How to navigate California's new climate reporting requirements

California's new climate laws - SB-253, SB-261, and AB-1305 - mandate detailed disclosures, impacting Danish companies doing business in California by 2026.

In brief

• Danish companies in California must prepare for new climate laws requiring detailed disclosures and compliance by 2026.
• Compliance with SB-253, SB-261, and AB-1305 requires robust emissions data, risk assessments, and verifiable climate claims.
• Understanding and managing climate-related risks can transform regulatory challenges into strategic opportunities for Danish businesses.

What should Danish companies know about California's climate mandates?

With the passage of three ambitious climate laws - SB-253, SB-261, and AB-1305 - California has firmly positioned itself as the first US state to mandate broad, detailed climate disclosures from businesses. While these laws are California-based, their impact extends far beyond US borders – including Danish companies that do business in the state.

If your company operates in California - even through a US subsidiary - these laws could directly affect your operations, compliance systems, and public disclosures starting already in 2026.

Any public or private company doing business in California, regardless of where it is headquartered, could be subject to these laws if it crosses the revenue thresholds:

• SB-253: Applies to entities with over US$1 billion in annual global revenue.
• SB-261: Applies to entities with over US$500 million in annual global revenue.
• AB-1305: Applies to entities operating in California that make net-zero, carbon-neutral, or GHG reduction claims.

Importantly, revenue thresholds are based on total revenue, not just that related to the Californian business. That means a Danish company with limited - but qualifying - operations in California can be pulled into scope.

The three laws at a glance

1. SB-253: climate corporate data accountability act
This law mandates that large companies publicly disclose their full greenhouse gas (GHG) emissions - including Scope 1 (direct emissions), Scope 2 (indirect energy-related emissions), and Scope 3 (value chain emissions). Starting in 2026, companies subject to this legislation must disclose their carbon emissions and obtain limited assurance from an independent third party. The California Air Resources Board (CARB) will establish a public reporting platform and oversee enforcement, with fines of up to US$500,000 for non-compliance. Transparent and consistent measurement of emissions is not just a reporting obligation - it is the essential starting point for a credible transition journey for your company.

2. SB-261: climate-related financial risk act
SB-261 targets companies with more than US$500 million in global annual revenue, requiring them to report on climate-related financial risks every two years starting 1 January 2026. Disclosures are recommended to follow the Task Force on Climate-Related Financial Disclosures (TCFD) framework, covering both physical and transitional risks and opportunities - such as extreme weather, supply chain disruptions, policy shifts, and changing market dynamics. Importantly, SB-261 is more than a compliance obligation.

Climate resilience unpacked: navigating climate risks and opportunities

Under the TCFD framework, companies must disclose both the current and possible effects of climate-related risks and opportunities on their operations, strategies, and financial planning when this information is material. One of the suggested disclosures involves outlining how resilient the organization's strategy is, considering various climate-related scenarios, including one where the temperature increase is limited to 2°C or less.

Climate resilience analysis involves evaluating a system's capacity to foresee, prepare for, react to, and bounce back from the effects of climate change and severe weather events. The goal of this analysis is to pinpoint weaknesses and strengths in communities, ecosystems, and infrastructure, allowing stakeholders to create strategies that improve resilience.

Understanding, managing, and disclosing climate-related risks is crucial. With mandatory climate-related financial disclosures increasing, companies that assess these risks can better integrate them into decision-making processes, improve comparability with other business risks, and enhance contingency planning and resource allocation for climate resilience.

The required resilience analysis is a strategic tool that helps companies understand their exposure to climate risks, identify adaptive measures, and build long-term value. It enables companies to align governance and operations with a low-carbon future and respond proactively to investor and stakeholder expectations. third party assurance is not mandatory, but non-compliance can result in fines of up to US $50,000. More critically, failure to address climate risks transparently may damage reputation and investor trust.

3. AB-1305: voluntary carbon market disclosures
AB-1305 came into effect on 1 January 2025, and applies to companies doing business in California that make public claims related to carbon neutrality, net-zero targets, or the use of voluntary carbon offsets. The law requires companies to clearly disclose how such claims are defined, calculated, and verified, including details on emissions boundaries, measurement methods, and whether reductions are achieved internally or through purchased offsets. It also mandates transparency around the nature and quality of offsets used, including project type, location, verification standards, and retirement status. Importantly, the law applies both to entities making environmental claims and to those marketing or selling carbon credits. AB-1305 is part of a broader push to combat greenwashing and ensure public environmental claims are backed by credible, traceable data. Non-compliance can result in fines of up to US $500,000 per violation, making it essential for companies to align their climate communications with sound carbon accounting and governance practices.

What counts as “doing business”¹ in California?

The definition is broad and includes any of the following:

• Having 2024 sales exceed US $735,019 in California or owning property or paying payroll in the state exceeding US $73,502 per year.
• Being commercially domiciled in California or operating a US subsidiary in the state
• Engaging in transactions for profit in California - even through digital channels

In practice, even remote business activity, such as online services, tech platforms, or product sales into California, could bring a Danish company into scope.

Key deadlines

How should Danish companies respond?

1. Assess your California exposure: Determine whether your revenue, subsidiaries, or sales footprint exceed the relevant thresholds.
2. Map current reporting practices: Evaluate whether your CSRD, ISSB, or voluntary ESG disclosures could fulfill California requirements (some cross-compliance is allowed).
3. Start measuring emissions: Measure Scope 1 and 2 emissions, and especially Scope 3, which can be complex across global supply chains.
4. Engage assurance providers: Particularly for SB-253, where emissions data must be verified by independent assurance providers.
5. Risk and opportunities: Start identifying and measuring climate-related risks and opportunities and align with recommendations from Taskforce for Climate-Related Financial Disclosures (TCFD)
6. Review your climate marketing: Ensure that any net-zero or offset-related claims are fully substantiated.
    

How EY can help

EY Godkendt Revisionspartnerselskab, has services that can help companies in navigating complex climate regulations, including Corporate Sustainability Reporting Directive (CSRD), International Sustainability Standards Board (ISSB), and Californian law. We help assess exposure, implement emissions tracking systems, and prepare for third party assurance, creating a compliant and resilient climate disclosure strategy.

We help build and verify GHG accounts, supporting robust emissions inventories across Scope 1, 2, and 3, while ensuring alignment with global standards. EY Godkendt Revisionspartnerselskab’ teams can guide companies in developing credible climate claims and transition plans, including responsible offset usage and measurable, verifiable climate targets in line with AB-1305.

Additionally, we offer state-of-the-art tools to help companies understand and respond to SB-261, leveraging resilience analysis as a strategic asset. This includes scenario planning, climate risk integration, and impactful stakeholder reporting aligned with the recommendations of CSRD and TCFD.