Climate Transparency Doesn’t End With California

How to Prepare for Compliance While Driving Value

In September 2024, California established itself as a leader in U.S. climate policy by signing its landmark Climate Accountability Package into law.¹ The package, which merges the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, establishes new greenhouse gas (“GHG”) emissions reporting requirements to provide transparency into the environmental and financial risks of climate change.^2,³

Although the U.S. Securities and Exchange Commission (“SEC”) reversed course and voted to stop defending federal climate-related disclosure rules in February, California exemplifies how various U.S. states are proposing their own sustainability laws, mirroring regulation in other global jurisdictions.⁴ California’s efforts align with a broader movement toward transparency that is unlikely to be reversed as other states, including New York and Illinois, are also set to pass climate-related legislation.^5,⁶ Furthermore, many international regulations — such as the European Union’s Corporate Sustainability Reporting Directive and the UK’s Sustainability Reporting Standards — require similar disclosures.^7,⁸

Despite uncertainty around which laws will pass where and when, California’s legislation presents a blueprint for companies not only seeking to be proactive and prepare, but also to support long-term value creation and risk mitigation. Undertaking compliance efforts now can help strengthen organizations’ reporting capabilities, supporting readiness to address future disclosures wherever they may be required while providing a useful framework for understanding the impact of climate-related risks and opportunities.

California Disclosures Are Coming: What to Expect

Starting next year, public and private entities that do business in California will be required to publicly disclose their scope 1 and 2 GHG emissions and climate-related financial risk information — or face penalties.⁹ Although this is a state rule, due to the broad applicability criteria (i.e., doing business in California), thousands of companies across the United States will be impacted and will need to adhere to the following rules:

Beginning in 2026 — and then on a biennial basis — businesses with global annual revenues exceeding $500 million will be required to report climate-related risks to their financial health, in line with the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommendations or a comparable framework.¹⁰ The penalty for non-compliance will be as high as $50,000.¹¹
Beginning in 2026, businesses with global annual revenues exceeding $1 billion will be required to report on the prior year’s Scope 1 and 2 GHG emissions data (direct emissions from sources owned or controlled by an organization and indirect emissions from purchased energy), and in 2027, Scope 3 GHG emissions (indirect emissions produced in the supply chain). Failure to comply will carry a penalty of up to $500,000.¹²
Scope 1 and 2 emissions will require limited assurance in 2026 and reasonable assurance in 2030, while limited assurance will be required for Scope 3 emissions in 2030.¹³
The California Air Resources Board (“CARB”) will oversee enforcement and has until July 1, 2025, to further clarify the implementation guidelines for the package, which will allow companies to more directly prepare for submitting disclosures in 2026.¹⁴ CARB has signaled some leniency in initial enforcement, giving companies a grace period in their first year of reporting by not penalizing incomplete reports and allowing the use of older data — so long as good faith efforts to comply are demonstrated.¹⁵ This offers a reprieve for companies actively working towards compliance.

For now, even with recent updates from CARB, implementation guidance remains broad. In addition to potential changes from CARB, the law has faced legal challenges, and in April, the Trump administration issued an executive order taking aim at state-level emissions reporting requirements.^16,¹⁷

Use This Time Wisely — Build a Robust Reporting Scheme

In spite of lingering uncertainty about how the package and its enforcement will develop, CARB has encouraged businesses to “move toward full compliance as quickly as possible.”¹⁸ While year-one enforcement will likely be focused on best efforts to comply, increased corporate climate disclosures, as a result of the ruling, will expose companies to the court of public opinion and elevate expectations for industry-aligned reporting in following years. As the compliance deadline approaches, exposed organizations should prioritize developing accurate disclosures, whether they have a strong reporting structure in place or gaps to fill.

For companies that already calculate their Scope 1-3 GHG emissions and with a concrete understanding of the impact of climate-related risks and opportunities aligned with TCFD recommendations, much of the necessary work should already be done. However, many companies that have taken these steps as part of their voluntary reporting will face limited and reasonable assurance requirements for the first time under California’s requirements. All affected firms should begin implementing internal controls and tools, which may include the use of specialized software, to prepare for compliance and manage reporting efficiently on an annual basis. Many organizations already report this data voluntarily or in compliance with other regulatory schemes, and crucially, this rule permits entities to submit reports prepared for other regulation, as long as they meet the requirements.¹⁹ Though current details describing the requirements remain uncertain, CARB has promised to issue further guidelines, which may necessitate additional effort by firms to transpose existing disclosures into reporting acceptable to CARB.

Companies exposed to these regulations that have not yet performed these actions will need to begin the process of aligning with TCFD’s recommendations and focus on calculating their GHG emissions — initially Scope 1 and 2 for 2026 and then Scope 3 for 2027. Companies targeting compliance from “scratch” have a critical opportunity to approach their management of climate-related issues in a thoughtful and value-oriented manner and use the TCFD process to identify avenues for driving operational efficiency (e.g., through reduced energy use, management of spend) and mitigating risks (e.g., preparing more concretely for realized climate risks).

Given the uncertainty around compliance and intricacies of these disclosures, companies should engage sustainability experts to help streamline the process, ensure rigorous results, and drive the maximum value possible. Further, companies that engage in a thoughtful and rigorous process to meet California’s requirements will be better positioned to meet additional climate-related reporting that is becoming more common in the United States and abroad.^20,²¹

Climate Transparency Doesn’t End With California

Despite the current anti-ESG sentiment by some parties in the United States, transparency into sustainable practices is not a fleeting trend. Organizations that are not currently exposed to California’s requirements will likely be exposed elsewhere. Understanding climate-related risks and opportunities will prepare companies for the forthcoming requirements and benefit long-term business planning and risk management. Regulators, consumers and investors will continue to ask for transparent and actionable climate-related disclosures because climate risks translate into financial risks.²²

As discussed above, U.S. states and EU countries are continuing to push for increased disclosure of ESG metrics and climate-related risks and opportunities. The details may differ but the principles will remain the same. Thus, thoughtful compliance with the California requirements will set businesses up for continued success in other domestic and international jurisdictions.

The value in doing this work early and thoroughly is clear: companies that can identify and address gaps now will find themselves best positioned for short and long-term compliance with not only California’s requirements, but those around the country and the world, all while playing a key role in driving the ongoing success of their business.

Footnotes:

1: “SB-219 Greenhouse gases: climate corporate accountability: climate-related financial risk”, California Legislative Information (September 27, 2024)

2: “SB-253 Climate Corporate Data Accountability Act”, California Legislative Information (October 7, 2023)

3: “SB-261 Greenhouse gases: climate-related financial risk”, California Legislative Information (October 7, 2023)

4: Mark T. Uyeda, “Acting Chairman Statement on Climate-Related Disclosure Rules”, U.S. Securities and Exchange Commission (February 11, 2025)

5: “Air Pollution Regulatory Revisions: 6 NYCRR Part 253 – Mandatory Greenhouse Gas Reporting”, (Accessed June 10, 2025)

6: “Bill status of HB3673 – Corporate Emissions Reporting”, Illinois General Assembly (March 21, 2205)

7: “Corporate Sustainability Reporting”, European Commission (February 26, 2025)

8: “UK Sustainability Reporting Standards”, Gov.uk (November 25, 2024)

9: “SB-219 Greenhouse gases: climate corporate accountability: climate-related financial risk”, California Legislative Information (September 27, 2024)

10: “TCFD Recommendations”, Task Force on Climate-Related Financial Disclosures (October 12, 2023)

11: “SB-219 Greenhouse gases: climate corporate accountability: climate-related financial risk”, California Legislative Information (September 27, 2024)

12: Id.

13: Id.

14: “The Climate Corporate Data Accountability Act – Enforcement Notice”, California Air Resources Board (December 5, 2024),

15: Id.

16: Edvard Pettersson, “Judge dismisses in part US Chamber of Commerce lawsuit over California climate laws”, Courthouse News Service (February 3, 2025)

17: “Protecting American Energy from State Overreach”, The White House (April 8, 2025)

18: “The Climate Corporate Data Accountability Act – Enforcement Notice”, California Air Resources Board (December 5, 2024)

19: “SB-219 Greenhouse gases: climate corporate accountability: climate-related financial risk”, California Legislative Information (September 27, 2024)

20: “Air Pollution Regulatory Revisions: 6 NYCRR Part 253 – Mandatory Greenhouse Gas Reporting”, (Accessed June 10, 2025),

21: “Corporate Sustainability Reporting”, European Commission (February 26, 2025)

22: Pierpaolo Grippa, Jochen Schmittmann and Felix Suntheim, "Climate Change and Financial Risk”, International Monetary Fund Finance & Development Magazine (December 2019)