California’s new climate disclosure laws: Implications for the life sciences and health care sector

A quick recap of the rules

SB 253 and SB 261 both apply to entities—including partnerships, corporations, limited liability companies, and other business entities, regardless of whether they are, e.g., privately held or for-profit—doing business in California that meet certain revenue thresholds, regardless of where that revenue is earned.

SB 253 applies to businesses with annual revenue exceeding $1 billion and requires them to report their direct (Scope 1) and indirect energy-related (Scope 2) emissions annually starting in 2026 (on a date to be set by the California Air Resources Board (CARB) in forthcoming regulations). Beginning in 2027, businesses will also be required to report their indirect supply chain-related emissions from activities such as transporting and distributing their products—known as Scope 3 emissions.

SB 261 applies to businesses with annual revenue exceeding $500 million and requires them to file publicly a climate-related financial risk report every two years, with the initial report due by January 1, 2026. These reports must outline how climate change could affect a business’s financial position, along with the steps it is taking to manage those risks.

Businesses that fail to comply could face significant fines—up to $500,000 annually under SB 253 and $50,000 annually under SB 261.

What it means for the life sciences and health care sector

It is estimated that the life sciences and health care sector contributes approximately 4.4% of the world’s GHG emissions. The sector's complex supply chains, which involve numerous actors, materials, geographies, and uses, are a primary emissions driver, meaning that the sector's Scope 3 emissions tend to exceed its combined Scope 1 and Scope 2 emissions. This supply chain complexity can also make emissions reporting, especially as to Scope 3 emissions, operationally challenging. In addition, the sector and particularly its supply chains face potential climate-related financial risks, such as exposure of medicines to high temperatures.

Businesses in the sector should therefore begin assessing SB 253’s and SB 261’s applicability and preparing for compliance. In doing so they might consider the following:

• Determine applicability. In addition to meeting applicable global annual revenue thresholds, an entity must be “doing business” in California to be captured by SB 253 and SB 261. CARB’s proposed interpretation of what it means to “do business” in California would consider revenue from sales, real property, and employee compensation in the state—even if a company is not physically located in the state. Many pharmaceutical and medical technology companies will easily exceed the global and state-level revenue thresholds for both laws, and many large hospitals and health systems are likely to as well.
• Assess and bolster emissions reporting capabilities. Scope 3 emissions in the life sciences and health care sector may present unique challenges, requiring coordination among—and data from—suppliers, manufacturers, and distributors across the global supply chain, not to mention quantification of GHG emissions from the use and disposal of certain types of products. Businesses should inventory their existing climate data and reporting capabilities and implement systems to collect and identify data they may still need to comply with California’s new requirements. This includes consideration of emissions generated by, among other things, laboratories, manufacturing plants, temperature-controlled facilities, and large health campuses that can consume substantial energy and may have high-emitting supply chains.
• Think critically about climate-related financial risks. Businesses operating in the life sciences and health care sector should evaluate short-term and long-term climate-related financial risks, such as infrastructure damage, supply chain disruptions, and higher operational costs, that can affect the sector’s supply chains.
• Monitor and participate in CARB rulemaking. As we reported earlier, CARB is expected to finalize implementing regulations for SB 253 by the end of 2025. And while SB 261 is self-implementing, CARB has appeared willing to issue clarifying guidance at a later date. For both of these reasons, CARB continues to seek voluntary, informal feedback from industry on numerous open issues. Businesses that might be covered by SB 253 or SB 261 (or both) should consider commenting before CARB issues draft rules, as doing so may allow for a higher level of input and leverage in the rulemaking process. CARB will also host a public workshop on August 21, 2025, to provide further updates on implementation of SB 253 and SB 261.

California’s new requirements may pose a unique challenge for businesses that manufacture therapies and deliver care and that operate in—and depend on—elaborate global systems of inputs and outputs. By acting now, life sciences and health care organizations can prepare for compliance and build a foundation for future reporting.

Authored by Tom Boer and Maia Jorgensen.