IN BRIEF
Recent climate disclosure mandates in Europe and California may have a significant impact on sustainability reporting beyond those jurisdictions. With some changes being made immediately and some planned for the next five years, it is important for CPAs to be aware of all upcoming adjustments and what they could mean for their clients. CPAs who act on these changes sooner rather than later have the potential to benefit greatly from them, though there are also legal challenges and risks to be aware of.
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California and the European Union (EU) have enacted landmark climate disclosure mandates that will reshape how companies report greenhouse gas (GHG) emissions and climate-related financial risks. California’s recently passed Senate Bill (SB) 253 and SB 261 (collectively, the California laws) apply to large US companies operating in the state, while the EU’s Corporate Sustainability Reporting Directive (CSRD) expands audited sustainability reporting across Europe. Both frameworks overlap substantially for multinationals, though they differ in revenue thresholds, assurance timing, and enforcement structures. The International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards from the International Sustainability Standards Board (ISSB) provide a global benchmark that influences both California and EU standards, signaling a convergence of expectations worldwide.
For CPAs, these developments present both risk and opportunity. As advisors, mid-sized CPA firms can help clients design scalable reporting processes modeled on California or EU requirements, even if the companies are not directly in scope. As assurance providers, CPAs can apply audit and assurance skills to climate data, where demand will cascade from the largest multinationals down to their suppliers. As employees, CPAs can strengthen an organization’s internal controls and governance processes, helping them respond flexibly as obligations evolve. In this way, lessons from the large multinationals directly covered under CSRD ripple outward to the broader marketplace.
These initiatives also connect to existing US SEC requirements. Item 1A (Risk Factors) of Form 10-K requires registrants to disclose material factors that make an investment in the company speculative or risky. Climate-related exposures increasingly fall within that mandate. The SEC currently has no standalone climate disclosure requirements in effect. CPAs can apply processes developed for California and EU reporting in order to strengthen SEC-mandated risk disclosures in Items 1 and 1A.
This article compares the California Laws and CSRD, highlighting key implementation timelines. It also explains how recent “quick fix” revisions under the 2025 EU Omnibus package and European Sustainability Reporting Standards (ESRS) are reshaping reporting requirements. The goal is to provide CPAs with a practical roadmap to reduce duplication, enhance the credibility of their reporting, and prepare businesses for evolving assurance standards.
California Climate Disclosure Laws
California has enacted two landmark climate disclosure mandates that apply to large US companies operating in the state. SB 253 requires disclosure of Scope 1, Scope 2, and eventually Scope 3 GHG emissions. SB 261 requires biennial reporting on climate-related financial risks and the strategies used to manage them (California Legislature, “Senate Bill 253—Climate Corporate Data Accountability Act,” 2023–2024 Regular Session, https://tinyurl.com/SB253-CA; California Legislature, “Senate Bill 261—Greenhouse Gases: Climate-Related Financial Risk,” 2023–2024 Regular Session, https://tinyurl.com/2s44sjs2).
Under SB 253, Scope 1 and Scope 2 reporting begins for the fiscal year 2025, with reports due in 2026. Limited assurance is scheduled to commence in 2026, with reasonable assurance phased in by 2030. Scope 3 reporting is expected to begin in 2027, with limited assurance required starting in 2030, pending review by the California Air Resources Board (CARB). SB 261 applies to companies with more than $500 million in annual global revenue, while SB 253 applies at a $1 billion threshold.
SB 261 specifies that climate risk disclosures must follow the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) or an equivalent standard. In October 2023, the Financial Stability Board formally concluded the TCFD’s mandate. It followed its earlier decision to transfer oversight of climate-related disclosure monitoring to the IFRS Foundation through the ISSB. The IFRS Sustainability Disclosure Standards (S1 and S2) carry forward the TCFD’s four pillars: governance, strategy, risk management, and metrics and targets (IFRS Foundation, “IFRS Sustainability Disclosure Standards S1 and S2 Integrate Task Force on Climate-Related Financial Disclosures Framework,” July 2023, https://tinyurl.com/4x7rky5n; IFRS Foundation, “Foundation Welcomes TCFD Responsibilities from 2024,” July 2023, https://tinyurl.com/ybrw3jdx).
This alignment underscores California’s intention to position its standards within the broader international context (E. Esposito, “California Provides a Welcoming Environment for the Evolution of International Climate Disclosures,” The CPA Journal, May/June 2025, https://tinyurl.com/5779v32c). SB 261 also provides that entities already reporting under the IFRS Sustainability Disclosure Standards satisfy its requirements, recognizing these as an equivalent reporting framework (SB 261; Esposito 2025). Covered entities (annual revenues greater than $500 million and doing business in California) must make their first climate-related financial risk report public by January 1, 2026. Thereafter, reports must be issued every two years.
Although it missed its July 2025 regulatory deadline, CARB is proposing an updated timeline to bring the initial rulemaking (including fee-related provisions) to the board in the first quarter of 2026 [CARB, “California Corporate Greenhouse Gas (GHG) Reporting and Climate-Related Financial Risk Disclosure Programs,” October 2025, https://tinyurl.com/msezs3by]. These delays do not affect statutory deadlines, as covered companies must still report their fiscal year 2025 climate disclosures in 2026, with Scope 3 following in 2027. CARB has stated that, in the absence of final rules, companies are required to make a “good-faith effort” in preparing disclosures (CARB, “FAQs Regarding California Climate Disclosure Requirements,” July 2025, https://tinyurl.com/5djs2jp2; CARB, “Climate Disclosure Meetings and Workshops,” n.d., https://tinyurl.com/4k4jjpmh; K&L Gates, “Companies Must Prepare for Complying With California’s Climate Disclosure Laws Even Though California Air Resources Board Regulations Are Not Final,” August 2025, https://tinyurl.com/499vda4z).
Following its August 2025 workshop, CARB released several implementation resources. These include a Climate-Related Financial Risk Report Checklist (Sept. 2, 2025); a Preliminary List of Reporting/Covered Entities and Voluntary Survey (Sept. 24, 2025); and a Draft Scope 1 and 2 GHG Reporting Template (Oct. 10, 2025).
For CPAs, the California laws present immediate implications. Assurance providers must prepare for phased-in assurance of GHG data. Advisors can help clients design reporting systems capable of capturing Scope 1–3 emissions and assessing climate-related risks. CPAs working inside companies will play a central role in developing internal controls, governance structures, and risk management processes to support compliance.
The EU Framework
The CSRD supersedes and expands the earlier Non-Financial Reporting Directive (NFRD), requiring companies to provide audited sustainability information (European Commission Reporting). It prescribes detailed ESRS covering climate-related disclosures. The CSRD must be transposed into national law and enforced separately by each EU member state, while EFRAG develops the standards that the European Commission adopts as delegated acts.
The CSRD was initially intended to take effect in four waves:
- Wave 1: Companies already subject to the NFRD (FY 2024 reports filed in 2025).
- Wave 2: Other large EU companies (deferred to FY 2027, reports in 2028).
- Wave 3: Listed small and medium-sized enterprises (SMEs) (deferred to FY 2028, reports in 2029). Because of the higher size threshold referred to below, this category of company should fall out of scope of the CSRD.
- Wave 4: Non-EU parents with significant EU revenue (FY 2028, reports in 2029).
To ease implementation, the EU has adopted a “stop-the-clock” directive delaying certain CSRD requirements [European Parliament, “Amending Directives (EU) 2022/2464 and (EU) 2024/1760 as Regards the Dates from Which Member States Are to Apply Certain Corporate Sustainability Reporting and Due Diligence Requirements,” Apr. 3, 2025, https://tinyurl.com/wybfm96f; European Commission, “Proposal for a Directive of the European Parliament and of the Council Amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as Regards Certain Corporate Sustainability Reporting and Due Diligence Requirements,” Feb. 26, 2025, https://tinyurl.com/4zc75j6j; European Commission, “Omnibus I Package—Commission Simplifies Rules on Sustainability and EU Investments, Delivering over €6 Billion in Administrative Relief,” Feb. 26, 2025, https://tinyurl.com/3ybb8vzt]. In addition, the 2025 Omnibus simplification package seeks to reduce reporting burdens by raising the employee threshold from 250 to 1,000 and adding a €450 million turnover (revenue) threshold, while streamlining data requirements (Council of the European Union, “Simplification: Council Agrees Position on Sustainability Reporting and Due Diligence Requirements to Boost EU Competitiveness,” June 23, 2025, https://tinyurl.com/26bmhcer; Sidley Austin LLP, “EU Omnibus Package: EU Adopts ‘Stop-the-Clock’ Directive and Begins ESRS Simplification Process,” Apr. 15, 2025, https://tinyurl.com/y2dmkybj).
SIDEBAR 1
Comparison of California Versus EU Assurance and Scope Thresholds
In October 2025, the European Parliament’s Legal Affairs (JURI) Committee approved a draft position confirming those higher thresholds for both EU and non-EU companies. These changes are projected to exclude roughly 90% of entities previously under scope. On Oct. 22, 2025, the full Parliament voted to delay formal trilogue negotiations, leaving the proposal’s final adoption subject to further amendment in late 2025 (Linklaters, “EU: Parliament JURI Committee Approves Its Negotiating Position on Omnibus Changes to CSRD and CSDDD,” Oct. 15, 2025, updated Oct. 22, 2025, https://tinyurl.com/4n6zcnkx).
In addition to substantially narrowing the population of entities subject to mandatory reporting, policymakers have also pursued significant simplification of the ESRS. A delegated act adopted in July 2025 extended phase-in relief for selected ESRS disclosures, allowing eligible firms to omit certain information in reports covering fiscal years 2025 and 2026 (European Commission, “Commission Adopts ‘Quick Fix’ for Companies Already Conducting Corporate Sustainability Reporting,” July 11, 2025, https://tinyurl.com/4dx83rdn). Following a 60-day public consultation that closed Sept. 29, 2025, EFRAG delivered its technical advice to the European Commission on Dec. 3, 2025, proposing a 61% reduction in mandatory data points. The European Commission published a draft delegated act for public comment on May 6, 2026, with final adoption expected later in 2026 and mandatory application beginning Jan. 1, 2027 (EFRAG, “Draft Simplified ESRS,” Dec. 3, 2025, https://tinyurl.com/328fu3d2; European Commission, “Commission Seeks Feedback on Revised Sustainability Reporting Standards,” May 6, 2026, https://tinyurl.com/3wmacmvu).
These developments show that while the scope of coverage is narrowing, the standards themselves are evolving. For US CPAs, the key lesson is that California and EU disclosure frameworks continue to shape global reporting practice, especially for companies operating in both jurisdictions and their supply chains.
Alignment Opportunities for CPAs
Although the Omnibus package is projected to reduce overall CSRD coverage by roughly 80% across Europe (Deloitte, “European Sustainability Reporting—Omnibus Update and Proposed Revised European Sustainability Reporting Standards,” Aug. 21, 2025, https://tinyurl.com/3ux5ku3p; KPMG, “Sustainability in the EU: Global Implications of EU Sustainability Reporting, December 2024, https://tinyurl.com/5x83jwss; Reuters, “What’s Inside the EU’s ‘Simplification Omnibus’ on Sustainability Rules,” Feb. 26, 2025, https://tinyurl.com/9u7cjzu9; S&P Global, “The Trade-offs of EU Proposals to Simplify Sustainability Reporting,” April 29, 2025, https://tinyurl.com/bddxyrmp), the precise impact on US multinationals remains uncertain. What is clear is that the companies still subject to both EU and California requirements will be among the world’s largest and most influential. The compliance needs of these companies will set the tone for reporting practices across supply chains, industry associations, and investor expectations.
As advisors, CPAs in national, mid-sized, and regional accounting firms can help clients design scalable processes modeled after frameworks in California and the EU, even if the clients are not directly in their scope. Because many will serve as vendors to companies within scope, they will be asked to provide GHG information as part of their impacted customers’ Scope 3 emissions. For example, a manufacturer supplying parts to a covered multinational will need reliable emissions data to keep contracts. CPAs can help build reporting systems proportionate to the supplier’s size and risk.
What is clear is that the companies still subject to both EU and California requirements will be among the world’s largest and most influential.
As assurance providers, CPAs can leverage their audit and assurance skills to validate climate data. Demand is expected to grow first among large multinationals, then spread to mid-tier suppliers, eventually making climate assurance a standard service line (European Commission 2025). CPAs in public practice play an increasingly important role by assisting clients in evaluating environmental risks and integrating those insights into their governance and reporting systems.
As employees, CPAs inside companies play a critical role in building and strengthening internal controls and governance processes. By embedding climate risk into financial reporting and enterprise risk management, they help firms respond flexibly as disclosure obligations expand.
These opportunities also connect to existing SEC disclosure requirements. Under Item 1 (“Business”), registrants must also describe the nature of their business and the material impacts of compliance with regulation. This can include climate-related risks to the extent they are material (SEC, “How to Read a 10-K,” July 2011, https://tinyurl.com/3bxkvt6t). Item 1A (Risk Factors) of the 10-K requires registrants to disclose the significant risks that apply to the company (SEC 2011). CPAs should assess whether climate exposures and compliance with these climate disclosure regulations meet the material-risk standard for each company. CPAs can provide guidance as to whether disclosures under Items 1 and 1A are required. Processes developed for California and EU compliance can therefore help businesses evaluate which (if any) risks require disclosure in SEC filings, thereby reinforcing consistency across reporting regimes.
Assurance Requirements
California and the EU both require third-party assurance of climate disclosures, but on different timetables and with different scopes. Under SB 253, Scope 1 and Scope 2 emissions reporting begins for fiscal year 2025 (reports due in 2026). Limited assurance is required starting in 2026, with a transition to reasonable assurance by 2030. Scope 3 reporting is scheduled to begin in 2027, with limited assurance required starting in 2030, pending review by CARB. These assurance milestones are consistent with recent updates from practitioners. They confirm that limited assurance for Scope 1 and Scope 2 begins in 2026, steps up to reasonable assurance in 2030, and that limited assurance for Scope 3 may begin in 2030 if CARB so determines [BDO, “Climate Reporting Due 2026: California Rulemakers Provide Updates on Senate Bills (SB) 261 & 253,” Oct. 14, 2025, https://tinyurl.com/bdf276ep].
Under the CSRD, companies must obtain limited assurance on reported sustainability information in the initial reporting years. The European Commission will review whether to transition to reasonable assurance after evaluating implementation experience and market readiness (European Commission, “Corporate Sustainability Reporting—Finance,” July 11, 2025, https://tinyurl.com/y98ejss2). Together, these requirements ensure that large companies in both California and the EU must organize their Scope 1, 2, and 3 emissions reporting in a well-controlled manner, consistent with obtaining third-party assurance. In the authors’ view, the critical leap is from non-assured to assured disclosures. The difference between limited and reasonable assurance mainly reflects the level of verification work performed by auditors, rather than fundamental changes in company processes. This convergence highlights that the primary challenge facing companies is credible emissions reporting, while debates over other disclosure topics risk diverting attention from the core compliance obligation.
For CPAs, these assurance obligations are significant. They create demand for new service lines focused on verifying climate and sustainability information, thereby extending the profession’s role beyond traditional financial audits. The phased approach allows CPA firms to develop methodologies, train their staff, and build expertise over time, but it also signals that the expectation is for climate assurance to eventually be held to the same level of rigor as financial statement audits.
Legal Context
As of the date of writing, California’s SB 253 and SB 261 have withstood multiple legal challenges, reinforcing their durability, even though new lawsuits continue to test them in the courts. In January 2025, the US Chamber of Commerce and business groups filed suit in the US District Court for the Central District of California, arguing that the California laws are unconstitutional because they regulate interstate commerce and compel speech. The district court dismissed the case, but the plaintiffs have appealed to the Ninth Circuit Court of Appeals, leaving the ultimate outcome uncertain.
In Europe, enforcement of the CSRD is being carried out through national regulators under the supervision of the European Commission. At the same time, the EU’s 2025 Omnibus simplification package seeks to reduce reporting burdens by raising employee thresholds and streamlining disclosure requirements (European Commission, 2025). Together, these developments demonstrate that both the California and EU frameworks remain legally and administratively unsettled.
For CPAs advising clients, it is essential to track these uncertainties, which may alter the scope, timing, or durability of climate disclosure mandates. These legal and regulatory dynamics also set the stage for the practical implementation challenges CPAs will face.
Implementation Challenges and the Road Ahead
The California laws and the EU’s CSRD form two jurisdictional mandates in the area of climate disclosures. In contrast, the IFRS Sustainability Disclosure Standards issued by the ISSB provide a global baseline of standards that jurisdictions can adopt or align with, rather than competing with these standards. By embedding the former TCFD framework into this global baseline, the IFRS standards influence and support both the California and EU approaches, offering a common foundation that helps promote consistency across regulatory regimes.
Ultimately, California and the EU are not only reshaping disclosure rules but also redefining how companies evaluate and communicate risk.
For CPAs, the challenge lies in navigating this uncertainty while building systems that are flexible, credible, and resilient. The overlapping requirements of the California laws and the CSRD, together with revisions under the EU’s Omnibus simplification package, mean that compliance processes must evolve in real-time. Entities that wait for complete regulatory clarity risk falling behind, whereas those that begin early can shape market practices and strengthen investor confidence.
Legal challenges in the United States and ongoing amendments in the EU ensure that these frameworks will continue to shift. The direction is clear: climate risks represent financial risks, and reporting expectations are moving toward integration with core financial filings, such as Form 10-K risk factor disclosures. CPAs, with their expertise in assurance, governance, and systems design, are uniquely positioned to guide companies through this transition.
Ultimately, California and the EU are not only reshaping disclosure rules but also redefining how companies evaluate and communicate risk. For CPAs, the road ahead will demand both technical precision and strategic insight. Those who rise to the occasion will not only help clients and employers comply but also enhance the credibility and resilience of financial reporting in a climate-constrained world.
For CPAs, whether as advisors, assurance providers, or members of corporate reporting teams, those who adapt early will have the opportunity to bring credibility to sustainability disclosures, thereby strengthening financial reporting in a rapidly evolving reporting environment.
