The California Effect: A Strategic Analysis of SB-253, SB-261, and AB-1305 and Their Transformative Impact on Supply Chain Management and Scope 3 Reporting

Ready or not, California has thrown down the gauntlet for every major corporation with a stake in America’s fifth-largest economy. Forget voluntary climate pledges—California’s Climate Accountability Package is rewriting the rules for emissions reporting, risk disclosure, and green claims, setting new standards that are reverberating through global supply chains. With SB-253, SB-261, and AB-1305, compliance isn’t just a box to check—it's an operational overhaul that touches every supplier, contract, and financial decision.

If you want to understand how these laws will force unprecedented transparency, reshape procurement, and transform “Scope 3” emissions reporting from an afterthought into a centerpiece of risk management, read on. What happens in Sacramento now matters everywhere from boardrooms to factory floors across the world. This is far more than regulatory red tape—it's the blueprint for the next era of climate accountability.

Understanding California's Climate Accountability Package

The Genesis of Transformative Climate Regulation

California's Climate Accountability Package emerged from a recognition that voluntary corporate climate disclosure was insufficient to address the mounting climate crisis facing the state and its communities. The legislative intent reflects a consensus that the existing patchwork of voluntary reporting lacked the consistency, comparability, and transparency needed by investors, consumers, and policymakers to make informed decisions about climate risks and corporate environmental performance.

The package consists of three complementary laws that create a comprehensive framework for climate accountability. Senate Bill 253 (SB-253), the Climate Corporate Data Accountability Act, mandates unprecedented transparency by requiring over 5,400 large companies to conduct and publicly disclose complete, third-party-audited inventories of their greenhouse gas emissions across all three scopes. Senate Bill 261 (SB-261), the Climate-Related Financial Risk Act, requires companies to prepare biennial reports detailing material financial risks stemming from climate change, aligned with globally recognized frameworks. Assembly Bill 1305 (AB-1305), the Voluntary Carbon Market Disclosures Act, establishes stringent anti-greenwashing standards by demanding rigorous public substantiation for corporate claims of "net zero" or "carbon neutrality".

The strategic implications of this legislative package are profound and interconnected. The combined effect creates a three-pronged mandate for transparency that cascades through global value chains, compelling reporting entities to demand climate data and risk assessments from their suppliers, many of whom are not directly regulated by these laws. This market-driven mechanism transforms compliance from a simple reporting exercise into a catalyst for operational transformation across entire supply chains.

Implementation Timeline for California's Climate Disclosure Laws

The California Effect: Establishing a De Facto National Standard

California's position as the world's fourth-largest economy gives it immense market leverage, enabling the state to set standards that extend far beyond its geographic boundaries. The laws' applicability hinges on the broad criterion of "doing business in California," a definition that captures thousands of U.S.-based public and private entities regardless of their headquarters location. The California Air Resources Board (CARB) is considering adopting the state's Revenue and Tax Code definition of "doing business," which sets thresholds as low as approximately $735,019 in California sales or $73,502 in California property or payroll.

This expansive reach ensures that California's climate standards will ripple across the U.S. corporate landscape, effectively establishing a new nationwide baseline for climate accountability. Companies that wish to access California's vast consumer market—representing a $3.6 trillion economy—must adhere to these comprehensive disclosure requirements. This phenomenon, known as the "California Effect," has historically driven regulatory change at the national and global levels across industries, from automotive emissions standards to data privacy regulations.

The regulatory framework is designed as a self-reinforcing ecosystem where each law amplifies the impact of the others. This interconnectedness creates a closed-loop system that pressures companies toward genuine decarbonization rather than mere compliance. The process begins with SB-253 forcing public disclosure of verified emissions data across entire value chains, which then becomes a critical input for SB-261's climate risk assessments. If a company attempts to use voluntary carbon offsets to claim "carbon neutrality," AB-1305 mandates exhaustive disclosure about the quality and verification of those offsets, preventing greenwashing through low-quality credits.

Comparison of California's Three Climate Disclosure Laws

Comprehensive Analysis of the Legislative Framework

SB-253: The Climate Corporate Data Accountability Act

SB-253 represents the cornerstone of California's climate accountability package, establishing the first-in-the-nation requirement for comprehensive greenhouse gas emissions reporting for both public and private companies. The law applies to U.S.-based entities with total annual revenues exceeding $1 billion that do business in California, encompassing an estimated 5,400 companies.

The core requirement requires covered entities to publicly disclose their complete GHG inventory annually across all three scopes. 

• Scope 1 emissions include all direct greenhouse gas emissions from sources owned or directly controlled by the company, such as fuel combustion activities. 
• Scope 2 emissions encompass indirect emissions from purchased electricity, steam, heating, or cooling. 
• Scope 3 emissions represent all other indirect emissions in the company's value chain, including purchased goods and services, business travel, employee commutes, and processing of sold products.

The reporting requirements are implemented through a carefully phased approach to allow companies to build necessary capacity. 

• By 2026, companies must report their 2025 fiscal year Scope 1 and Scope 2 emissions with limited assurance from independent third-party providers. 
• By 2027, companies must begin reporting their 2026 budgetary year Scope 3 emissions. 
• By 2030, the assurance requirement escalates to reasonable assurance for Scope 1 and 2 emissions, with CARB evaluating whether to require limited assurance for Scope 3 emissions.

Non-compliance with SB-253 can result in administrative penalties of up to $500,000 per reporting year. However, recognizing the complexity of Scope 3 emissions calculations, the law includes a critical "safe harbor" provision that protects companies from penalties for misstatements regarding Scope 3 emissions made in good faith and with reasonable basis until 2030. 

Additionally, CARB has indicated it will exercise enforcement discretion for the first year of reporting in 2026, provided companies demonstrate a "good faith effort" to comply.

SB-261: The Climate-Related Financial Risk Act

SB-261 shifts focus from a company's impact on climate to climate's impact on the company, requiring systematic integration of climate considerations into financial risk management frameworks. The law applies to U.S.-based entities with total annual revenues exceeding $500 million that do business in California, capturing approximately 10,000 companies.

Covered entities must prepare biennial climate-related financial risk reports aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework or equivalent standards such as those from the International Sustainability Standards Board. The disclosure must detail material climate-related financial risks and outline the measures adopted to mitigate and adapt to them.

The risk assessment must encompass two primary categories. Physical risks relate to direct impacts of climate change, such as damage to assets from extreme weather events, including floods, wildfires, and heatwaves. Transition risks involve the shift to a lower-carbon economy, including policy changes like carbon taxes, technological shifts, changing consumer preferences, and market volatility.

The first report is due by January 1, 2026, and must be made publicly available on the official website. Failure to comply can result in administrative penalties of up to $50,000 per reporting year. While lower than SB-253 penalties, these fines still represent significant financial exposure for non-compliant organizations.

AB-1305: The Voluntary Carbon Market Disclosures Act

AB-1305 addresses the integrity of corporate climate claims by targeting greenwashing practices and bringing transparency to the voluntary carbon market. The law has the broadest scope, applying to entities of any size with no revenue threshold, covering any organization operating in California that engages in specified activities.

The law establishes three distinct reporting categories. 

• Companies that market or sell voluntary carbon offsets must disclose comprehensive details about offset projects, including location, timeline, project type, verification status, and accountability measures for incomplete projects. 
• Companies that purchase or use voluntary carbon offsets and make related climate claims must disclose seller information, offset registry details, project types, and verification status. 
• Finally, any entity making significant climate claims, such as "net zero" or "carbon neutral," must disclose all information documenting the accuracy of the claim, the interim progress measurement methods, and the third-party verification status.

The law became effective January 1, 2024, with the first disclosures required by January 1, 2025. Violations can result in civil penalties of up to $2,500 per day, with a maximum of $500,000. This enforcement mechanism ensures companies cannot easily obscure poor emissions performance with questionable offset claims.

The Transformative Impact on Supply Chain Management

From Reporting Entity to De Facto Regulator

The Scope 3 mandate of SB-253 fundamentally transforms the relationship between large corporations and their extensive supplier networks. By requiring comprehensive value chain emissions reporting, the law effectively deputizes thousands of covered corporations, turning them into de facto regulators of their own supply chains. To comply with the mandate, these companies must solicit, collect, and manage detailed emissions data from value chain partners across multiple tiers.

This market-driven mechanism propagates emissions-reporting requirements across global supply chains, creating a ripple effect that embeds climate data collection into standard business-to-business interactions. Many suppliers affected by these requirements are small and medium-sized enterprises that fall well below the $1 billion revenue threshold and are not directly regulated by the law. Nevertheless, they face compelling pressure from their largest customers to adopt carbon accounting practices.

Major Challenges in Scope 3 Emissions Reporting (Impact Level 1-10)

Strategic Integration of Climate Risk into Procurement

Simultaneously, SB-261 forces formal integration of climate considerations into corporate risk management frameworks. The law's definition of "climate-related financial risk" explicitly includes supply chain risks, elevating climate concerns from peripheral sustainability issues to core financial and operational imperatives. Companies must expand traditional supply chain risk assessments—historically focused on cost, quality, and logistics—to include sophisticated climate-related threat analysis.

The convergence of emissions data collection under SB-253 and risk assessment under SB-261 creates a direct, documented link between supplier environmental performance and perceived business risk. High-emitting suppliers automatically become sources of quantifiable transition risk that must be assessed and disclosed in SB-261 reports. This integration inevitably reshapes procurement practices and supplier relationship management, elevating sustainability performance from a "nice-to-have" attribute to a core criterion for supplier selection, evaluation, and retention.

Navigating Scope 3 Complexity: The Data Challenge

Scope 3 emissions represent the most significant operational challenge within California's climate accountability package, often accounting for 65% to 95% of companies' total carbon footprints. These emissions occur at sources not owned or controlled by reporting companies, making measurement and management exceptionally complex.

Companies face multiple practical challenges in collecting Scope 3 data. Data availability and supplier engagement are primary hurdles, as many suppliers lack the resources, technical expertise, or regulatory drivers to track their own emissions, resulting in low response rates and significant data gaps. 

Data quality and consistency issues arise when suppliers use different calculation methodologies, emission factors, and reporting boundaries, leading to inconsistent datasets. Multi-tier complexity exponentially increases difficulty, as reporting companies must rely on Tier 1 partners to collect and transmit data from their own suppliers throughout extended value chains.

Strategic approaches to Scope 3 reporting require phased, methodical implementation. Initial reporting phases can leverage spend-based calculation methods, multiplying procurement data by industry-average emission factors to estimate associated emissions. While less accurate, this approach allows comprehensive, top-down estimation of entire Scope 3 footprints and satisfies initial "good faith effort" standards. Progressive phases involve transitioning from broad estimates to specific data collection focused on emissions "hotspots," where analysis consistently shows that large portions of supply chain emissions are concentrated in a small number of suppliers or purchasing categories. Mature reporting phases shift focus from compliance-driven data collection to collaborative decarbonization, involving joint reduction targets with strategic suppliers and real-time information exchange platforms.

A multi-tier supply chain network diagram showing the limited visibility OEMs have beyond their immediate Tier-1 suppliers 

Strategic Imperatives for Corporate Compliance and Competitive Advantage

Establishing Robust Governance Frameworks

Effective compliance demands an enterprise-wide transformation that extends far beyond simple technical reporting exercises. The breadth of required data and analysis necessitates cross-functional governance structures breaking down traditional departmental barriers. These teams must include senior leadership from sustainability, finance, legal, procurement, operations, and information technology.

Image source: Comparison table outlining key details of California Senate Bills SB 253 and SB 261 affecting corporate emissions reporting and climate risk disclosure 

The Chief Financial Officer's role becomes particularly central under SB-261, as the law explicitly frames climate risk as material financial issues requiring the same rigor and oversight as other financial reporting. This integrated governance approach ensures internal controls, data flow management, risk assessment, and final public disclosure sign-offs meet regulatory standards and withstand third-party assurance scrutiny.

Technology Infrastructure Investment

The scale, complexity, and auditability requirements render manual data collection methods obsolete. Companies must invest in robust technology backbones, including dedicated GHG data management platforms and enterprise sustainability software systems. These platforms automate data collection from disparate sources, ensure data integrity through quality control processes, perform complex calculations aligned with GHG Protocol standards, and create clear, auditable trails for third-party assurance providers.

Beyond Compliance: Unlocking Strategic Value

Forward-thinking companies recognize opportunities extending beyond immediate regulatory compliance. Enhanced brand reputation emerges as consumers demonstrate willingness to pay premiums for sustainable products and alter purchasing habits to reduce environmental impact. Improved capital access results as sophisticated institutional investors, insurers, and credit rating agencies increasingly integrate climate data into risk assessments and capital allocation decisions. Strong, transparent disclosure records improve access to capital, potentially at lower costs, while inadequate climate risk disclosure may signal poor management and long-term vulnerability.

Operational efficiency and resilience benefits accrue from meticulous emissions measurement, which often reveals previously hidden inefficiencies, such as energy waste in manufacturing or suboptimal transportation routes. Addressing these issues to reduce emissions leads directly to cost savings. Similarly, deep dives into supply chain climate risks required by SB-261 enable companies to identify vulnerabilities and build more resilient, adaptive value chains.

Implementation Timeline and Regulatory Landscape

Current Status and Key Deadlines

Despite earlier discussions of potential delays, California regulators have confirmed that compliance timelines remain in effect. CARB has emphasized that "good faith efforts" will be key factors in early compliance, especially during ongoing rulemaking processes. The regulatory timeline includes several critical milestones requiring immediate corporate attention.

• AB-1305 disclosures became due January 1, 2025, with annual updates required thereafter. 
• SB-261 climate-related financial risk reports are due January 1, 2026, based on 2025 data, with biennial reporting cycles thereafter. 
• SB-253 Scope 1 and 2 emissions reports are due June 30, 2026, covering 2025 fiscal year data, while Scope 3 reporting begins in 2027.
• Enhanced assurance requirements take effect in 2030, with reasonable assurance required for Scope 1 and 2 emissions and limited assurance evaluation for Scope 3 emissions.

The legislative package faces ongoing legal challenges from business groups, which argue that the laws are unconstitutional. However, courts have thus far allowed the laws to proceed, and companies should not treat litigation as justification for delayed preparation efforts. The compliance deadlines remain in effect, and legal and reputational risks of being unprepared are substantial.

CARB continues developing specific implementation regulations, with final guidance expected throughout 2025. Companies should actively monitor this rulemaking process and consider participating in public workshops and comment periods to help shape final regulatory requirements. Despite regulatory development delays, the core reporting obligations and deadlines remain unchanged.

Global Regulatory Context

California's climate accountability package operates within a broader global trend toward mandatory climate and sustainability disclosure. The European Union's Corporate Sustainability Reporting Directive imposes similarly comprehensive requirements on a vast number of companies, while other jurisdictions are developing comparable frameworks. Companies preparing for multiple regulatory regimes will find significant overlap in requirements, with early preparation for California's standards providing substantial advantages for global compliance efforts.

Waste management dashboard showing waste quantities, emissions, treatment methods, and waste diversion trends from 2016 to 2021 

Conclusion

California’s Climate Accountability Package—SB-253, SB-261, and AB-1305—sets a new national benchmark for corporate climate transparency and supply chain accountability. These laws force companies to measure and report emissions (including deep into their supply chains) and to disclose climate-related risks and carbon offset claims, driving climate data and decarbonization across global value chains.

These rules mean firms must collect credible emissions and climate risk data from many suppliers—not just their own operations—and report Scope 3 emissions (the supply chain) as a core regulatory mandate—not just a voluntary "nice to have." This transparency is transforming procurement, supplier management, and the accuracy of climate claims for businesses doing, or wanting to do, business in California.