California will officially require climate disclosures in 2026

After months of uncertainty around the implementation date for California’s climate disclosure requirements, Governor Gavin Newsom has now officialised 2026 as the first reporting year.

Newsom signed SB 219 (which consolidates and amends SB 253 and SB 261) into law last week, extending the time the California Air Resources Board (CARB) has to create the regulatory mechanisms for reporting until July 1, 2025 – instead of the original deadline of January 1, 2025.

However, the amendments to the bill – a response to concerns over implementation deadlines – did not include an extension for companies to submit their first climate reports: the first wave will be expected to do so starting in 2026.

In July, the Governor had proposed a two-year delay for climate reporting, but the proposal was shut down by state legislators. 

The exact date to submit the first reports is to be determined by CARB as it officialises the regulatory process for disclosures by July next year. The first reports shall include Scope 1 and 2 emissions, calculated according to the Greenhouse Gas (GHG) Protocol methodology.

Scope 3 emissions reporting will only be mandatory from 2027, and acceptable calculations can include industry average data, proxy data, and other generic data – as per the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

More than 10,000 firms required to disclose climate impacts

The new law is expected to affect more than 10,000 companies – both private and publicly listed. 

Concretely, all partnerships, corporations, limited liability companies and other business entities formed under California state or any other US state law, with total annual revenues in excess of US$1 billion and that does business in California will have to report on greenhouse gas emissions annually.

Additionally, those with more than US$500 million in revenue doing business in California will also have to disclose climate-related financial risks – defined as “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health” – every two years, starting on January 1, 2026 at the latest.

California praised for holding firm on its climate agenda

While at the federal level, the Securities and Exchange Commission (SEC) is struggling to implement its own climate disclosure rule, California’s decisiveness has been praised by sustainability professionals.

“This is historic. Causing positive reverberations across the US & global supply chains. Accountability doesn't start with public reporting...but it certainly drives it,” said Brie Welzer, Director of Sustainability and Responsible Sourcing at The Uplift Agency in Washington DC.

Meanwhile, legal experts are urging companies to prepare for compliance as fast as possible: “The clock is indeed ticking. Despite Governor Newsom proposing a two-year delay in California's unprecedented climate disclosure mandates, the Legislature said "No!" For entities subject to disclosure – both emissions and "risks" need to be measured and assessed throughout 2025 for disclosure beginning in 2026,” warned David Smith, a Partner at Manatt, Phelps & Phillips LLP in San Francisco.