California Narrows Scope 3 Rules to 5 Categories After Industry Pushback

The California Air Resources Board has proposed limiting mandatory initial Scope 3 emissions reporting to five value chain categories, scaling back from a broader approach it had originally floated, following industry feedback on cost and data availability concerns. The proposal, presented at a public workshop on the California Corporate Greenhouse Gas Reporting Program, also confirmed that insurance companies will be brought into the regulation's emissions reporting requirements starting in 2027, reversing an earlier exemption, and that companies will need limited assurance on their Scope 1 and 2 reporting beginning the same year. The rules stem from SB 253, which requires companies with more than $1 billion in revenue doing business in California to report Scope 1, 2 and 3 emissions.

 

Why Narrowing the Scope 3 Categories Matters

 

CARB had been weighing three distinct approaches for its 2027 Scope 3 rollout: requiring all companies to report across all 15 GHG Protocol-defined categories simultaneously, phasing requirements in by sector, or phasing them in by category, starting with those already most commonly disclosed. Choosing the category phase-in approach, and specifically selecting Purchased Goods and Services, Fuel and Energy Related Activities, Waste Generated During Operations, Business Travel and Employee Commuting, reflects a regulatory judgment that mandating comprehensive Scope 3 disclosure from day one would have imposed compliance costs disproportionate to the reporting maturity currently available across the full range of value chain emissions categories.

That judgment carries real weight for companies preparing to comply. Scope 3 emissions are widely considered the hardest category to measure accurately, since they span a company's entire value chain including suppliers, product use and disposal that a reporting company does not directly control or always have visibility into. CARB explicitly noted that the five selected categories already have some of the most established data sources and mature quantification methods, meaning companies attempting compliance will be working with the categories where reliable data collection processes and calculation methodologies are furthest along, rather than being required to build entirely new measurement systems for categories where standardised approaches remain underdeveloped.

 

Read more: Ten EU States Push to Rethink Fuel Carbon Price Ahead of Market Overhaul

 

What Gets Left Out, and Why That Matters Too

 

Categories such as purchased goods and services capture the emissions embedded in materials and components a company buys from suppliers, often representing the largest single share of a company's total Scope 3 footprint, so its inclusion in the initial five keeps the most emissions-significant category within mandatory scope even as the total number of required categories shrinks. CARB did not provide details on how the remaining ten Scope 3 categories, which include more complex areas like the use of sold products, investments and downstream leased assets, will eventually be brought into mandatory reporting, though it proposed that companies be permitted to report voluntarily on those categories in the interim.

That voluntary allowance gives companies with more mature internal Scope 3 tracking systems the option to disclose beyond the mandatory minimum, potentially creating a reporting gap between companies that report only the required five categories and those that voluntarily disclose more broadly, a distinction investors and analysts comparing companies' climate disclosures will need to account for.

 

Why the Insurance Sector Reversal Signals a Stricter Posture

 

The regulation initially exempted insurance companies from 2026 emissions reporting to avoid duplicating parallel requirements from the California Department of Insurance. CARB's determination that CDI reporting, which does not include Scope 3 or assurance requirements, may not satisfy SB 253's obligations represents a meaningful tightening rather than a minor technical clarification. It signals that CARB is unwilling to accept a lighter-touch existing reporting regime as a substitute for the fuller disclosure SB 253 demands, even where doing so would reduce the compliance burden on a specific industry.

Insurance companies will now need to meet SB 253 requirements from 2027 either through a single report satisfying both CDI and SB 253 obligations or through a supplement to their existing CDI filing, adding a Scope 3 and assurance dimension the sector had not previously anticipated preparing for under the state's climate reporting framework.

 

 

What the Assurance Requirement Adds

 

Beginning in 2027, companies will need limited assurance on their Scope 1 and 2 reporting, conducted under one of five accepted standards, with the specific standard depending on when the assurance engagement begins relative to a mid-December 2026 cutoff. Limited assurance is a lighter form of independent verification than reasonable assurance, involving a review of a company's reported data and methodology to identify whether anything appears materially inconsistent, without the more exhaustive testing a full audit-level assurance engagement would require.

Requiring that verification specifically for Scope 1 and 2, while leaving Scope 3 without a stated assurance requirement in this proposal, reflects the same underlying logic as the phased category approach: applying stricter verification standards first to the emissions categories where measurement is most established, while allowing the newer and more difficult-to-verify Scope 3 disclosures to mature before assurance requirements are layered on top. CARB said it will hold listening sessions in August and September to gather further stakeholder feedback before finalising the requirements. Whether the five-category starting point proves durable once the remaining ten categories eventually enter mandatory scope, and whether the insurance sector's late-stage inclusion creates implementation delays given the shorter runway to prepare, will shape how smoothly California's corporate climate reporting regime rolls out over the coming years.