The California Air Resources Board held its third workshop last week on California’s pending corporate climate disclosure mandates. Health & Safety Code 38532 (SB 253) requires greenhouse gas emissions disclosures, while Health & Safety Code 38533 (SB 261) requires climate risk disclosures. At the workshop, CARB provided more clarity on the regulations it will be proposing, as well as other aspects of compliance. Among other things, CARB presented proposed updates to definitions and exemptions and discussed the scope of the initial regulation and the first reporting deadlines.
In this post, we take a detailed look at what CARB had to say, as well as the updated FAQs and SB 261 reporting guidance CARB issued in connection with the workshop. We also discuss the preliminary injunction issued by the Ninth Circuit almost simultaneously with the start of the CARB workshop.
A Refresher on the Legislation
To recap, California adopted three pieces of climate disclosure legislation in late 2023:
The Climate Corporate Data Accountability Act (Senate Bill 253/Health & Safety Code Section 38532) requires annual public disclosure of Scope 1, 2 and 3 greenhouse gas emissions by US-organized entities doing business in California with total annual revenues exceeding $1 billion. Measurement and reporting are required to be aligned with the Greenhouse Gas Protocol. Under the Act, the first disclosures are required in 2026 for fiscal 2025. Initially, Scope 1 and 2 emissions disclosures require limited assurance, with assurance requirements increasing over time.
The Climate‐Related Financial Risk Act (Senate Bill 261/Health & Safety Code Section 38533) requires biennial disclosure of climate-related financial risks in accordance with the Task Force on Climate-related Financial Disclosures framework or an equivalent requirement, as well as the measures adopted to reduce and adapt to the disclosed climate-related financial risks. Disclosures are required by US-organized entities doing business in California with total annual revenues exceeding $500 million in the prior fiscal year. Under the statute, the first disclosures are required by the beginning of 2026. As further discussed below, the Ninth Circuit has preliminarily enjoined enforcement of SB 261.
The Voluntary Carbon Market Disclosures Act (Assembly Bill 1305/Health & Safety Code Section 44475) requires an entity that makes claims regarding the achievement of net zero emissions, carbon neutrality or significant emissions reductions to make specified website disclosures. More prescriptive disclosure requirements apply if claims are made and the entity purchases or uses voluntary carbon offsets (VCOs). In addition, entities that market or sell VCOs in California have specified disclosure obligations.
These Acts are discussed in more detail in our earlier post here.
In addition, last September, Senate Bill 219 was signed into law. SB 219 amended SB 253 and SB 261 around the margins, as discussed in this post. Most notably, SB 219 amended SB 253 to:
Give CARB until July 1 of this year to adopt implementing regulations, rather than the original January 1, 2025 due date (CARB also did not meet the extended due date),
Require reporting entities to publicly disclose their Scope 3 emissions on a schedule to be specified by CARB, rather than within 180 days after their Scope 1 and 2 emissions are disclosed, and
Clarify that reports are permitted to be consolidated at the parent company level and that subsidiaries are exempt from reporting. (In this post, consistent with CARB practice and general market convention, we use the original bill numbers instead of SB 219.)
Related CARB Initiatives
CARB also has held public workshops on aspects of SB 253 and SB 261 and published FAQs, a checklist for SB 261 compliance and a draft template for SB 253 reporting. All of the foregoing are discussed in this post.
The Workshops
The November workshop was CARB’s third workshop on SB 253 and SB 261. CARB also held a workshop on May 29 and August 21. At these workshops, CARB shared staff proposals relating to scoping and addressed timing of both compliance and second-level regulation, among other things. See our earlier posts for a discussion of the May and August workshops.
Keep in mind that the rulemaking details shared by CARB at the November workshop are proposals. A draft regulation has not yet been published, let alone adopted.
Due Dates
SB 261 – An Injunction Throws a Wrench in Compliance
Under the statute, the first SB 261 report is required to be published on company websites by January 1, 2026. Over the last few months, many companies had hoped CARB would extend the reporting deadline. CARB has made it clear that, because the deadline is built into the statute, it does not believe it has the flexibility to provide an extension, notwithstanding the delay into 2026 of the adoption of the initial regulation pertaining to SB 253 and SB 261.
Separately, companies will be required to submit a link to their report to a public docket to be established by CARB. Based on the last public statement by CARB, the docket will open on December 1 and close on July 1 next year and the link to the report must be submitted to the CARB docket by July 1, 2026.
A Timely Order from the Ninth Circuit
Within minutes of the start of last week’s CARB workshop, the Ninth Circuit Court of Appeals published an order preliminarily enjoining the enforcement of SB 261 pending an ongoing appeal being considered by the court.
The order pertains to the lawsuit challenging SB 253 and SB 261 brought by the US Chamber of Commerce and other plaintiffs against CARB. Among other things, the Chamber is challenging the statutes on First Amendment grounds.
The Court’s order preliminarily enjoins enforcement of SB 261, but not SB 253. The Court declined to enjoin SB 253. In contrast to the looming SB 261 reporting deadline, as proposed by CARB SB 253 reports are not due until August 10, 2026. Accordingly, there was not the same urgency for the Court to address SB 253.
Previously, the District Court for the Central District of California denied the plaintiffs’ request for a preliminary injunction. That decision was appealed to the Ninth Circuit, which has scheduled oral arguments for January, after the first SB 261 disclosures are otherwise required to be made. The order gives the Court of Appeals breathing room to consider the appeal without potentially prejudicing reporting companies.
In a post last week, we discuss several “no regrets” actions that companies should consider during this period of uncertainty.
There also is a second lawsuit challenging SB 253 and SB 261 that was filed in late October, in a different District Court than the original lawsuit. The plaintiff is among other things also seeking to enjoin enforcement of SB 253 and SB 261. See this Ropes & Gray post.
SB 253 – A Longer Deadline Than Expected
CARB is proposing a first year reporting deadline of August 10, 2026. This is better than the June 30, 2026 deadline generally expected based on the most recent prior CARB statements. Importantly, CARB has characterized this as a first year deadline. Therefore, companies may receive less time next year to complete at least their Scope 1 and Scope 2 greenhouse gas emissions reporting.
The proposed regulation also will take into account differing fiscal year periods. If the reporting entity’s fiscal year ends between January 1 and February 1, 2026, it will report data from the fiscal year ending in 2026. If the reporting entity’s fiscal year ends after February 1, it will report data from the fiscal year ending in 2025. The intent is that entities have at least six months after their fiscal year end to submit their report.
Reporting and Assurance Accommodations
At the workshop, CARB reiterated its December 2024 Enforcement Notice. CARB indicated that it will exercise its enforcement discretion for good-faith first-year submissions, focusing instead on supporting reporting entities actively working toward full compliance. The Enforcement Notice is discussed in this Ropes & Gray post.
CARB also noted that companies are not required to use the draft Scope 1 and 2 GHG emissions reporting template in 2026. Companies may instead submit existing annual reports that include information on Scope 1 and 2 emissions. The template is discussed in this Ropes & Gray post.
Submission of GHG emissions data in 2026 is further explained in the FAQs (FAQ 19), as follows:
If a company develops its own annual report that includes information on Scope 1 and Scope 2 emissions, that report may be submitted to CARB.
If a company already submits annual Scope 1 and Scope 2 emissions through a voluntary program or to another regulatory program, the company may submit that same information to CARB.
A company may choose to submit data using CARB’s Scope 1 and 2 GHG reporting template.
For 2026 reporting under SB 253, CARB will exercise enforcement discretion, allowing reporting entities to submit Scope 1 and Scope 2 emissions for their prior fiscal year based on information they already have or were collecting when the Notice was issued, whether or not the data received limited assurance (FAQ 20).
Consistent with the foregoing, CARB indicated that, if a company was not collecting or planning to collect data at the time the Enforcement Notice was issued, they are not expected to submit Scope 1 and 2 reporting data in 2026. The company should instead submit a statement on company letterhead to CARB, stating that they did not submit a report and indicating that, in accordance with the Enforcement Notice, they were not collecting or planning to collect data at the time the Notice was issued. CARB will open a public docket near the 2026 reporting deadline to which these statements will be uploaded.
Regarding assurance, in addition to the foregoing FAQ, CARB’s deck from the November workshop includes the following short Q&A: “Is data assurance required for 2026 reporting? For 2026 reporting, limited assurance is not required for data submission.”
Fees
The fees set by CARB are intended to cover its program administration costs.
CARB is planning a flat fee structure, although it has not yet determined the fee amounts since these are dependent on the number of companies required to report (CARB appears to still be grappling with how to determine this, although it is gravitating to Franchise Tax Board data). However, this will not hold up reporting, since CARB plans to issue fee invoices later in 2026 after it sets the fee amount. It proposes to assess the fee amount by September 10, 2026.
CARB has indicated that each covered subsidiary will be assessed a fee, even if reporting is at the parent level. However, the parent company may pay all fees in one combined payment. (FAQ 18)
Even though SB 261 is a biennial publication requirement, it appears that CARB is contemplating an annual fee.
Scoping and Reporting Level Considerations
At its May and August workshops, CARB proposed approaches for determining revenues, doing business in California and parent-subsidiary relationships. The November workshop again revisited these topics, moving back towards the original May CARB staff initial concepts. The May workshop is discussed in this Ropes & Gray post.
Revenues, doing business in California and parent-subsidiary relationships all will be addressed in CARB’s initial rulemaking, which it expects to be considered by the CARB board in the first quarter of 2026.
In September, CARB published a preliminary list of entities that may be subject to SB 253 and/or SB 261. The list is further discussed in this Ropes & Gray post. At the November workshop, CARB indicated that the goal of the preliminary list is to help estimate the approximate numbers of potentially subject companies and it is not a compliance tool (although it can be a starting point for compliance). Each potentially regulated entity remains responsible for assessing whether they are in scope.
Revenues
CARB’s proposed definition of “revenue” is based on the “gross receipts” definition in California Revenue and Taxation Code Section 25120(f)(2). Under that definition, revenues will be the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services or the use of property or capital (including rents, royalties, interest and dividends) in a transaction that produces business income, in which the income, gain or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of test. Amounts realized on the sale or exchange of property are not reduced by the cost of goods sold or the basis of property sold.
To account for annual changes in revenue that may take companies above or below the threshold, applicability will be determined by the lesser of the entity’s two previous fiscal years of revenue. This means that if, in one of those two years, revenue is below the applicable SB 253 or SB 261 threshold, the entity will not be in scope for that requirement and it will not need to report at the next applicable reporting deadline.
CARB’s FAQs note that revenue considers total gross receipts, regardless of whether the revenue was generated within California (FAQ 8).
The FAQs also indicate that the revenue threshold is evaluated at the individual company level. However, if a parent company and its subsidiaries file California taxes as a unitary business, then the revenue of the subsidiaries counts towards the revenue of the parent company as part of its gross receipts. To determine gross receipts, entities should reference their corporate tax filings. (FAQ 15)
Doing Business in California
CARB staff proposes defining “doing business in California” using Revenue and Taxation Code Section 23101, with some exceptions.
As a threshold matter, under Section 23101(a), “doing business” means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.
Under the relevant prongs of Section 23101(b), an entity that is doing business is doing so in California if either of the following conditions are met during any part of a reporting year:
The entity is organized or commercially domiciled in California.
Sales (as defined in Revenue and Taxation Code Section 25120(e) or (f)) for the reporting year of the entity in California exceed the inflation adjusted threshold of $735,019 (2024). For these purposes, sales include sales by an agent or independent contractor. Sales in California are to be determined using the rules for assigning sales under specified sections of the Revenue and Taxation Code. Sales include the pro rata or distributive share of pass-through entities.
CARB staff proposes omitting the Section 23101(b) prongs relating to property holdings and payroll ((b)(3) and (4)).
Exempted Entities
CARB proposes exempting entities whose only California business is the presence of teleworking employees.
SB 261 by its terms exempts from reporting business entities that are subject to regulation by the Department of Insurance in California or another state. CARB is proposing to also exempt these entities from reporting under SB 253.
CARB’s FAQs also note that several types of organizations may not have a reporting obligation based on the definitions of revenue and doing business in California. It cites as examples holding companies and mutual funds, since these do not report gross receipts in their California corporate tax filings and would not meet the revenue thresholds as a result. (FAQ 10)
According to CARB, SB 253 and SB 261 by their terms exclude other types of entities, such as government entities and not-for-profits and charitable organizations.
Parent-subsidiary Relationships
By their terms, both SB 253 and SB 261 allow for parent-level reporting on behalf of in-scope subsidiaries.
As proposed by CARB, a business entity is a subsidiary if another business entity has the requisite ownership interest in or control over the first entity by direct corporate association. This approach aligns with CARB's Cap-and-Invest program. The relevant indicia of ownership and control are specified in California Code Regulations, Title 17, Section 95833 and include majority ownership, majority board or officer control or majority voting control. Under Section 95833, a direct corporate association exists when two entities are connected directly or through a line of more than one direct corporate association.
The FAQs indicate that a foreign parent company may report on behalf of in-scope US-based subsidiaries through a consolidated report (FAQ 14).
The FAQs also indicate that the consolidated parent report may include disclosures from out-of-scope subsidiaries (FAQ 16).
SB 261 Reporting
In early September, CARB posted a draft SB 261 reporting checklist on its website.
CARB reiterated aspects of the checklist at the November workshop. In addition, on November 17, CARB released an updated version of the checklist. The checklist changes are discussed later in this post. The checklist also is further discussed in this Ropes & Gray post.
SB 261 does not specify whether calendar or fiscal year information is to be reported. The CARB FAQs indicate that covered entities should use the most recent/best available data for their first report (FAQ 25). As noted in another FAQ, this may include information from past fiscal years, such as fiscal year 2023/2024 or 2024/2025 (FAQ 24).
The FAQs note that there is no requirement that the climate-related financial risk report be embedded or displayed in a specific format beyond being publicly accessible on the company’s website, and that the link be sent to CARB’s public docket (FAQ 28).
The Rulemaking Process
According to CARB, the initial rulemaking proposal will be limited to establishing the fee component and associated definitions and setting the first SB 253 reporting deadline. CARB staff expect a Board hearing on the initial regulation during the first quarter of 2026.
In a subsequent rulemaking in 2026, CARB intends to address program requirements in 2027 and beyond, including assurance requirements, further enforcement provisions, future deadlines and reporting templates.
At the November workshop, CARB noted that it has received more than 100 comments on the draft SB 253 reporting template from businesses, trade associations, individuals and NGOs. The main themes include organizational boundary flexibility, emissions intensity disclosures, assurance, emissions reductions, gas versus source disclosures and Scope 2 market- and location-based reporting. CARB indicated it is reviewing and evaluating stakeholder feedback to inform future reporting template drafts.
CARB also is starting work on Scope 3 reporting requirements. Under SB 253, Scope 3 reporting begins in 2027 for fiscal 2026. At the workshop, CARB invited feedback on which of the 15 Scope 3 categories are most used by companies today and/or most helpful for investors and consumers.
Updated CARB Guidance
On November 17, CARB updated its July FAQs and draft SB 261 checklist.
FAQs
The FAQs were updated to synch up with the approaches discussed at the November workshop. Several new FAQs were added. The more significant FAQs are discussed throughout this post. CARB intends to periodically update the FAQs to reflect new information or clarifications as implementation progresses.
SB 261 Checklist
CARB made the following changes to the checklist:
When released in September, the checklist was characterized as a draft. CARB now considers it to be in final form.
Clarifies that the statutory definition of climate-related financial risk in SB 261 applies.
Clarifies how companies in the early stages or with less experience in evaluating climate-related risks can disclose relevant and best available data. In this regard, the checklist:
Notes that disclosures should reflect a company’s effort to assess and communicate risk by describing the processes (governance, strategy and risk management) through which climate-related risks are identified, evaluated and addressed;
Notes that the 2017 TCFD Recommendations acknowledge that reporting entities in the early stages of evaluating climate-related risks may begin by disclosing how these risks relate or may be relevant, even if no material risks have yet been identified or actions taken; and
Encourages reporting entities to include in their disclosures a description of gaps, limitations and assumptions made as part of their assessment of climate-related issues.
Indicates that, if industry-specific guidance exists, covered entities should follow the guidance, as applicable, to ensure that the disclosed information is relevant.
References and links to the International Sustainability Standards Board standards have been added, in recognition that some companies are starting to apply these standards.
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