California has earned a reputation for advancing progressive environmental issues. The latest move comes in the shape of the recently-approved California Climate Acts; the Climate-related Financial Risk Act (SB 261) and the Climate Corporate Data Accountability Act (SB 253) have passed both Houses of the State legislature and been signed by Governor Gavin Newsom as part of the California Climate Commitment that invests $54 billion to address climate change.

The arrival of the Acts precedes the long-awaited final version of the US Securities and Exchange Commission (SEC) climate-risk disclosure ruling, which is now not expected until the second quarter of this year. While the inclusion of some of the more rigorous proposed requirements, such as disclosure of Scope 3 greenhouse gas (GHG) emissions is still to be decided, the SEC ruling will only apply to public companies. The California Climate Acts complement the SEC’s proposals but go further, impacting private companies as well as the publicly traded ones covered by the SEC. This will significantly broaden the number of companies required to publish public climate disclosures.

The Climate-related Financial Risk Act (SB 261), which comes into effect in 2026, is aligned to the Taskforce on Climate-related Financial Disclosures (TCFD). It requires a company to prepare and submit climate-related, financial-risk reports and is expected to apply to over 10,000 companies. The Climate Corporate Data Accountability Act (SB253), which requires a company to publicly disclose GHG emissions, including Scope 1, Scope 2 and Scope 3, to an as-yet-unestablished emissions registry, is expected to apply to over 5,300 companies. More details on who is impacted, timelines and steps to prepare for the Acts are available in our discussion paper ‘The California Climate Acts: what you need to know’.

The California Climate Acts are part of a wider global regulatory movement driving rigorous climate and, increasingly, nature reporting from businesses. These include Europe’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) inaugural Sustainability Disclosure Standards. Both go further than the California Climate Acts in moving the dial from climate-related risks to broader, sustainability-related risks

Exact timelines for the California Climate Acts are not yet set in stone. During the Act signing, Governor Newsom expressed concerns about the implementation timeline, making it quite likely that the state legislature could extend this date early in the next legislative session. The recently announced shortfall of almost $38 billion in the state of California’s proposed 2024-2025 budget, and the Governor’s budget proposal to pause funding to implement newly signed laws until there is additional clarity on the state’s finances in May, adds to the likelihood of implementation timelines slipping.

One thing is clear: the California Acts cannot be ignored by companies in scope – financial penalties for non-compliance are expected to be introduced with an upward value of $500,000 per year. And, with the first climate-related risk report under SB261 potentially due by 1st January, 2026, organisations would be wise to take preparatory steps to meet disclosure requirements now because the process of locating, gathering, interrogating and reporting the necessary information will require time and resource.

Astute business leaders know that meeting climate-disclosure requirements is a commercial as well as a regulatory concern. The process of preparing a company for disclosure can deliver valuable insights for an organisation. Understanding climate- and nature-related risks and opportunities, and financially quantifying them, enables a business to surface priorities, mitigate risk and optimise commercial prospects emerging from the low-carbon economy.