What is SB 253?
California’s Climate Corporate Data Accountability Act, often denoted as Senate Bill 253, enters into force in 2026 as one of California’s two planned climate disclosure laws. This act introduces comprehensive greenhouse gas reporting requirements for large portfolio companies, exposing covered entities to significant administrative penalties for inaccurate reporting or noncompliance. Companies subject to SB 253 must submit emissions calculations and public disclosures covering the full scope of their carbon footprint, with mandatory third-party verification requirements in future reporting years. The deadline for Scope 1 and 2 emissions reporting is August 10, 2026, with annual reporting thereafter. Assurance standards and Scope 3 emissions reporting requirements will be phased in starting in 2027.
Oversight of SB 253 is delegated to California’s Air Resources Board (CARB), which can enforce civil penalties of up to $500K per year for non-compliance. Enforcement of Scope 3 disclosure will begin in 2027, with leniency at CARB’s discretion in 2026 predicated on evidence that a “good faith effort” was made in preparing disclosures. Through 2030, companies will only face penalties for failing to file their Scope 3 emissions entirely, rather than for good faith misstatements.
Who falls within the scope of SB 253?
SB 253 applies to public and private companies that 1) are formed under U.S. federal, state, or D.C. law (i.e., U.S.-based companies or U.S.-based subsidiaries of non-U.S.-based parent companies), 2) have total annual, global revenue exceeding $1 billion, and 3) “do business in California.”
CARB’s proposal aligns its definition of “doing business in California” with the California Taxation and Revenue Code §23101; this definition includes companies meeting any of the following criteria [1]:
- Organized or commercially domiciled in California
- California sales exceed $757,070
Importantly, if a subsidiary independently qualifies as a covered entity under SB 253, it does not need to file a separate report if its parent company files a consolidated disclosure that appropriately addresses the subsidiary’s climate-related financial risks.
[1] Criteria listed reflect California Franchise Tax Board thresholds for 2025; these are subject to annual inflation adjustments. Wholesale sales of electricity do not count for the purposes of determining an entity’s sales in California.How can companies prepare SB 253-compliant reports?
SB 253 requires companies to report emissions in alignment with the Greenhouse Gas Protocol, an internationally recognized standard designed to ensure transparency and consistency in how companies measure and disclose their emissions. CARB is currently developing a voluntary template for Scope 1 and 2 emissions reporting to provide additional clarity and comparability in the disclosure process.
Beginning in 2027, companies will be expected to collect, centralize, and calculate annual emissions data across their operations in conformance with the applicable GHG Protocol Corporate Accounting and Reporting Standards for all three scopes. Use of these standards will enable companies to submit accurate and acceptable disclosures, even where emissions data relies on assumptions or third-party data.
Once emissions have been calculated and developed into accessible public disclosures, companies will then need to submit their reports to a third-party assurance provider for verification. Evidence of verification, in the form of the assurance provider’s full report, must be submitted along with public disclosures.
Importantly, in its December 2024 Enforcement Notice, CARB clarified that for the 2026 initial reporting year, companies face significantly fewer requirements for their GHG emissions disclosures. Among the options for reporting, CARB indicated it will accept Scope 1 and 2 emissions from the year prior, annual reports with emissions information, and emissions data through a different regulatory or voluntary program. Third-party assurance of any submissions will not be required. While these options provide a degree of leniency, now is a critical time for companies to develop the processes and strategies, and obtain assurance engagements needed, to ensure compliance when stricter enforcement begins in 2027.
How does SB 253 fit within the landscape of California’s other climate laws?
SB 253 was designed in conjunction with another California climate law, SB 261 (also known as the Climate-Related Financial Risk Act), that addresses the potential impacts climate change could have on businesses. SB 261 requires companies doing business in California with more than $500M in annual revenue to report biennially on climate-related financial risks and their plans for risk mitigation.
Together, the two laws provide regulators, investors, and the public with a more comprehensive view of both a company’s climate impact and its exposure to climate-related risks. This framework is evidence of California’s commitment to improving transparency and encouraging more robust climate governance and planning in the private sector.
Notably, both laws were amended by SB 219 (2024) to better align their implementation timelines, provide flexibility in reporting, and clarify requirements as CARB continues to develop the detailed regulations.
What is SB 253’s current status, and does it face any potential pushback?
In short, SB 253 is currently valid and enforceable. However, it has faced litigation and executive actions in the past that may signal potential pushback going forward.
Litigation: In January 2024, the U.S. and California Chambers of Commerce filed a lawsuit challenging the constitutionality of SB 253 and SB 261. While an injunction was granted in November 2025 against the enforcement of SB 261, a similar motion related to SB 253 was denied, allowing CARB to move forward with its implementation as planned. Litigation is ongoing as the U.S. Court of Appeals for the Ninth Circuit deliberates; no date has been provided as to when a decision can be expected. A range of outcomes are possible, from the reinstatement of SB 261, to the extension of limitations to SB 253. As such, affected companies should continue to prepare for SB 253’s approaching deadline, while monitoring the case and CARB’s public notices for relevant updates.
Executive Order. Additionally, on April 8, 2025, President Trump issued an executive order (EO) titled Protecting American Energy from State Overreach. This EO directs the U.S. Attorney General to identify and take action against state or local regulations that may conflict with federal energy objectives, including climate disclosure laws. While the EO introduces longer-term political and legal uncertainty, it does not currently affect SB 261 and SB 253 compliance obligations, which can only be overturned through the courts.
How should PE firms navigate SB 253?
Given the significant penalties stemming from noncompliance with SB 253, GPs should take proactive steps to assess the extent to which their portfolios are exposed, develop reporting initiatives, and prepare companies for disclosure obligations.
- Screen portfolio companies for SB 253 exposure.Identify which portfolio companies are in-scope for SB 253 to determine their compliance obligations.
- Assess company reporting boundaries. Companies will need to assess the full swath of their value chains to identify emissions sources within each of the three scopes (e.g., owned and operated facilities, purchased energy, suppliers).
- Build internal emissions tracking infrastructure. Companies will need systems that can accurately collect, convert, and calculate data from a variety of sources to determine direct and indirect emissions.
- Obtain external assurance.Beginning in 2027, companies will be required to obtain limited assurance for their Scope 1 and 2 emissions, followed by reasonable assurance and Scope 3 verification starting in 2030. This process may pose a challenge, given the number of entities coming into scope this year and the limited number of reputable assurance providers. Securing a third-party provider early is an important step to ensure preparedness when CARB begins enforcing verification requirements in 2027.
- Publish accessible disclosures.SB 253 requires that annual emissions disclosures be clear and accessible to the public. As such, companies will need to develop strategies to communicate their reports transparently and in line with best practices. Companies may choose to make this part of an overall value creation strategy, highlighting sustainable initiatives and progress toward responsible goals.
Through proactive efforts to develop emissions tracking and disclosure readiness, GPs can stay ahead of regulatory risk and take advantage of SB 253 to generate long-term value creation. While the law introduces new obligations, it also presents a strategic opportunity for sponsor-backed companies to enhance transparency and demonstrate climate competency to LPs and other stakeholders. Early alignment with SB 253 requirements positions companies to lead in an increasingly climate-conscious market and improve positioning for future exits.
How can ESG advisors help portfolio companies prepare for SB 253?
While GPs set the strategic direction for SB 253 compliance across their portfolios, ESG advisors play a critical role in helping portfolio companies execute the technical and operational work required. Advisors like Malk Partners, part of SLR Consulting can interpret evolving regulatory requirements, conduct carbon accounting for Scope 1, 2, and 3, and assist in the preparation of disclosures for external assurance. Engaging experts can give companies confidence in the numbers they report each year, preventing future restatements or potential penalties. As assurance enters into enforcement in 2027, this preparation will earn dividends, making future reporting and assurance cheaper, faster, and less painful.
Malk can also support the drafting of emissions disclosures that resonate with LPs and other stakeholders, as well as help implement scalable systems for emissions tracking and annual reporting as your firm grows. This hands-on support enables portfolio companies to meet compliance obligations efficiently while maximizing potential value creation.
Author
Gwendolyn Dane
Gwendolyn Dane is a Consultant at Malk Partners, part of SLR on the firm’s Private Equity team, where she performs ESG due diligence, portfolio monitoring, and supports investors with fund advisory. Prior to Malk, she spent three years at impak Ratings, an independent impact ratings agency working on behalf of clients in banking and finance to assess ESG risks and impact for companies across a variety of sectors. Gwendolyn holds a bachelor’s degree from McGill University in Montréal, where she pursued a double major in Economics and Environmental Development.
Malk Partners does not make any express or implied representation or warranty on any future realization, outcome or risk associated with the content contained in this material. All recommendations contained herein are made as of the date of circulation and based on current ESG standards. Malk is an ESG advisory firm, and nothing in this material should be construed as, nor a substitute for, legal, technical, scientific, risk management, accounting, financial, or any other type of business advice, as the case may be.