California Sustainability Spotlight: The State Writing the US Climate Rulebook

Although the European Union frequently takes center stage in conversations about sustainability reporting, California is swiftly gaining traction as an important player. With looming regulatory deadlines on the horizon, businesses must ensure this state is on their radar.

Even as federal greenhouse gas standards face rollbacks and the EPA pushes Congress to dismantle longstanding vehicle emissions waivers, California regulators are pressing forward with corporate climate disclosure, packaging waste, and vehicle electrification initiatives, frequently in spite of active legal challenges. This ongoing momentum positions California as the true regulatory center of gravity in the U.S. for sustainability teams right now, rather than any individual federal policy. As the world’s 4th largest economy, California has the power to write its own environmental playbook that influences the other states and any company that wants to do business in this major market.1

In this week’s newsletter, we cover California’s environmental initiatives that you need to know, what’s changing, and what it means if your company touches California in any way.

California is the world’s fourth largest economy, larger that of Japan, France, or the UK.2 That scale gives its regulators leverage no other state has. A rule written in Sacramento doesn’t just apply to companies operating in California, but it effectively becomes a national compliance requirement, since most businesses build one program rather than fifty. California has also been a first mover before. Its authority to set its own vehicle emissions standards predates the Clean Air Act itself, and other states have spent decades simply adopting whatever California decides.3 The same pattern is now playing out with corporate climate disclosure and packaging law, making California less a single state to watch and more a preview of where national policy is headed.

In 2023, California enacted the Climate Corporate Data Accountability Act (SB 253). To many, SB 253 is regarded as the most impactful climate law in the United States. It requires large companies doing business in California with revenues over $1 billion to publicly report Scope 1, 2, and eventually Scope 3 emissions and is administered by the California Air Resources Board (CARB).4 It is expected to impact approximately 5,000 companies.5

There are two key criteria that makes a company subject to SB 253:

1. Annual revenues exceed $1 billion

This is not California-specific revenue, but rather the total annual revenues of the reporting entity

2. The company “does business in California”

Under the California Revenue and Taxation Code, a corporation is considered to be doing business within the state if it is incorporated or commercially domiciled there, or if its sales, property, or payroll in California surpass specific threshold values. Consequently, any business maintaining a substantial commercial presence, such as utilizing sales operations, local distribution networks, or state-based personnel, will likely meet these criteria, irrespective of its corporate headquarters location.

What teams need to know right now is that the compliance calendar might have just moved. On June 24, 2026, CARB proposed pushing the initial Scope 1 and 2 reporting deadline from August 10 to November 10, 2026, giving CARB time to finalize a regulation it had already submitted for approval and then pulled back.6 The agency says the changes will be “limited,” aimed at clarifying requirements rather than adding new ones, and will go through a 15-day public comment period before resubmission.

CARB has also signaled it will use enforcement discretion for good-faith first-year filings, though its statements on what that covers have shifted enough that legal advisors are flagging real ambiguity for companies that weren’t already collecting emissions data as of December 2024. Whether insurance companies fall inside SB 253’s scope also remains open, pending CARB’s coordination with the state’s Department of Insurance.

Looking further out, CARB has said it will open a distinct rulemaking later in 2026 covering 2027-and-beyond requirements, including Scope 3 emissions and third-party assurance. A public workshop on that track is scheduled for July 21, 2026.

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SB 261, the Climate-Related Financial Risk Act, requires many of the same companies to disclose climate-related financial risks and mitigation strategies, aligned loosely with TCFD-style frameworks. Specifically, it targets companies with over $500 million in annual revenue operating or doing business in California.

Unlike SB 253, SB 261 remains on hold as the U.S. Court of Appeals for the Ninth Circuit granted an injunction in late 2025 halting CARB’s ability to enforce it while an appeal proceeds.7 SB 253 is caught up in the same litigation, but has continued to remain in effect throughout.

Notably, the two laws were also amended and consolidated legislatively into a combined bill (SB 219) covering both climate corporate accountability and financial risk disclosure, which is now the technical vehicle carrying both programs forward.

In 2022, the Plastic Pollution Prevention and Packaging Producer Responsibility Act (SB 54) was signed into law as a step to reduce the negative impacts of packaging waste in the state, which makes up more than 50% of landfill contents.8 Upon the implementing regulations taking effect on May 1, 2026, SB 54 became one of the country’s most far-reaching extended producer responsibility programs. It regulates an estimated 5,741 producers and aims to shift the burden of plastic pollution from consumers to the producers of single-use plastic and packaging.9

There are several key obligations for producers under SB 54 in addition to the goal to reduce plastic packaging over time. Foremost, producers must pay $5 billion over 10 years, or $500 million annually, starting in 2027 to address the environmental impacts of their products and support those communities most impacted by the pollution caused by their products. Producers of single-use packaging and food-service ware must also fund and participate in an approved Producer Responsibility Organization, currently only being the Circular Action Alliance (CAA). Furthermore, producers must work toward binding recycling targets by 2032: cut single-use plastic by 25% compared to 2023, recycle 65% of single-use plastic, and ensure 100% of single-use packaging and food service ware is recyclable or compostable.10 CalRecycle, more formally known as the California Department of Resources Recycling and Recovery, must also adopt permanent regulations accordingly.

Within a month of the May 2026 date, the regulations drew two lawsuits representing two very different concerns.

The first lawsuit was brought about by several environmental groups, including NRDC, Californians Against Waste, and Oceana, arguing that the final regulations were both inconsistent with SB 54 and several key provisions were arbitrary and/or without a rational basis.11 The concerns here are about the actual effectiveness of the regulations established to implement SB 54 in light of several gaps and loopholes across provisions.

Separately, Nebraska and sixteen other states, joined by the National Association of Wholesaler-Distributors (NAW), sued on Commerce Clause and First Amendment grounds, arguing the law reaches businesses far outside California. The concerns represent the broad regulatory reach that California has, where laws passed in California inevitably affect other states because of its vast market power and size.

Despite pending lawsuits, SB 54 is fully in force. Producers should still be assessing coverage, joining a PRO or pursuing individual compliance, and tracking packaging data, while monitoring both cases for anything that could shift deadlines.

California has long been a pioneer in demanding clean air standards in the US, with the state’s first clean car standards dating back to 1966.12 This leadership role was recognized nationally when the Air Quality Act of 1967 (the first rendition of what is known today as the Clean Air Act) explicitly authorized California to keep enacting more rigorous pollution limits for vehicles in order to fight the state’s chronic and dangerous air quality issues.13

As California continues to fight for more rigorous pollution standards, none of the state’s climate policies have taken more direct federal fire this year than the state’s vehicle emissions authority. The standards for the Advanced Clean Cars II, Advanced Clean Trucks, and Heavy-Duty Omnibus rules (recent air quality standards for vehicles) have been at the center of this battle. Congress used the Congressional Review Act last year to strip California’s waivers for these standards, despite the objection of the Senate Parliamentarian, who found the waivers weren’t the kind of rules the CRA was meant to cover.14 The EPA has now gone further, asking Congress to use the same mechanism against California’s foundational 2009 greenhouse gas vehicle standards and the 2013 Advanced Clean Cars program, rules that automakers have already fully complied with.15

In response, CARB has started an emergency rulemaking to keep 2025-level smog and greenhouse gas standards in force for cars and trucks until either new standards are adopted or a court reinstates ACC II. It is explicitly not enforcing the 2025 zero-emission vehicle sales requirement in the meantime.16

The stakes extend well past California’s borders. Because seventeen other states have adopted California’s vehicle standards under Section 177 of the Clean Air Act, prior modeling found that full adoption of ACC II across those states could cut nationwide transportation emissions by roughly 1.3 billion metric tons of CO2-equivalent through 2050, while saving households an average of over $200 a year and preventing tens of thousands of asthma attacks.17 Those projected gains are now in legal limbo.

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The direction of California’s travel is clear. Whatever the courts and Congress may decide on any single rule, the broader shift toward mandatory climate disclosure, extended producer responsibility, and cleaner vehicle standards isn’t going away. California is simply the state moving first, the way it has on air quality for sixty years. Other states have historically followed its lead, and companies that build reporting and compliance infrastructure now, rather than waiting for every legal question to resolve, will be the ones ready when the next state, or the SEC, or a major customer’s supply chain requirements, catches up.

The real work ahead for sustainability teams is to develop a system that is both rigorous and flexible to comply with the moving parts in the California regulatory space. Brightest exists for exactly that kind of moving target, helping teams manage disclosure obligations across jurisdictions in one place instead of rebuilding their process every time a deadline shifts. Want to speak with one of our experts? Reach out.

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