California is pushing the envelope on corporate climate transparency. Under SB 253 (Cal. Health & Saf. Code § 38532 (West 2023)) and SB 261 (Cal. Health & Saf. Code § 38533 (West 2023)), companies doing business in the state must publicly report greenhouse gas (GHG) emissions and climate-related financial risks. Signed into law in October 2023, both bills have faced significant backlash and litigation from industry groups including the U.S. Chamber of Commerce.
A January 30, 2024, filing alleged, among other complaints, that the laws compel speech in violation of the First Amendment by requiring entities to disclose climate-related information. In February 2025, all claims besides the First Amendment challenge were dismissed, and on August 13, 2025, the U.S. District Court for the Central District of California denied a petition for a preliminary injunction. While an appeal to the Ninth Circuit is already underway, disclosures are set to begin in 2026.
SB 253 applies to firms with more than $1 billion in global annual revenues and requires reporting of Scope 1 and 2 emissions beginning in 2026, and Scope 3 emissions beginning in 2027 (California Legislature). SB 261 applies to companies with more than $500 million in revenue and mandates biennial climate risk and mitigation disclosures starting in 2026 (California Legislature).
At the same time, the U.S. Securities and Exchange Commission (SEC) has adopted its own climate disclosure rule, but that program excludes mandatory Scope 3 reporting and is already the subject of litigation (SEC Final Rule, March 2024). With federal requirements uncertain, California’s laws may become the de facto benchmark for climate disclosures in the United States.
The Disclosure Regime: Scope 1, 2, and 3
Scope 1 — Direct Emissions
Scope 1 covers emissions a company produces from sources it owns or controls, such as fuel combustion on site or emissions from company-owned vehicles. Because firms already track fuel usage and combustion data, this is the most straightforward reporting layer. Under SB 253, the initial reporting cycle will cover fiscal year 2025, with reports due in 2026 (CARB FAQ). Assurance requirements will begin at the “limited assurance” level for Scope 1 data in that first year.
Scope 2 — Indirect Energy Emissions
Scope 2 accounts for emissions generated by purchased energy such as electricity, steam, heating, or cooling. Companies will need to link their energy consumption to the appropriate generation sources and in some cases incorporate renewable energy certificates. Because many firms already manage utility and procurement data, Scope 2 is technically feasible, though complications arise with multi-state operations or international facilities. California’s law requires Scope 2 data at the same time as Scope 1.
Scope 3 — Supply-Chain and Value-Chain Emissions
Scope 3 is the most complex and far-reaching. It includes upstream and downstream emissions tied to suppliers, logistics, product use, and disposal. For many companies, Scope 3 emissions exceed Scopes 1 and 2 combined (EPA GHG Inventory Guidance). California requires Scope 3 reporting starting in 2027, covering fiscal year 2026 emissions. The California Air Resources Board (CARB) has authority to set the phase-in schedule and assurance standards.
Scope 3 reporting will require companies to build supplier engagement programs, apply proxy modeling where direct data is not available, and document assumptions. CARB has included a safe harbor provision: misstatements in Scope 3 data during the early years will not trigger penalties while companies develop compliance capacity.
Market and Investor Impacts
Transparent emissions disclosure affects how capital markets function. Investors increasingly view climate risk as financial risk, which means companies with higher carbon exposure may face higher costs of capital. Research has shown that companies providing credible climate disclosures improve investor confidence, while opaque or adverse disclosures erode it (Harvard Business Review).
The legal concept of materiality is central. Under securities law, companies must disclose information that a reasonable investor would consider significant. The Supreme Court has explained that material facts are those that would alter the “total mix” of information available to investors (TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976)). As climate data becomes embedded in financial decision-making, the distinction between environmental and financial materiality is collapsing.
California’s laws also fit within a global context. Europe’s Corporate Sustainability Reporting Directive (CSRD) imposes even more comprehensive disclosure obligations, covering thousands of U.S. companies with European operations (European Commission). Multinationals already reporting under CSRD will find alignment between European and California disclosure obligations, though technical differences remain.
Legal Risk and Litigation
California’s disclosure rules are already in federal court. The U.S. Chamber of Commerce and other groups argue that the mandates violate the First Amendment by compelling companies to make statements on climate change. A federal district judge rejected the request for a preliminary injunction, finding that SB 253 requires factual emissions reporting and that SB 261, while broader, serves a substantial government interest. The Ninth Circuit is now reviewing the case (Law360 coverage).
Future litigation may raise additional challenges. Plaintiffs could argue that SEC rules preempt state requirements, that California’s mandates violate the dormant Commerce Clause by burdening interstate business, or that due process protections limit California’s ability to regulate emissions reporting tied to global supply chains. These arguments are untested, and outcomes will shape the scope of state authority in corporate climate disclosure.
Governance, Controls, and Assurance
Disclosure is not only about emissions calculations but also about governance. Companies will need internal controls similar to those used for financial reporting, including audit trails, versioning, and data quality checks. Legal and accounting experts recommend integrating climate data controls with existing disclosure processes to reduce risk of inconsistency (PwC Guidance).
Third-party assurance is another major element. SB 253 requires companies to engage independent and technically competent auditors to verify their emissions data. Limited assurance begins with Scope 1 and 2 in 2026, ramping to reasonable assurance by 2030. CARB may later impose assurance requirements for Scope 3. The independence and methodology of auditors will be a point of scrutiny as standards mature.
Looking Ahead
California’s disclosure regime may become a national model by default. If federal litigation stalls SEC rules, the most detailed climate reporting framework in the country will be California’s. Other states are watching closely, and multistate companies will face increasing pressure to harmonize their reporting systems.
Early compliance will be about building capacity to collect, analyze, and verify emissions data. Over time, litigation outcomes and enforcement strategies will determine the balance between state innovation and federal oversight.
California has made a bet that market transparency will accelerate climate accountability. Whether this experiment becomes a national standard will depend on how courts resolve the challenges ahead.
Langsam Stevens Silver & Hollaender, LLP has the experience to help companies navigate these evolving disclosure regimes and the risks they present. If you have any questions about California’s corporate climate transparency mandates, please contact author David E. Romine at dromine@lssh-law.com. Michael Ayella-Silver, a paralegal and 3L at Temple University’s James E. Beasley School of Law, also authored this article.