confidence.

18. CARB has indicated it wants to track parent-subsidiary relationships to ensure reporting by qualifying parents. Does this apply only to U.S.-based parents, or also foreign parents?

CARB’s tracking of parent-subsidiary relationships is not limited to U.S. parents. A foreign parent with a majority-owned California-facing subsidiary could be deemed a “reporting entity” by virtue of that relationship. 

The goal is to ensure large parent companies can’t fly under the radar simply because they operate via subsidiaries. Companies with foreign parents should pay attention—you may find that the foreign parent must file SB 253/261 reports (or, at least, that the U.S. sub’s data will need to be consolidated upwards) if CARB finalizes this approach.

We await the draft regulations for exact details, but the direction is clear: significant parent companies, domestic or foreign, won’t be off the hook if they have large operations in California through their holdings.

19. For Scope 3 compliance under SB 253 & 261, are there standardized industry expectations being developed to help streamline supplier requests?

Yes, the approach to Scope 3 is evolving toward standardization. SB 253’s flexible provisions on data sources and the safe harbor encourage companies to use common emission factors and gradually improve data quality. 

We are seeing the emergence of industry-specific expectations (like standard questionnaires or data exchange platforms) to reduce duplication of effort. Suppliers should expect to provide GHG information, but ideally in a streamlined way. For instance, one CDP response might service multiple clients.

Companies subject to SB 253 should plug into their industry groups and global initiatives to stay aligned with these developing norms, which will make Scope 3 compliance more efficient for everyone.

20. Does an SB 261 disclosure need to include emissions data directly, or can it refer to a company’s SB 253 submission?

Given that SB 253 and SB 261 are meant to complement each other (one is data, the other is narrative context), many companies may end up combining them into a single sustainability report or climate report that fulfills both. 

CARB has the option to hire a “climate reporting organization” to host these disclosures publicly, so stakeholders will have access to both pieces. There’s no prohibition on cross-referencing—integration is in fact encouraged. 

Just remember: the SB 261 report should stand on its own in explaining risk, so if emissions are a material part of your risk (they are, for most companies), don’t omit them entirely. A hybrid approach—brief summary in SB 261 report, with reference to SB 253 disclosure for full data—is a smart way to go.

21. With TCFD disbanded and IFRS S2 now in place, should companies new to disclosure adopt IFRS instead of TCFD for SB 261 reporting?

TCFD and IFRS S2 are complementary, not in conflict. Since TCFD has been essentially folded into IFRS S2, any company starting now should follow the integrated approach. 

You could say IFRS S2 is the more comprehensive blueprint (and more future-proof if regulators outside CA ask for it), while TCFD provides the well-trodden path to implementation. California will accept your report either way, as long as it hits the key elements of climate-risk disclosure.

Most experts would advise: begin with TCFD guidance, implement with an eye toward IFRS S2’s requirements, and you’ll be in full compliance with SB 261. 

As the ISSB standards gain traction, you might eventually frame your reporting entirely as “in accordance with IFRS S2.” But especially for the first cycle in 2025, using the familiar TCFD language and gradually mapping it to IFRS S2 is a sound strategy. 

The important thing is that you produce a quality disclosure covering governance, strategy (with scenario analysis—see Q9), risk management, and metrics/targets (with GHG emissions). If you do that, you will have met both TCFD and IFRS S2 expectations.

Wrap-up & next steps

Preparing now means avoiding significant compliance stress and risk later. Greenplaces can help you:

• Understand your regulatory obligations clearly.
• Accurately measure emissions data.
• Conduct robust scenario analyses.
• Prepare credible disclosures and assurance processes.

Still have questions or ready to get personalized support?

Schedule a call with our sustainability experts today and move forward confidently.

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