As the regulatory environment around climate disclosure intensifies, California is laying the groundwork for what enforceable ESG compliance will look like for large businesses. With the release of proposed regulations under Senate Bills 253 and 261, the California Air Resources Board (“CARB”) has provided early contours and operational detail of what ESG compliance will look like for large businesses operating in the U.S., including across the retail sector. For retailers, the California legislation is not just a new regulatory development, but a structural shift designed to make ESG reporting mandatory, subject to phased-in assurance, and enforceable.

California’s new climate disclosure regime – which consists of SB-253 (GHG emissions), SB-261 (climate-related financial risk), and AB-1305 (carbon offsets), applies to companies that conduct business in the state and meet specific revenue thresholds. And while the focus is on business conducted in California, the practical impact will likely be broader. Many of the U.S.’s largest retailers fall within scope, and those that do not may soon find themselves facing similar requirements elsewhere.

The significance of this legislation is both their substance and their near-term implementation for certain disclosure obligations. They establish clear reporting expectations and statutory timelines, with CARB now actively defining the regulatory mechanisms that will support enforcement and compliance.

Climate Laws in Practice: What Retail Needs to Know

The challenge for retail companies is not only understanding the legal obligations, but operationalizing them across emissions tracking, risk assessment, and governance. The scope of California’s ESG disclosure laws – and their alignment with broader global frameworks – means that companies will need to integrate ESG more deeply into financial, operational, and supply chain systems.

> SB-253 mandates the public disclosure of greenhouse gas emissions. Businesses with over $1 billion in annual revenue must begin reporting Scope 1 and 2 emissions on or before August 10, 2026. Scope 3 disclosures – those covering indirect emissions, including those from supply chains and product use – follow in 2027. For many retailers, Scope 3 is the largest category of emissions based on general GHG accounting practice

> SB-261 requires companies with over $500 million in annual revenue to disclose climate-related financial risks and the strategies adopted to mitigate or adapt to those risks. Though the law’s statutory compliance date is January 1, 2026, enforcement is currently on hold. On November 18, 2025, the U.S. Court of Appeals for the Ninth Circuit granted a motion for a temporary injunction barring CARB from enforcing SB-261 pending appeal, while SB-253 remains in effect. CARB subsequently issued an Enforcement Advisory on December 1, 2025, stating that, as a matter of enforcement discretion, it will not pursue enforcement of SB-261 while the injunction remains in place. Litigation over the law’s validity is ongoing.

> AB-1305, already in effect, requires transparency from businesses marketing or relying on carbon offsets. For any retailer making carbon-neutral claims, particularly those selling sustainable or climate-conscious products, this law sets new standards for disclosure and integrity.

California’s Influence & Compliance as Strategy

California has a long history of shaping national policy through regulatory leadership. From auto emissions to data privacy and toxic substances, the state’s standards often set the baseline for what follows elsewhere – not by federal mandate but by economic influence.

In retail, this effect is especially pronounced. Because of the size of California’s economy, companies frequently align their national operations with California regulations to avoid the cost and complexity of maintaining separate systems. This pattern has played out across issues like data privacy (CCPA), supply chain transparency (SB-657), and consumer product safety. Over time, these laws have set de facto national standards, influencing how businesses operate across all 50 states.

The climate disclosure laws now follow that same trajectory. SB‑253 and SB‑261 may apply directly only to certain large businesses doing business in California, but in practice, they are likely to shape reporting norms more broadly, especially as other jurisdictions and investors push for alignment. At the same time, these laws have sparked litigation, highlighting the legal friction between state-mandated disclosures and federal constitutional and securities law boundaries.

Retailers have long engaged with ESG as a branding lever, a way to signal values and differentiate themselves in a crowded market. But the move toward enforceable disclosure frameworks demands a fundamental shift, one in which ESG data is treated as business infrastructure. This means establishing internal reporting systems that can track emissions across corporate operations and global supply chains, and building governance structures that include finance, legal, and risk functions alongside sustainability. It also means preparing for a higher level of scrutiny – from regulators, investors, and the public – as ESG information becomes standardized and directly comparable across companies.

The most prepared companies will move from ESG reporting as compliance to ESG reporting as competitive advantage. Those that delay will likely find themselves behind on data, transparency, and credibility.

What to Watch in 2026

CARB’s regulatory process is now in motion. Public comments on the proposed SB-253 and SB-261 regulations are open through February 9, with a public hearing scheduled for February 26. Retailers and trade associations should be assessing the proposed rules, engaging with the process, and preparing for formal implementation. Separately, the Ninth Circuit’s ruling on SB-261 will shape the immediate future of climate risk reporting. A ruling upholding the law would restore the original January 1, 2026 deadline for compliance, potentially reviving the original compliance timeline.

In parallel, ExxonMobil and national business groups have filed separate lawsuits challenging SB-253 and SB-261 on constitutional grounds, arguing that the laws compel speech and are preempted by federal securities law.

THE BOTTOM LINE: ESG is transitioning from voluntary initiative to regulated discipline. California’s disclosure laws mark a critical turning point in how environmental responsibility is measured, reported, and enforced. Retailers that treat ESG as core to financial and operational strategy – and not just as a communications exercise – will be best positioned for the new normal.