So You’re Thinking About Ignoring SB 253 and SB 261? Here’s What It Could Cost You

By early 2026, more than 4,000 U.S. companies must comply with California’s climate disclosure laws, or risk falling behind competitors.

Under SB 253 and SB 261, penalties can reach $500,000 a year. The real cost of non-compliance goes far beyond penalties, though: public disclosures will make compliance – or the lack of it – visible to customers, business partners, and investors alike. That visibility doesn’t just risk fines; it can damage brand reputation, erode trust with stakeholders, and even jeopardize business contracts or supplier relationships tied to legal and sustainability compliance.

If you are thinking of ignoring SB 261 and SB 253, you should reconsider it, given the serious risks at stake. Plus, covering all angles to ensure compliance on time and avoid any misstatements may be actually easier than you think, considering “good faith” efforts to comply.

To get a deeper understanding of the fiscal, contractual, and reputational penalties your company could face and how to avoid them with good faith reporting, continue reading. 

The Biggest Risks of Ignoring California’s Climate Rules

While the financial penalties are clear, the broader consequences of ignoring SB 253 and SB 261 can be far more damaging. 

• Public exposure and reputation risk: More than half of CEOs now rank reputation among their top five business risks, and two-thirds identify environmental reputation as a leading concern.  
  
  Companies that fail to report, or report with missing or incorrect information, risk losing brand reputation in addition to any fines. The reports they make will be publicly available through CARB and company websites. That means investors, customers, advocacy groups, and competitors will all be able to scrutinize reports to see who’s compliant, who’s late, and who’s just doing the bare minimum. 
• Contract and revenue risk: Because most B2B contracts require compliance with all applicable laws and regulations, failing to meet SB 253 or 261 could put your company out of contractual compliance and out of favor. That can mean delayed renewals, terminated sales agreements, or exclusion from procurement pipelines in large enterprises and government contracts. More than half of B2B buyers are already spending more with sustainable suppliers, and plan to drop unsustainable suppliers in the next three years. 
• Strategic and investor risk: Investors, lenders, and insurers will be using SB 253 and SB 261 disclosures to assess climate readiness and risk management. Companies that don’t report, or report poorly, risk a higher cost of capital, exclusion from ESG indices, and diminished credibility with stakeholders demanding transparency.

SB 253 Penalties (Financial)

By June 1, 2026, SB 253 will require covered entities (US businesses with more than $1 billion in revenue doing business in California) to report assured Scope 1 and 2 emissions.  

Under SB 253, the law authorizes administrative penalties of up to $500,000 per reporting year for violations (e.g., misstatement, late filing, failure to report, failure to get assurance) by a reporting entity. 

However, CARB will consider: 

• The violator’s past and present compliance are considered when determining whether to impose a penalty and how severe it will be. 
• And whether the violator took good faith measures to comply with SB 253, and when they started compliance measures. 

SB 261 Penalties (Financial)

For SB 261, the maximum administrative penalty is $50,000 for each reporting year for failures such as not publishing a report, submitting an inadequate or misleading disclosure, or other violations.  

However, CARB will make the same consideration as SB 253, including the violator’s past and present compliance, and whether they took good faith measures to comply, when considering the severity of penalties.  

Additionally, in year 1, CARB will allow multiple good-faith reporting considerations, which are explained below. 

Ready to make sure your company avoids SB 253 and SB 261 penalties? Talk to a Good.Lab expert ➔

How do SB 253 and SB 261 Compare on Penalties and Safe Harbors

The number of companies and the penalties they face differ greatly between the emissions (SB 253) and climate risk (SB 261) reporting rules. This table provides a clear overview of the companies affected and the penalties and safe harbors they face. 

While the California Air Resources Board (CARB) has yet to finalize the rules completely, it’s unlikely the penalty amounts will change. As shown here, SB 253 and SB 261 differ in scope and reporting focus, but the outcome is the same: both require public transparency that will be scrutinized by investors, customers, and other key stakeholders.  

Important Caveats and Considerations for California Climate Reporting Penalties

California regulators may show flexibility in the first year, but that shouldn’t be mistaken for leniency. Companies that wait risk missing critical reporting deadlines and losing investor trust long before fines arrive. 

The best way to avoid those penalties is to start as early as possible and put the effort in to provide exactly what CARB requests, in the form they require, by the deadlines they set. However, there are additional caveats and considerations to take into account: 

• Good faith reporting: California regulators have indicated they will not enforce penalties in the first year IF companies show documented efforts to comply, and that their reporting meets the following criteria: 
  • Timely submission of the most recent report – Reports are filed on CARB’s submission platform by January 1, 2026, and will be for your most recently available fiscal year (whether that is FY 2024/25 or 2023/2024).
  • Aligned with the Taskforce on Climate-related Financial Disclosures (TCFD) – Using as many material topics of the 11 topics across the four reporting pillars of the TCFD that are relevant. 
  • “Report or explain” approach – Companies transparently explain any gaps in data or analysis and outline how and when those gaps will be addressed. 
  • Evidence of process – Internal documentation (interviews, diagnostics, data sources, drafts) is maintained to show a genuine, traceable compliance effort. 
  • Commitment to improvement – The company outlines a plan to refine data quality, governance, and disclosure practices ahead of January 1, 2028, when stricter enforcement begins. 

• Safe harbor for Scope 3: For SB 253 companies, they are shielded from penalties for errors in Scope 3 emission estimates if they acted in good faith and disclosed appropriately, and between 2027 and 2030, they will only get fined for nondisclosure.  
• Impacts of misreporting vs non-reporting: The maximum penalty is not necessarily triggered by every error. The law states that severity will depend on the nature of the violation, past compliance, efforts to correct, and other relevant factors.  
• Regulatory rulemaking still in progress: Many procedural details (how “doing business in California” is defined, how revenue is computed, how enforcement will operate) are being fleshed out in CARB’s rulemaking and public workshops.  

How To Ensure No SB 261 and SB 253 Penalties in 2026 and Beyond 

To ensure you avoid the penalties and reputation damage of non-compliance, take these 5 steps: 

1. Start early and document everything. 
   Begin your risk assessment and emissions inventory now. Keep dated records of meetings, data sources, and internal reviews to show CARB your intent and progress. 
2. Use the “report or explain” clause wisely.
   Don’t skip topics or emissions streams. Explain gaps transparently. A clear rationale and roadmap for closing them shows good faith. 
3. Align with TCFD from day one.
   Use a structured framework, such as Good.Lab’s three-step approach to ensure your report covers all required pillars and aligns with SB 261 and 253 expectations. 
4. Benchmark against peers. 
   Reviewing sector-specific disclosures (TCFD, CDP, or public filings) helps ensure your report meets or exceeds industry norms and avoids inconsistency red flags. 
5. Stay proactive with CARB updates.
   Monitor CARB guidance and evolving rules for any updates on penalties or enforcement.  

Stay Ahead of SB 253 and SB 261: Compliance Is Cheaper Than Penalties

By January 1, 2026, more than 4,000 companies will be required to report their climate risks to CARB or face fines of up to $50,000. Then by June 30, 2026, around half of those companies will be required to report assured Scope 1 and 2 emissions, or face a $500,000 fine. 

With compliance expected so soon and hefty fines involved, impacted entities should be collecting all the necessary data in line with CARB’s guidance, staying tuned for updates, and cataloging everything as they go. 

However, it’s also important to remember the stakes go beyond fines. Many customer and supplier contracts include standard language requiring companies to comply with all applicable laws and regulations. That means noncompliance with SB 261 and SB 253 could technically put your business out of contractual compliance and damage your brand reputation. 

Don’t risk your reputation, your contracts, or your revenue.  Navigate SB 253 and SB 261 with confidence ➔