California SB 253 Scope 3 Reporting: What CARB's 2027 Decision Means for Your Compliance Program

EcoVantage Support
6 days ago
7 min read

The California Air Resources Board is deciding how Scope 3 emissions reporting will begin in 2027. Every company subject to SB 253 should understand what is at stake in that decision before August 2026 arrives.

CARB Is Deciding How Scope 3 Reporting Begins in 2027

California's Climate Corporate Data Accountability Act, known as SB 253, established a legal mandate for large companies doing business in California to disclose their greenhouse gas emissions across all three scopes. Scope 1 and Scope 2 reporting begins in August 2026. Scope 3 reporting follows in 2027. What remains unresolved is precisely how that Scope 3 obligation will be structured.

The California Air Resources Board is currently evaluating three distinct implementation approaches, each of which would produce materially different compliance obligations for covered companies. [1] The decision CARB makes will not simply set a deadline. It will define the scope of what companies are legally required to measure, document, and disclose beginning in 2027.

Writing in ESG Today on April 29, 2026, Kristina Wyatt, Executive Vice President and General Counsel at The Conservation Fund and a former senior climate and ESG counsel at the US Securities and Exchange Commission, framed the stakes directly: the choice before CARB is whether California intends to ground climate disclosure in comparability and alignment with global standards, or whether it will accept fragmentation and inconsistent disclosure that diminishes the utility of the information for investors and other users. [1]

The decision before CARB is an opportunity to reaffirm California's climate leadership. Choosing broad applicability would not demand perfection in 2027. It would demand seriousness, clarity, and a commitment to improvement over time.

90%	>$1B	2027
of a company's total climate footprint typically resides in Scope 3 emissions, not in its own direct operations. [2]	in annual California revenue is the threshold that triggers SB 253 reporting obligations for companies incorporated anywhere in the world.	is when Scope 3 reporting obligations begin under SB 253, following Scope 1 and 2 disclosure which starts in August 2026.

The Three CARB Implementation Options and What Each Requires

CARB has presented three options for structuring Scope 3 reporting under SB 253. Understanding each option is essential for any company building its compliance program now, because the choice of framework will determine the scope of the measurement, data collection, and supplier engagement work required. [1]

The first option is broad applicability. This approach would require all covered companies to report on all relevant Scope 3 emissions categories beginning in 2027, with the ability to exclude categories deemed de minimis provided a written explanation accompanies the exclusion. This option establishes a common start line and shared expectations across the market. It also aligns with the approach taken by global frameworks including the ISSB sustainability disclosure standards and the EU's Corporate Sustainability Reporting Directive.

The second option is a sectoral phase-in. Transportation and industrial sector companies would be required to report first, with additional sectors added in subsequent cycles. This approach creates a staggered compliance schedule that reduces comparability across companies and sectors in the early reporting years.

The third option is a category phase-in. Scope 3 reporting would begin with five commonly disclosed categories: business travel, purchased goods and services, fuel and energy related activities, employee commuting, and waste generated in operations. Additional categories would be added over time. This approach limits initial disclosure and reduces the information available to investors and other stakeholders in the early cycles.

Sectoral or category phase-ins could diminish the utility of reported information for investors and other users of the data. Scope 3 emissions typically represent the majority of a company's climate footprint and much of its exposure to climate risk. [1]

Regardless of which option CARB selects, the compliance obligation is mandatory, not discretionary. The relevant question for corporate executives is not whether to comply, but how prepared their organization will be when the reporting cycle begins.

Why Scope 3 Carries the Most Operational and Financial Risk

Scope 1 emissions are those produced directly by a company's own operations. Scope 2 covers purchased energy. Both are well-understood categories with established measurement methodologies. Scope 3 is categorically different. It encompasses the emissions generated across a company's entire value chain, upstream through its supply base and downstream through the use and end-of-life of its products and services.

According to McKinsey, Scope 3 emissions typically represent approximately 90% of a company's total climate footprint. [2] For most companies in scope under SB 253, the majority of their regulatory exposure and their climate risk resides not in what they directly control but in the activities of their suppliers, logistics partners, and customers.

This has two direct implications. First, measuring Scope 3 accurately requires data from third parties. A company cannot produce credible Scope 3 disclosure without engaging its supply chain, requesting emissions data from vendors, and applying GHG Protocol methodology to categories where supplier-level data is unavailable and estimation approaches must be documented and justified. That work is not a reporting exercise. It is a data infrastructure project.

Second, investors and lenders are increasingly using Scope 3 data to assess climate-related financial risk. Regulatory disclosure under SB 253 places that data in the public record. Companies that report incomplete or poorly documented Scope 3 figures create investor relations and reputational exposure that extends beyond the regulatory compliance obligation itself.

Supply chain disruptions, resource constraints, and climate-related shocks tend to arise upstream or downstream, not within a company's own operations. Disclosures that postpone or limit Scope 3 coverage risk missing material sources of emissions and risk. [1]

August 2026: The Scope 1 and 2 Obligation Arrives First

Before the Scope 3 question reaches its resolution, covered companies face an immediate compliance deadline. Scope 1 and Scope 2 reporting under SB 253 begins in August 2026. Companies with annual California revenues above one billion dollars are required to disclose their direct and energy-related emissions in that first reporting cycle.

SB 253 passed the California state assembly in 2023, providing more than four years of lead time before Scope 3 reporting begins. [1] The GHG Protocol, which provides the established methodology for measuring and disclosing emissions across all three scopes, is a mature framework. For companies that have not yet begun their emissions inventory, the August 2026 Scope 1 and 2 deadline is the immediate operational priority.

Companies currently without an emissions baseline face two sequential compliance obligations: the August 2026 Scope 1 and 2 submission, followed by Scope 3 in 2027. Neither can be addressed without a structured carbon emissions management program that establishes the measurement methodology, data collection process, and reporting documentation that regulators will require.

SB 261, which operates alongside SB 253, establishes a separate climate-related financial risk reporting obligation for companies with California revenues above five hundred million dollars. SB 261 requires disclosure of climate-related financial risks and the measures in place to address them, structured in alignment with TCFD and ISSB frameworks. Both laws apply to companies incorporated anywhere in the world that meet the California revenue thresholds, not only to California-domiciled entities.

The Global Reporting Alignment That Cannot Be Ignored

California's climate disclosure requirements do not exist in isolation. The ISSB sustainability disclosure standards, developed to create a global baseline for investor-grade climate information, require Scope 3 emissions disclosure as part of IFRS S2 compliance. Companies with operations in the European Union or that supply EU-headquartered companies are also subject to CSRD, which mandates value chain emissions reporting as a core component of sustainability disclosure.

The practical consequence for mid-market companies with cross-border customer relationships is that California, ISSB, and CSRD obligations frequently overlap. A company that invests in building a credible Scope 3 measurement and disclosure capability to meet SB 253 requirements will find that the same infrastructure supports its CSRD supplier questionnaire responses, its ISSB S2 disclosures, and its EcoVadis rating on the sustainable procurement category. These are not separate programs requiring separate work. They are converging requirements that a single well-structured compliance program addresses.

Scope 3 reporting is inevitable. Whether through California regulation, international requirements, or investor pressure, companies will be expected to understand and disclose their value chain emissions. The question is whether they build that capability now or under deadline pressure. [1]

What Companies Should Be Building Now

CARB has stated that it is looking for good faith efforts, not perfection, in the first year of Scope 3 reporting. [1] That statement reflects a practical recognition that emissions measurement at the value chain level involves estimation, supplier data gaps, and methodology choices that will improve over successive reporting cycles. It does not reduce the obligation to begin.

The companies that will be best positioned in 2027, regardless of which CARB implementation option is selected, are those that use the period before August 2026 to complete the following:

• Establish a Scope 1 and Scope 2 emissions inventory using GHG Protocol methodology, with documented data sources and calculation approaches that will satisfy CARB auditors in the first reporting cycle

• Identify the Scope 3 categories most material to the company's value chain, prioritizing categories where supply chain concentration or spend volume indicates the greatest emissions exposure

• Begin supplier engagement programs to collect primary emissions data from key vendors, reducing reliance on spend-based estimation approaches that produce lower-quality Scope 3 figures

• Assess climate-related financial risk in alignment with TCFD and ISSB S2 frameworks to meet parallel SB 261 obligations

• Review existing EcoVadis submissions and CDP supplier responses to ensure consistency between voluntary ESG disclosures and the statutory California climate disclosure that will enter the public record

The last point matters more than most executives recognize. When a company's California climate disclosure is filed, its Scope 3 figures become public information. Inconsistencies between those figures and prior EcoVadis or CDP submissions are visible to customers, investors, and regulators. Building a consistent emissions narrative across all disclosure channels is a risk management function, not a sustainability communications project.

Prepare Your California Climate Disclosure Program

EcoVantage Support provides structured SB 253 and SB 261 compliance services for mid-market companies managing California climate disclosure obligations without an internal sustainability team. Our work covers Scope 1, 2, and 3 emissions inventory, climate-related financial risk assessment under ISSB S2 and TCFD, and submission preparation for the 2026 and 2027 reporting cycles.

For companies that also hold EcoVadis ratings or respond to CDP supplier requests, we coordinate the California disclosure program with existing ESG commitments to ensure consistency across all reporting channels.

To learn more about how EcoVantage Support structures SB 253 and SB 261 compliance engagements, visit:

ecovantagesupport.com/california-sb-253-sb-261-compliance

Or contact us directly at hello@ecovantagesupport.com.