California SB 253: Who Must Comply with the Climate Disclosure Law?

In the landscape of environmental, social, and governance (ESG) regulation, the United States has traditionally relied on voluntary disclosures and investor pressure. However, that paradigm changed permanently with the passage of California's historic Climate Accountability Package. Chief among these new rules is Senate Bill 253 (SB 253), also known as the Climate Corporate Data Accountability Act.

SB 253 represents the most comprehensive carbon disclosure law in U.S. history. By requiring large corporations to report their carbon footprints across their entire value chains, the law effectively transforms sustainability data from a marketing asset into an audit-grade financial disclosure.

While SB 253 directly targets multi-billion-dollar enterprises, its downstream impact will be felt by thousands of small and medium-sized enterprises (SMEs) across the United States. If you are a supplier to large corporate buyers, understanding SB 253 is no longer a matter of distant regulatory interest—it is a critical commercial necessity.

Table of Contents

• What is California SB 253?
• The Compliance Threshold: Who Must Report?
  • The "Doing Business in California" Threshold Explained
• The SB 253 Reporting Timeline (2026–2027 and Beyond)
  • Scope 1 and Scope 2 Emissions Disclosures
  • Scope 3 Value Chain Disclosures
• Assurance Requirements under SB 253
• The Supply Chain Trickle-Down Effect: What US SMEs Need to Know
• How to Get Audit-Ready with ExecutESG
• Frequently Asked Questions
• Recommended Articles

What is California SB 253?

Signed into law in October 2023 by Governor Gavin Newsom, SB 253 (The Climate Corporate Data Accountability Act) mandates that public and private partnerships, corporations, and other business entities operating in California with total annual revenues exceeding $1 billion publicly disclose their greenhouse gas (GHG) emissions.

Unlike previous regulatory proposals that focused exclusively on public companies, SB 253 covers both public and private entities. The law is administered by the California Air Resources Board (CARB), which is tasked with setting the reporting guidelines, contracting a digital registry to receive disclosures, and overseeing enforcement.

Under the law, reporting entities must disclose three categories of emissions, as defined by the Greenhouse Gas Protocol (GHG Protocol):

• Scope 1 (Direct Emissions): Greenhouse gas emissions from sources that the company owns or controls directly (e.g., combustion of fuels in company vehicles, boilers, or furnaces).
• Scope 2 (Indirect Emissions): Emissions from electricity, steam, heating, or cooling purchased and consumed by the reporting company.
• Scope 3 (Value Chain Emissions): Indirect emissions from activities throughout the company's broader value chain, including both upstream suppliers and downstream product use.

SB 253 is unique because it is the first major U.S. regulation to mandate the disclosure of Scope 3 emissions. Because Scope 3 represents the largest portion of most companies' footprints, this mandate creates a regulatory bridge that connects giant corporations to the carbon output of their smallest suppliers.

The Compliance Threshold: Who Must Report?

The compliance threshold for SB 253 is defined by two primary criteria. An organization is subject to the law if it:

1. Is a partnership, corporation, limited liability company, or other business entity formed under the laws of California, another U.S. state, or an international jurisdiction.
2. Does business in California and has total annual revenues exceeding $1 billion.

It is important to note that the $1 billion revenue threshold is based on the company's global revenue, not just the revenue generated within the state of California. For instance, a manufacturing company headquartered in Illinois with $1.5 billion in global sales that conducts business in California is fully subject to SB 253.

Industry analysts estimate that approximately 5,300 companies meet these criteria and will be required to file disclosures.

The "Doing Business in California" Threshold Explained

The phrase "doing business in California" has a specific legal meaning under California's Revenue and Taxation Code (Section 23101). A business is considered to be doing business in California if it meets any of the following economic nexus thresholds:

• Active Transactions: The entity actively engages in any transaction for the purpose of financial or pecuniary gain or profit within California.
• Sales Nexus: The company's sales in California (including sales made through third-party distributors or online platforms) exceed a specified annual threshold (e.g., $690,144 for recent tax years, adjusted annually).
• Property Nexus: The value of the company's real property and tangible personal property in California exceeds a statutory threshold (e.g., $69,015).
• Payroll Nexus: The compensation paid by the company to employees working in California exceeds a statutory threshold (e.g., $69,015).

Because of these low economic nexus thresholds, virtually any national or multinational enterprise with a customer base or remote workforce in California will be pulled into the scope of SB 253, provided their global revenue exceeds $1 billion.

The SB 253 Reporting Timeline (2026–2027 and Beyond)

The implementation of SB 253 follows a phased schedule. This timeline gives companies time to establish their carbon accounting baselines before Scope 3 value chain reporting and strict assurance requirements take effect.

Scope 1 and Scope 2 Emissions Disclosures

In 2026, covered companies must disclose their Scope 1 and Scope 2 emissions based on their performance in the 2025 fiscal year.

Because Scope 1 and Scope 2 emissions are generated directly by the company’s own assets and energy purchases, they are relatively easy to track. Collecting utility bills, fuel transaction logs, and facility energy records provides the raw data needed to calculate these figures. To learn more about the differences between these metrics, check out our detailed guide to Scope 1, 2, and 3 emissions.

Scope 3 Value Chain Disclosures

Starting in 2027, reporting entities must also disclose their Scope 3 emissions. This reporting must take place within 180 days of their Scope 1 and Scope 2 filings.

Scope 3 is much more complex than Scope 1 and 2. It covers 15 distinct categories of indirect emissions, including:

• Category 1: Purchased Goods and Services (the emissions generated by suppliers to manufacture the parts, raw materials, or services the company buys).
• Category 4 & 9: Upstream and Downstream Transportation and Distribution (shipping logistics, third-party freight).
• Category 11: Use of Sold Products (the electricity consumed by appliances or electronics after purchase).
• Category 12: End-of-life treatment of sold products.

For a thorough breakdown of how Scope 3 differs from Scope 1 and how companies organize this data, read our comparison of Scope 1 vs. Scope 3 emissions.

Assurance Requirements under SB 253

To prevent "greenwashing" and ensure that carbon data is as reliable as financial data, SB 253 requires companies to have their disclosures verified by an independent, third-party assurance provider.

Assurance is divided into two levels:

1. Limited Assurance: A review-level audit. The auditor evaluates the reporting methodology and data collection processes to confirm that no material errors or misstatements were found.
2. Reasonable Assurance: A much deeper, system-level audit. Similar to a financial audit, the assurance provider performs detailed testing of data points, recalculates emissions, and verifies source documents to provide a high level of confidence in the final figures.

Under SB 253, the assurance requirements scale over time:

• From 2026: Scope 1 and Scope 2 disclosures must undergo audit at a limited assurance level.
• By 2030: Scope 1 and Scope 2 audits will be upgraded to reasonable assurance.
• By 2030: Scope 3 disclosures must undergo audit at a limited assurance level.

This transition period gives companies time to improve their data-collection systems before they face the highest standard of audit verification. To help companies navigate this transition, SB 253 includes a "safe harbor" provision. Under this provision, companies will not face administrative penalties for Scope 3 disclosures made in good faith prior to 2030.

The Supply Chain Trickle-Down Effect: What US SMEs Need to Know

The most significant business impact of SB 253 is not the compliance burden it places on large companies. It is the commercial pressure it will create for their small and medium-sized suppliers.

Even if your business has far less than $1 billion in annual revenue, you will likely be affected if you sell products or services to large corporate buyers that are subject to the law.

Because these large corporations must report their Scope 3 emissions, they are required to calculate the carbon footprint of their supply chains. In the past, companies used industry-wide averages to estimate these emissions. However, under SB 253's strict audit and assurance requirements, general estimates are no longer sufficient. Enterprise buyers will need to collect actual, transaction-specific carbon data from their suppliers.

Consider this scenario:

A mid-sized packaging manufacturer with $35 million in revenue sells custom shipping boxes to an e-commerce platform with $2 billion in revenue. The e-commerce company is subject to SB 253 and must report its Category 1 Scope 3 emissions (Purchased Goods and Services).

To comply, the e-commerce giant will send a data request to the packaging manufacturer, asking for the carbon footprint of the specific boxes purchased. If the packaging manufacturer cannot provide this data, or if the data is not audit-ready, the buyer may switch to a competitor that can easily provide verified emissions calculations.

This trickle-down effect makes carbon accounting a commercial requirement for SMEs. Suppliers who can provide clear, verified carbon disclosures will protect their revenue, build stronger relationships with their buyers, and stand out in competitive bidding processes.

This dynamic is similar to the regulatory shifts taking place in Europe. Under the Corporate Sustainability Reporting Directive (CSRD), European SMEs are using the simplified VSME standard to respond to supply chain data requests from larger corporate clients.

How to Get Audit-Ready with ExecutESG

Managing carbon accounting using manual spreadsheets is time-consuming, prone to errors, and difficult to audit. For both large corporations subject to SB 253 and the suppliers that support them, dedicated ESG software is essential.

ExecutESG is a strategic operating system for sustainability designed to simplify carbon accounting and make compliance straightforward. Our platform helps companies meet the requirements of SB 253 and other major reporting frameworks:

• Scope 1-3 Carbon Calculators: Simplify complex carbon math. Our guided wizards convert fuel consumption, electricity use, and purchase logs into metric tonnes of CO2e using the latest GHG Protocol emission factors.
• Audit-Ready Verification Trails: Every calculation in ExecutESG is linked directly to its source document (such as a utility bill PDF or fuel invoice). This allows third-party auditors to quickly verify your data, saving time and reducing assurance costs.
• Supplier Engagement Portal: For companies subject to SB 253, ExecutESG makes it easy to collect supply chain data. Instead of sending out complicated spreadsheets, you can invite your suppliers to complete a simplified, guided assessment on our platform, automatically aggregating your Scope 3 data.
• Multi-Framework Reporting: Prepare your carbon baseline once and export it to comply with multiple standards, including California SB 253, the European CSRD/VSME framework, or GRI.

By setting up a digital single source of truth for your sustainability data, your business can easily respond to customer requests and prepare for upcoming regulations.

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Frequently Asked Questions

Is California SB 253 currently in effect?
Yes. Senate Bill 253 was signed into law in October 2023. Reporting obligations begin in 2026 for Scope 1 and Scope 2 emissions (using data from fiscal year 2025) and in 2027 for Scope 3 emissions (using data from fiscal year 2026).

Does my company have to be headquartered in California to be subject to SB 253?
No. The law applies to any public or private company that is "doing business in California" and exceeds the $1 billion annual revenue threshold. If you have sales, property, or payroll in California that meet the state's economic nexus definitions, you are covered.

What are the penalties for non-compliance with SB 253?
Companies that fail to comply with California SB 253 face administrative penalties of up to $500,000 per reporting year, as determined by the California Air Resources Board.

Do small and medium-sized enterprises (SMEs) have to report under SB 253?
Not directly. The law only mandates reporting for companies with annual revenues over $1 billion. However, large corporations must report their Scope 3 emissions, which include their supply chain. As a result, SMEs that supply these large companies will be required to provide their emissions data to their corporate buyers.

Does SB 253 require third-party audit or assurance?
Yes. Disclosures must undergo independent third-party assurance. Scope 1 and 2 require limited assurance starting in 2026, transitioning to reasonable assurance in 2030. Scope 3 requires limited assurance starting in 2030.

Recommended Articles

• Understanding Scope 1, 2, and 3 Emissions
• Scope 1 vs. Scope 3 Emissions: The Operational Guide
• VSME Standard Explained: The Complete Guide for European SMEs
• How to Choose an ESG Reporting Framework: The Decision Manual
• How to Automate Your VSME Report and Save Hours
• ExecutESG Platform Pricing & Features