Understanding California SB 253 and SB 261 Compliance
In late 2023, California Governor Gavin Newsom signed two pivotal climate-related corporate transparency bills into law: Senate Bill 253 (the Climate Corporate Data Accountability Act) and Senate Bill 261 (the Climate-Related Financial Risk Act). Together, these regulations establish the most rigorous greenhouse gas (GHG) and financial risk reporting requirements in the United States, positioning California ahead of both federal SEC requirements and standard voluntary reporting structures.
What Constitutes "Doing Business in California" Under CA RTC 23101?
The jurisdictional hook for both laws is that an entity must be "doing business in California." Rather than developing a new standard, the legislature anchored this requirement directly to Section 23101 of the California Revenue and Taxation Code (RTC). An entity is considered to be doing business in CA if any of the following apply:
- The business is organized or commercially domiciled in California.
- Sales in California exceed the indexed statutory threshold (for tax year 2023, this was $710,211; or 25% of the entity's total sales).
- The real property and personal property held by the company in California exceed the threshold (for 2023, $71,021; or 25% of total property).
- Compensation/payroll paid in California exceeds the threshold (for 2023, $71,021; or 25% of total payroll).
Because these thresholds are exceptionally low, virtually any major US or international corporation with distributed sales, online operations, or remote staff members residing in California will comfortably trigger the "doing business" standard.
Scope 1, Scope 2, and Scope 3 Emissions Explained
SB 253 demands complete, rigorous data transparency according to the Greenhouse Gas Protocol corporate standards. Organizations must disclose:
- Scope 1: All direct GHG emissions generated directly from operations or assets owned or controlled by the reporting entity (e.g., combustion of fuels, fleet vehicles, chemical processing).
- Scope 2: Indirect emissions associated with the production of purchased electricity, steam, heating, or cooling consumed by the reporting entity.
- Scope 3: Indirect value-chain emissions, both upstream and downstream. This includes purchased goods and services, employee commuting, business travel, waste disposal, and the end-use of sold products. Because Scope 3 encompasses supplier metrics, it often constitutes the largest percentage of an organization’s footprint.
The Assurance Phase-In Roadmap
Unlike ordinary corporate social responsibility (CSR) reporting, SB 253 demands third-party verification from qualified assurance providers. Under the standard schedule, Scope 1 and Scope 2 disclosures must secure limited assurance starting in 2026. This progresses to a more rigorous reasonable assurance standard by 2030. Scope 3 disclosures must achieve limited assurance verification beginning in 2027.
Proactive Steps for Sustainability Officers and Corporate Counsels
To prepare for these stringent rules, corporate leaders should establish clear internal compliance protocols:
- Audit your CA connection: Work alongside tax specialists to calculate exact sales, payroll, and asset ratios to determine if you trigger California RTC 23101.
- Map your supplier networks: Establish reliable data ingestion channels early to guarantee you can track Scope 3 components before 2027.
- Engage an independent third-party auditor: Form relationships with specialized ESG auditing firms to secure limited and reasonable assurance certification schedules.