SB 261 penalty or compliance? Why paying the $50,000 fine is the wrong maths
Some large private companies plan to pay the SB 261 fine instead of reporting. Here is why the data behind it matters more for SB 253 and your bids.
Paying the SB 261 fine instead of reporting looks cheap: the penalty is capped at $50,000 a year, and the law is paused by a court injunction. It is still the wrong maths. The data you would skip collecting is the same data SB 253, customer RFPs and assurance will need, and SB 253's penalty is ten times higher.
A conversation we keep having
We spoke this week to the sustainability lead at a large, privately owned US services company. Several thousand employees, a sustainability team of one and a half people, and revenue growing towards the $1 billion line that brings SB 253 into play. They submit to CDP but publish nothing. Their Scope 1 and 2 numbers are in decent shape, Scope 3 covers four categories built mostly on estimates, and everything runs on spreadsheets with a calculator tool bolted on the end.
They had heard the same thing from peers at other companies: SB 261 carries a maximum penalty of $50,000 a year, a platform plus someone to run it costs about that or more, so why not pay the fine and worry about it when SB 253 arrives?
It is a reasonable question from someone with no budget line for sustainability. I think it is the wrong one, for four reasons.
What the California fines actually are
Before weighing a fine against a platform, it helps to see the full set of numbers in one place:
- SB 261 penalty: up to $50,000 per reporting year for companies above $500 million in revenue. Reports are due every two years. Enforcement has been paused by a Ninth Circuit injunction since 18 November 2025.
- SB 253 penalty: up to $500,000 per reporting year for companies above $1 billion in revenue. SB 253 is not affected by the injunction, and the first Scope 1 and 2 reports are due by 10 November 2026.
- SB 253 Scope 3 safe harbour: between 2027 and 2030, CARB can only penalise Scope 3 for failing to file. Good-faith misstatements made with a reasonable basis are not penalised.
- Annual fees: CARB's Initial Regulation adds separate annual fees for SB 253 and SB 261, with fee notices issued by 10 December each year and payment due within 60 days. Fees sit on top of any penalty.
- 2026 relief: for this first cycle only, companies that were not collecting emissions data when CARB issued its December 2024 notice can file a statement of non-reporting instead of Scope 1 and 2 figures.
Two things stand out. The amounts are caps, so CARB decides the actual penalty, and paying a fine does not discharge the obligation to report next cycle. And the exposure jumps tenfold, every year, the moment a growing company crosses into SB 253.
1. The fine is not the only cost of not reporting
SB 261 asks for a climate-related financial risk report, published on your own website, every two years. Skipping it is also visible. The report is public by design, so not having one is visible to the customers, lenders and bid teams who already ask you for climate data.
For a business that wins work through RFPs, that matters more than the fine. The company we spoke to said every RFP it answers now has a sustainability section, and it reports into more than a dozen supplier risk portals. A missing public report is one more question the bid team has to explain away.
2. SB 261 is only paused
The Ninth Circuit granted an injunction against SB 261 enforcement on 18 November 2025, and CARB has said it will not enforce the law while the injunction stands. Its Initial Regulation, effective 12 October 2026, sets no SB 261 date. But CARB has also said it will set an alternate reporting date once the appeal is decided, and around 100 companies filed voluntarily in the meantime. If the injunction lifts, the deadline could follow quickly. Our SB 261 guide tracks where things stand.
3. The data behind SB 261 is the data SB 253 needs
The metrics section of an SB 261 report rests on your Scope 1, 2 and 3 emissions. SB 253 asks for exactly those numbers every year, with limited assurance on Scope 1 and 2 from 2026 and reasonable assurance from 2030, Scope 3 from 2027, and penalties of up to $500,000 per reporting year. Our SB 253 guide covers the detail.
Reporting is in arrears. CARB's final rule tests revenue on the lesser of your two prior fiscal years, so a company heading for $1 billion can see the threshold coming. The data for the first report you owe will be collected a year or more before you file it. For the company we spoke to, that meant 2027 data had to be in good shape, and 2027 starts in eight weeks.
The more useful question is how to build an emissions data set that an assurer will accept, in time. Answer that and SB 261 becomes a writing exercise on top of work you were doing anyway.
4. Entity boundaries are the hard part, and they take time
The most interesting problem in that call was the org chart. The group had several operating companies plus acquisitions, and most of its overheads ran through a shared services model. Headquarters, the sustainability lead themselves, corporate travel: none of it sat neatly in one entity.
A consolidated footprint hides that. Entity-level reporting does not. If you might ever need to report by entity, or show a parent-level boundary an assurer can follow, you need to decide now how shared costs are allocated (by revenue, headcount or floor area), tag every data point to an entity, and keep the allocation rules written down. Doing that retrospectively for a year of spreadsheets is painful. Doing it from the first invoice is far easier.
The same applies to acquisitions. Every bolt-on brings its own utility accounts, fleet and suppliers, and your base year has to be recalculated when the structure changes. We wrote about this in why buy-and-build breaks portfolio ESG data.
What a sensible 2027 plan looks like
For a large private company with a small team, the order of work we would suggest:
- Get the legal answer on scope. Ask counsel whether you do business in California and how revenue is counted across your entities. Do it before you spend money.
- Fix the boundary. Agree your organisational boundary, entity list and allocation rules for shared services.
- Move Scope 1 and 2 to source documents. Utility bills, fuel cards and meter data, collected from the people who hold them, with a source attached to every number.
- Replace the biggest Scope 3 estimates. For service businesses that usually means purchased goods and services, business travel and employee commuting. A commuting survey of office staff alone can replace a headcount-based guess. Our Scope 3 categories guide explains each one.
- Reuse everything. Point CDP, RFP answers and supplier portals at the same data set so the sustainability team stops answering the same question twelve times.
- Draft SB 261 last. With the data in place, the climate risk narrative is weeks of work, not months.
Where Ella fits
Ella is AI-native carbon accounting software built as an agent, designed for exactly this kind of team. It sets your boundary from how the business operates, tags data by entity and splits shared costs by the percentages you choose. It sends collect links to facilities, finance and fleet teams, so they reply to an email with an invoice instead of learning a new system, and it chases anyone who has not answered. Commuting and travel surveys run on their own. Every number keeps its source and emission factor, which is what an assurer will ask for, and the same data answers CDP and RFP questions. Expert support from Ella's team sits behind it. If SB 253 or SB 261 is on your horizon, see how Ella's carbon accounting software works.