An estimated 10,000 U.S. companies will face climate-related disclosure mandates under the California Climate Accountability Package in 2026, using 2025 data. Read on to understand the actions to take today in preparation for the new requirements.
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WHAT YOU NEED TO KNOW
The climate-related regulatory landscape in the U.S. continues to evolve and mature with new laws from California mandating the disclosure of greenhouse gas emissions and climate-related financial risk. In September 2024, SB 219 amended the California Climate Accountability Package, which consists of two laws: SB 253, Climate Corporate Data Accountability Act, and SB 261, the Climate-Related Financial Risk Act. Through this legislation, many U.S.-based companies will face disclosure mandates in 2026, despite the indefinite delay of the Security and Exchange Commission’s emissions and climate risk rule.
WHO THIS AFFECTS
U.S.-based businesses exceeding revenue thresholds in California will have to comply with SB 253. The new reporting mandates apply to any business, public or private, generating more than $1 billion in annual revenue that does business in California.
In 2026, companies subject to SB 253 must report Scope 1 and 2 emissions generated from their own operations based on data from 2025. Disclosure of Scope 3 emissions–those resulting from companies’ downstream and upstream value chains–will not be required until January 2027.
The companion law, SB 261, states that companies with $500 million or more in annual revenue must report their financial risks arising from climate change. These companies will also have to publish specific plans for mitigating those risks with the first set of these disclosures made by January 2026 and biennial updates mandated thereafter.
WHAT YOU NEED TO DO
Once grace periods for reporting expire, companies can expect to face stiff financial penalties if they do not meet the full set of climate-related regulations.
With 2025 now upon us, efforts should begin at once to prepare for the not-so-distant deadlines. It’s vital to determine whether your business will be able to respond to the various requirements of the California laws. This involves reviewing your organization’s current climate-related efforts and recognizing that several actions should be taken to prepare for compliance:
- First, gather relevant emissions data for FY 2025 and conduct a complete inventory for your Scope 1, 2 and 3 emissions in accordance with the Greenhouse Gas Protocol. Emissions data must be audit-ready; SB 253 requires limited third-party assurance for companies’ Scope 1 and 2 emissions reporting for 2026. While Scope 3 won’t be required until January 2027, it is wise to begin that compliance process well in advance by ensuring that the proper systems are in place for data collection and calculations.
- Next, review your existing climate disclosures in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). These guidelines for companies seeking to assess and mitigate their exposure to climate-related risks remain relevant following the International Sustainability Standards Board’s incorporation last year of the TCFD’s mandate. It provides a structural approach to a complex, highly technical process that involves four themes: governance, strategy, risk management and metrics and targets:
1. Governance: A robust governance framework that facilitates effective oversight of climate-related risk factors is critical to the success of any ESG strategy. Establishing board-and management-level committees to approve and monitor climate-related metrics and targets will ensure accountability for employees throughout the organization who play a role in executing the strategy.
2. Strategy: SB 261 requires companies to publicly report their climate-related financial risks, including potential physical risks (e.g., tropical storms and extreme heat) and transition risks (e.g., shifts in climate policy or new technologies). Accurately identifying the current and anticipated financial impacts of climate change on your company means conducting climate scenario analyses. These should include a low-carbon scenario, such as a 2°C or lower warming trajectory.
3. Risk Management: In addition to requiring companies to calculate their climate risk exposure and quantify attendant financial impacts, SB 261 mandates development of plans for mitigating these risks. It is crucial for companies to integrate governance, processes and systems for assessing their climate risks into larger enterprise-risk management.
4. Metrics & Targets: Measuring and understanding your organization’s Scope 1, 2 and 3 emissions is fundamental to assessing and mitigating climate-related risks. Carbon prices, or taxes, for example, are often identified as a top transition risk for companies. To assess whether a current or anticipated carbon pricing regime would financially impact your company, you first need an in-depth understanding of emissions throughout your company’s supply chain. Emissions reduction targets serve to track emissions on an annual basis while also identifying means of achieving mitigation goals.
HOW SPHERA CAN HELP
Sphera’s team of consultants helps companies with disclosure support for legislation including the California laws and CSRD, as well as voluntarily reporting frameworks like IFRS, CDP and more. Our experts will simplify the complexity of the sustainability landscape and guide your company in designing and implementing climate risk management strategies from granular climate scenario analysis to tailored decarbonization target setting.
Sphera’s consulting expertise, software solutions and data provide customers with the support they need to achieve their sustainability goals and ensure regulatory readiness. Managed Life Cycle Assessment Content (MLC) offers over 20,000 LCA datasets and 500,000 emissions factors, and SpheraCloud Corporate Sustainability Software helps companies collect and manage ESG data, streamlining reporting across multiple frameworks and jurisdictions, providing insights for improved sustainability programs.
Is your organization preparing for California climate disclosure? Read our eBook Climate-related disclosures for U.S. businesses to learn more and contact us to speak with a sustainability consultant.
The information provided in this blog is for general information purposes only, may not be updated in real time and does not constitute legal advice. Please consult with your legal and other advisors to discuss your particular needs and circumstances.
