California recently passed new carbon reporting requirements for large companies doing business in the state. These rules will push companies into compliance with the Greenhouse Gas (GHG) Protocol (link) and help prepare California for future climate resilience.

The regulations cover two aspects of the climate crisis.

• First, CA SB253 aims to track the emissions of the largest companies including their primary emissions (Scope 1 and 2) and emissions generated by their full supply chain (including Scope 3, e.g., smaller companies doing business with the largest companies).
• Second, CA SB261 requires these same large companies to report on their own climate insecurities. This second regulation will help investors, insurance companies, and regulators to understand the primary insecurities these companies will face in the coming decades.

Who must report?

Large companies, generating annual revenues greater than $1bn that do business in California must report on their carbon emissions to the state emissions board.  These companies are referred to as “reporting entities” and will include large retailers such as Walmart and Costco, large manufacturers such as P&G and L’Oreal, and large tech companies such as Apple and Google.

When do companies start reporting and what must they report?

Starting in 2026, reporting entities must report their Scope 1 and Scope 2 emissions based on 2025 data.

• Scope 1 emissions are defined as those emissions generated directly from the business of the reporting entities.
• The report must include all Scope 1 emissions regardless of where the emissions are generated globally.
• Scope 2 emissions are defined as those generated by indirect activities, such as heating and cooling buildings or the electricity used within buildings.
• As with Scope 1 emissions, the Scope 2 emissions must be reported regardless of where the emissions are generated globally.

In 2027, reporting entities must also start reporting their Scope 3 emissions based on data from 2026.

• Scope 3 emissions include all indirect upstream and downstream emissions

What are the penalties for non-compliance?

Penalties may be imposed for failure to report, for late reporting, or for other reporting inaccuracies. However, no penalties will be imposed for good faith efforts to report your Scope 3 emissions, and prior to 2030, the only penalty that can be imposed on Scope 3 reporting is for failure to report. When penalties are imposed, they can not exceed $500k in a calendar year.

If I am a smaller company what do I need to know?

Only the largest companies (annual revenue > $1B) doing business in California must report directly to the reporting agency. However, as part of their reporting, these large companies must make a good faith effort to report their Scope 3 emissions. That means that they must report on the products that they sell even if they did not directly manufacture those products.