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In 2023, California took a historic step with two new climate disclosure laws that will soon affect thousands of companies across the U.S., public and private alike. If you have portfolio companies with meaningful sales in California, these rules are likely to touch you. The first reporting deadlines begin in 2026, which means it’s time to start preparing now.
Even if your headquarters are in another state (or another country), California’s definition of “doing business” reaches far. In many cases, crossing the sales threshold is enough to trigger compliance. That means these laws aren’t just for California-based firms—they’re shaping the landscape for investors nationwide.
SB 253: Climate Corporate Data Accountability Act
What it requires: Companies with more than $1 billion in annual revenue that do business in California must disclose their greenhouse gas (GHG) emissions annually:
- Scope 1: Direct emissions from operations (e.g., company-owned facilities or vehicles).
- Scope 2: Indirect emissions from purchased electricity, heating, or cooling.
- Scope 3: All other indirect emissions across the value chain, like supply chain, commuting, and product use.
Timeline:
- 2026: First disclosures of Scope 1 and 2 emissions (based on FY2025 data). Exact date to be announced by CARB.
- 2027: First disclosures of Scope 3 emissions (based on FY2026 data).
- Assurance: Independent verification will be phased in, starting with limited assurance in 2026.
SB 261: Climate-Related Financial Risk Act
What it requires: Companies with more than $500 million in annual revenue that do business in California must disclose their climate-related financial risks every two years. Reports should align with the widely adopted Task Force on Climate-related Financial Disclosures (TCFD) framework.
The TCFD asks companies to explain:
- How climate risks are managed at the board and executive level.
- How risks and opportunities factor into strategy.
- What systems are in place for risk management.
- What metrics and targets are being used to track progress.
Timeline:
- January 1, 2026: First reports are due. Reports are based on FY2025 data and must be publicly available on their website.
- Every two years after that: Updated disclosures.
- Assurance: No independent verification required at this stage.
What This Means for Your Portfolio
For private market investors, these requirements will quickly become part of the conversation with portfolio companies. Non-compliance carries real consequences—fines of up to $500,000 per year under SB 253 and $50,000 per year under SB 261. But the bigger issue is reputational and strategic: portfolio companies that aren’t prepared risk falling behind peers who can meet these expectations with confidence.
Getting Your Portfolio Ready
The disclosures may sound daunting, but the work companies do now will save time, cost, and reputational risk down the line. Some practical steps investors can encourage portfolio companies to take include:
- Start with Scope 1 and 2 emissions. These are required first and provide a clear starting point.
- Build capacity for Scope 3. This is where many companies struggle, but it will be mandatory soon.
- Align with TCFD. Understanding governance, strategy, and risk management today positions companies to meet SB 261 tomorrow.
- Treat compliance as value creation. Good data isn’t just about avoiding penalties—it helps identify risks and opportunities that matter to long-term resilience.
Making the Complex Simple
We’ve been working alongside investors and portfolio companies to make these requirements manageable. From emissions data collection to TCFD-aligned reporting, the goal is to simplify what can otherwise feel overwhelming.
That might mean helping a portfolio company map its Scope 1 and 2 emissions today, building the processes for Scope 3 tomorrow, or walking management teams through governance questions under TCFD. The result isn’t just compliance. It’s stronger, more resilient businesses that are ready for the expectations of regulators, LPs, and the market.
Looking Ahead
California’s climate laws are the first of their kind in the U.S., but they won’t be the last. For investors, this is a chance to stay ahead of the curve. By preparing now, you not only help portfolio companies avoid penalties—you also strengthen their ability to thrive in a changing market.
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