California Climate Disclosure Laws – Countdown to Disclosure: What Companies Need To Know About Reporting Deadlines, CARB Guidance and Ongoing Litigation

As discussed in our prior Legal Updates,¹ in late 2023, California enacted a landmark set of climate-related disclosure laws—collectively referred to as the “California Climate Accountability Package”² —comprising:

• SB 253 (Climate Corporate Data Accountability Act), requiring disclosures of greenhouse gas (GHG) emissions; and
• SB 261 (Climate-Related Financial Risk Act), requiring disclosures of climate-related financial risks.

As companies prepare for upcoming disclosure deadlines in 2026, uncertainty remains regarding certain key aspects of these laws.

In this Legal Update, we address recent key developments. These include “additional guidance” from the California Air Resources Board (CARB), ongoing legal challenges and CARB’s preliminary “list of entities” potentially subject to SB 253 and SB 261 (Preliminary CARB List).

Recap of SB 253 and SB 261

As a reminder, SB 253 and SB 261,³ each of which was amended by SB 219,⁴ impose climate-related corporate disclosure requirements as follows:

• SB 253 requires US companies—public and private—doing business in California with annual global (not just California) revenues of more than $1 billion to disclose, on an annual basis, (a) Scope 1 and Scope 2 GHG emissions, starting in 2026, and (b) Scope 3 GHG emissions, starting in 2027.
• SB 261 requires US companies—public and private—doing business in California with annual global (not just California) revenues of more than $500 million to disclose climate-related financial risks and measures taken to mitigate and adapt to such risks, starting January 1, 2026. Insurance companies are exempted, and this is a biennial requirement.

Recent CARB Updates

Given the ambiguity around the nature and scope of certain requirements, CARB has been active in recent months as it has worked to implement and clarify the application of SB 253 and SB 261, including hosting two virtual public “workshops” and issuing various guidance. This Legal Update outlines where things stand after the following CARB activities:

• Virtual Public Workshops: CARB hosted two virtual public workshops (CARB Workshops) for SB 253 and SB 261, including to solicit further public feedback. These were held on May 29, 2025 (First Workshop)⁵ and August 21 (Second Workshop).⁶ During the First Workshop, CARB offered more conceptual and preliminary options, whereas, during the Second Workshop, CARB had incorporated stakeholder feedback received in connection with the First Workshop and offered more refined and concrete proposals for ongoing stakeholder feedback. The public comment period for such proposals concluded on September 11.
• Responses to Frequently Asked Questions: On July 9, CARB published an FAQ document titled California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure Programs: Frequently Asked Questions Related to Regulatory Development and Initial Reports (the FAQs Guide). The FAQs Guide is designed to assist companies potentially subject to SB 253 and SB 261 navigate the regulatory development process, better understand applicability and identify initial steps toward compliance.
• SB 261 Compliance Checklist: On September 2, CARB published a draft compliance checklist (the SB 261 Checklist) for SB 261. The SB 261 Checklist offers guidance on reporting frameworks, disclosure content and procedural requirements, with the goal of supporting transparent, decision-useful reporting for investors and other stakeholders.
• Preliminary List of Potentially Covered Entities: On September 24, CARB published a list of entities potentially subject to SB 253 and/or SB 261. The Preliminary CARB List was drawn from publicly available California Secretary of State data identifying entities “doing business” in California, based on a dataset limited to active filings through March 2022.
• SB 253 Reporting Templates: On October 10, CARB published its Scope 1 and Scope 2 Emissions Draft Reporting Template (the SB 253 Template), as well as the related memo (the SB 253 Template Memo) providing guidance on how to use the SB 253 Template. CARB has solicited stakeholder feedback with respect to both the SB 253 Template and the SB 253 Template Memo, which feedback may be submitted through a public docket. The deadline to provide feedback is October 27, 2025.

Key takeaways from CARB’s guidance are set forth below:

Initial Reporting Deadlines

The current state of play regarding the initial reporting deadlines is as follows:

• SB 261: Companies must publish climate risk reports by January 1, 2026, posting links on their websites and in CARB’s new public “docket” (to be open from December 1, 2025 through July 1, 2026).
• SB 253: CARB has proposed June 30, 2026 as the initial deadline for Scope 1 and Scope 2 GHG emissions disclosure. The initial deadline for Scope 3 GHG emissions disclosure would begin in 2027, with the exact date to be determined.

Defining Which Entities Are Within the Scope of SB 253 and SB 261

• Defining “Doing Business” in California: CARB’s early focus has been on how to define which entities fall within the laws’ scope. While the laws require compliance from certain entities “doing business” in California, the term was not expressly defined. Although CARB has considered whether tax nexus rules, corporate databases, or some combination of these and other sources may be relevant to the definition, the precise connection to California under the “doing business” standard has yet to be definitively resolved.

The initial proposal by CARB was to use the definition of “doing business” set forth in the California Revenue and Tax Code (RTC) Section 23101 with some modifications. This definition of “doing business” sets a low threshold that would bring companies with minimal ties to California within scope, with an entity considered to be doing business if it, for example, “engage[s] in any transaction for the purpose of financial gain within California” or exceeds minimal sales, property or payroll thresholds, with the 2024 thresholds being $735,019, $73,502 and $73,502, respectively.⁷

Following public feedback that this RTC definition may be too broad, during the Second Workshop, CARB noted that it was evaluating alternative approaches, including reliance on existing databases to identify covered entities.

While the California Franchise Tax Board’s data was discussed, CARB noted statutory restrictions on its use. In contrast, the California Secretary of State’s business entity database—listing entities with a designated agent for service of process in California—was highlighted as a potential tool.

CARB also referenced its ongoing analysis of California Secretary of State and Dunn & Bradstreet data to validate a preliminary list of potentially covered entities, which CARB released near the end of September (i.e., the Preliminary CARB List). Importantly, however, CARB emphasized that companies are ultimately responsible for compliance regardless of whether they appear on the Preliminary CARB List or as part of CARB’s outreach efforts.

• Defining Parent-Subsidiary Relationships: During the First Workshop, CARB had initially proposed adopting a definition of parent-subsidiary relationships that builds off of the Cap-and-Trade⁸ program’s concept of “corporate association,” which requires disclosure of certain corporate relationships based on certain “indicia of ownership interest or control.” This proposal considered the following to define parent-subsidiary relationships:
  • The company is considered a subsidiary of another where the parent or holding company owns more than 50% of its voting stock.
  • The subsidiary has a different legal entity name than its parent or holding company.
  • The parent or holding company has a controlling interest in its subsidiary and therefore is able to influence the subsidiary’s operations, management and financial decisions.

CARB invited stakeholder input on whether this operational control threshold is appropriate or if alternative standards or additional factors should be considered.

At the Second Workshop, CARB reaffirmed this approach (i.e., building on the Cap-and-Trade program’s approach) and proposed leveraging commercial ownership databases, cross-referenced with the California Secretary of State and California Franchise Tax Board records to identify applicable parent-subsidiary relationships. CARB also sought stakeholder feedback on the potential for a voluntary self-reporting process that would allow companies to disclose parent-subsidiary relationships and consolidate reporting across commonly controlled entities.

Subject to further refinement from CARB’s forthcoming implementing regulations, the expectation is that parent companies would not automatically be brought into scope of SB 253 and SB 261 merely because one of their subsidiaries is subject to one or both of these laws. In other words, in order to be a covered entity subject to one or both of SB 253 and/or SB 261, such entity must itself meet the relevant revenue thresholds, be a US entity and be considered to be doing business in California. That said, CARB has clarified that reporting under SB 253 and SB 261 may be consolidated at that parent level such that a parent company may report on behalf of its covered subsidiaries.

• Potential Exemptions: On its face, SB 261 exempts regulated insurance companies, but SB 253 does not provide exemptions.

However, in response to public feedback, during the Second Workshop, CARB considered whether additional exemptions might be appropriate and proposed that the following would be exempt from both SB 253 and SB 261:

• Nonprofit organizations;
• Companies whose only presence in California consists of teleworking employees; and
• The California Independent System Operator (CAISO) or business entities engaged solely in wholesale electricity transactions occurring in interstate commerce.

CARB clarified that government entities are outside the scope of the laws.

• Defining “Revenue”: CARB’s treatment of “revenue” has shifted as it worked through stakeholder feedback. Initially, CARB proposed defining “revenue” by reference to the definition of “gross receipts” under RTC Section 25120(f)(2). CARB invited stakeholder input, including on whether this definition was consistent with prevailing business practices, how it should be applied in the parent-subsidiary context, and whether alternative definitions of “revenue” should be considered for purposes of SB 253 and SB 261.

At the Second Workshop, CARB acknowledged that “gross receipts” may not be a suitable metric. In particular, stakeholders raised concerns regarding data confidentiality limitations, challenges in verification and the overly expansive scope of the definition. CARB, seeking to be aligned with the methodologies used by such sources as Dunn & Bradstreet and Standard & Poor, proposed that “revenue” would be defined as the “total global amount of money or sales a company receives from its business activities, such as selling products or providing services,” without deductions for operating costs or business expenses.

• Estimated Number of Potentially Covered Entities:
  • The legislative history for SB 253 and SB 261 suggested the number of potentially covered entities to be quite significant—5,344 for SB 253, and 10,000+ for SB 261.
  • However, during the Second Workshop, CARB suggested that the proposed revisions to key elements defining which entities would be covered by these climate-related disclosure laws would significantly reduce the number of entities potentially within scope—2,596 for SB 253 and 4,160 for SB 261.

• Preliminary CARB List: The Preliminary CARB List identifies entities potentially subject to SB 253 and/or SB 261. It was derived from data from the California Secretary of State relating to entities doing business in California. The Preliminary CARB List does not take into account potential exemptions to SB 253 and SB 261 that were discussed during the Second Workshop.

As noted above, in connection with publishing the Preliminary CARB List, CARB reiterated that potentially covered entities are responsible for compliance with SB 253 and SB 261, even if such entities are not included on the Preliminary CARB List. CARB also requested stakeholder feedback to the Preliminary CARB List. It would be prudent to submit survey feedback sooner rather than later to potentially inform CARB’s rulemaking process. However, there’s no official cutoff date announced for the survey itself.

SB 253: GHG Emissions Disclosure Guidance

• Independent Verification of Data; Assurance: Verification by an independent third party is required at a limited-assurance level for Scope 1 and Scope 2 GHG emissions disclosure starting in the initial 2026 reporting year, escalating to reasonable assurance in 2030.

During the Second Workshop, CARB suggested that limited assurance would include:

• Sampling plans;
• Reviews of data management systems;
• Limited data checks;
• Limited conformance checks;
• Process documentation;
• Log of any found and corrected errors by the covered entity; and
• Report and statement at the conclusion of the review.

CARB also identified potential standards for such third-party assurance, including (a) the International Standard on Sustainability Assurance (ISSA) 5000, issued by the International Auditing and Assurance Standards Board (IAASB), (b) AccountAbility AA1000 Series of Standards developed by AccountAbility, (c) ISO 14060 family developed by the International Organization for Standardization and (d) the American Institute of Certified Public Accountants (AICPA) standards.

• Template Disclosures: As noted above, on October 10, 2025, CARB published the SB 253 Template, as well as the SB 253 Template Memo to guide the use of the SB 253 Template. Covered entities are not required to use the SB 253 Template, with its use being voluntary for the initial reporting cycle in 2026.

The SB 253 Template is organized into several sections, including the following: (a) organization information, (b) third-party verification, (c) inventory boundary, (d) Scope 1 and Scope 2 GHG emissions disclosure, (e) methodology, (f) de minimis / minor sources, (g) California MRR (i.e., California Mandatory Reporting Regulation) fields (if applicable) and (h) emissions reductions (if applicable). The SB 253 Template also includes optional fields for future reporting years, such as base year emissions, which are intended to support intraorganizational comparisons and provide greater transparency.

In addition, the SB 253 Template provides several potential pertinent reporting fields that touch on the following:

• Emissions Intensity Metrics: Covered entities can provide at least one intensity or efficiency ratio (e.g., emissions per $1 million in revenue). These ratios allow stakeholders to compare performance between companies of varying sizes and across different industries.
• Industry Classification: Covered entities can categorize their GHG emissions using the 2-digit North American Industry Classification System (NAICS) codes, enabling consistent sector-based analysis.
• Transparency in Methods: Covered entities can identify the source and year of Global Warming Potential (GWP) values and emissions factors and provide a brief description of the calculation method used.
• Alignment with the California MRR: Covered entities can include California MRR facility identification numbers, which ensure alignment of data with CARB’s other regulatory databases.

These templates are currently in draft form, with CARB seeking stakeholder feedback on key areas, including (a) disclosure by source vs. by gas; (b) organizational boundaries; and (c) emissions reduction initiatives.

• Enforcement Discretion: CARB will allow companies to use existing data for the first reporting cycle and will exercise enforcement discretion⁹ to accommodate companies needing time to implement new data collection processes.

SB 261: Climate-Related Financial Risk Disclosure Guidance

• Framework Options: The SB 261 Checklist confirms that covered entities may select from several established reporting frameworks to structure their disclosures:
  • Task Force on Climate-related Financial Disclosures (TCFD) Final Report (2017) or any successor framework;
  • International Financial Reporting Standards Sustainability Disclosure Standards (IFRS S2); or
  • Other frameworks developed in accordance with regulated exchanges, national governments or US federal regulations.

Each report must:

• Identify the chosen framework;
• Specify which recommendations have been addressed; and
• Explain any omissions or plans for future inclusion.

This approach enables covered entities to adopt a phased path toward full compliance, while maintaining transparency and accountability in their climate risk reporting.

• Core Disclosure Requirements: The SB 261 Checklist outlines minimum disclosure expectation across four key pillars, broadly consistent with TCFD and IFRS S2 principles:
  • Governance: Describe the covered entity’s governance framework for managing climate-related financial risk, including board and management oversight.
  • Strategy: Identify short-, medium- and long-term climate-related risks and opportunities, and explain how these affect the covered entity’s operations, business strategy and financial planning (where material).
  • Risk Management: Explain the process used to identify, assess and manage climate-related risks and how those considerations and processes are integrated into the covered entity’s overall risk management.
  • Metrics and Targets: Disclose the metrics and targets used to evaluate and manage material climate-related risks and opportunities, including measures adopted to mitigate and adapt to those risks.

• Practical SB 261 Disclosure Guidance: In addition to outlining key disclosure expectations, CARB provided further implementation guidance designed to ease the obligations of covered entities during the first reporting cycle:
  • Qualitative Scenario Analysis: CARB encourages the use of climate scenarios to inform strategic disclosures. Scenario analysis may be qualitative or quantitative, reflecting stakeholder feedback that quantitative modeling may be duplicative of SB 253 requirements or unduly burdensome.
  • Consolidated Reporting: A subsidiary is not required to file a separate SB 261 report if its parent company reports on its behalf. Consolidated, parent-level reporting is permitted.
  • GHG Emissions Disclosures: While some reporting frameworks include Scope 1, Scope 2 and Scope 3 GHG emissions metrics, CARB confirmed that GHG emissions disclosures are not required for the initial SB 261 reporting period, acknowledging stakeholder feedback regarding potential overlap with SB 253 reporting requirements and data availability constraints.
  • Data Source: For initial reports, covered entities should rely on the most recent and best available data, whether based on calendar year or fiscal year reporting, to ensure consistency and verifiability.

In addition, unlike the EU Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards (ESRS E1), SB 261 does not expressly require formal transition plans, although it does require a covered entity to identify measures it is taking to reduce and/or adapt to relevant climate-related financial risks. This is functionally similar to a transition plan mandated by such EU regulation, especially for covered entities aligning with the TCFD or IFRS S2 frameworks.

• Enforcement Discretion: CARB did not initially address enforcement discretion for SB 261’s initial reporting year in its Enforcement Notice, issued on December 5, 2024 relating to SB 253. However, in the FAQs Guide, CARB emphasized a practical, phased approach to compliance, recognizing the need for lead time and the use of best available information for initial reports. CARB noted that it would consider good faith efforts to comply in enforcement decisions, particularly during the initial implementation period.

Flat Fee Structure

• During the Second Workshop, CARB proposed a flat annual fee structure of $3,106 for SB 253 and $1,403 for SB 261, with covered entities over $1 billion in revenue paying both fees.
• Even if parent-level consolidated reports are filed, subsidiaries are still required to pay separate entity fees.

Timeline for Draft Regulations

• SB 253: Under SB 253, CARB was initially required to provide implementing regulations by January 1, 2025. This deadline was extended under SB 219 to July 1, 2025.

During the First Workshop, and despite the delay in issuing implementing regulations (which CARB suggested would not be issued until the end of 2025), the sponsors of SB 253 and SB 261—Senators Scott Wiener and Henry Stern—confirmed that the initial reporting deadlines would not be delayed.

During the Second Workshop, CARB announced a clearer timeline for issuing the implementing regulations, which would be on an accelerated schedule, with draft regulations targeted for publication on October 14, 2025, followed by a 45-day public comment period and final Board consideration on December 11-12, 2025.

• SB 261: Under SB 261, CARB is not expressly required to issue implementation regulations. During the First Workshop, however, CARB requested public feedback as to how it should implement SB 261 (e.g., formal regulation, guidance, etc.). Whether regulations or only guidance will be issued in connection with SB 261 remains to be seen.

Federal Litigation Developments

While there have been several challenges, some of which are still ongoing, the bottom line is that both laws remain very much in effect, subject to CARB’s ongoing interpretive activity.

As discussed in our February 2024 Legal Update, several business and industry trade organizations, including the US Chamber of Commerce and the California Chamber of Commerce, filed a lawsuit in January 2024 in federal court against CARB (and its representatives) seeking to overturn SB 253 and SB 261.

As a refresher, the plaintiffs in that case contend that SB 253 and SB 261:

• Violate the First Amendment by compelling speech (Count I);
• Are preempted by the US Constitution and federal law, including the Clean Air Act, and violate the Supremacy Clause (Count II); and
• Violate the US Constitution’s limitations on extraterritorial regulation, including the Dormant Commerce Clause (Count III).

Further, as discussed in our February 2025 Legal Update, the Court ruled on certain dispositive motions, including:

• Denying the plaintiffs’ motion for summary judgment, which had addressed Count I (the First Amendment claims); and
• Granting the defendants’ motion to dismiss as follows: (a) Counts II and III as to SB 253 were dismissed without prejudice; (b) Count II as to SB 261 was dismissed with prejudice; and (c) Count III as to SB 261 was dismissed without prejudice.

Following the Court’s ruling on the defendants’ motion to dismiss, there have been several developments in the case:

• Denial of Preliminary Injunction: On February 25, 2025, the plaintiffs filed a motion for preliminary injunction seeking to enjoin the defendants from implementing, applying, or taking any action to enforce SB 253 and SB 261. In that motion, the plaintiffs argued that SB 253 and SB 261 violate the First Amendment by compelling speech on a controversial topic, are overbroad, and impose immediate and irreparable harm on affected businesses. On August 13, 2025, the Court denied the plaintiffs’ motion for preliminary injunction, finding that the plaintiffs had not shown a likelihood of success on the merits of their facial First Amendment challenges to SB 253 and SB 261.
• Denial of Injunction Pending Appeal: On August 20, 2025, the plaintiffs filed a notice of appeal and a motion for injunction pending appeal with the District Court. While the District Court denied this motion for injunction pending appeal on September 11, the appeal of the District Court’s initial denial of the motion for preliminary injunction on August 13, 2025 remains pending in the Ninth Circuit.
• Pending Ninth Circuit Injunction Pending Appeal: Following the plaintiffs’ notice of appeal and the District Court’s denial of the plaintiffs’ motion for injunction pending appeal, the plaintiffs filed a motion for injunction pending appeal on September 15, 2025 in the Ninth Circuit and requested relief by November 3, 2025. This motion for injunction pending appeal remains pending.

Practical Takeaways to Prepare for Compliance

Despite ongoing uncertainty, early preparation remains critical for potentially covered entities. SB 253 and SB 261 place California at the forefront of global climate reporting, and companies that proactively align with these standards will be best positioned to meet regulatory requirements and manage risk.

To support timely readiness for the looming deadlines, potentially covered entities should consider taking the following steps:

• Confirm Applicability:
  • Review the Preliminary CARB List to determine whether the company or its parent or subsidiaries have been identified.
  • Verify annual global revenue and assess whether the company is “doing business” in California under CARB’s proposed definitions.
  • Identify covered entities and subsidiaries under CARB’s proposed ownership threshold or control test and determine whether reporting will be consolidated.

• Strengthen Governance:
  • Establish or enhance board and management oversight of climate-related disclosures, with clear allocation of responsibilities.
  • Integrate climate oversight into existing governance and risk management frameworks.

• Establish Robust Control Systems and Ensure Coordination:
  • Strengthen internal controls and train teams on data integrity, evidence gathering and assurance readiness.
  • Align legal, finance, sustainability and communications functions to ensure consistent, compliant disclosures.
  • Formalize internal processes for preparation, review and validation of disclosures under SB 253 and/or SB 261.

• Preparing for SB 253 Reporting (GHG Emissions):
  • Map and validate data sources for Scope 1, Scope 2 and Scope 3 GHG emissions.
  • Align methodologies with the GHG Protocol.
  • Engage assurance providers early to prepare for limited assurance disclosures in 2026 and reasonable assurance by 2030.

• Preparing for SB 261 Reporting (Climate-Related Financial Risk):
  • Select a reporting framework (e.g., TCFD or IFRS S2) and identify gaps across the four pillars: (a) governance, (b) strategy, (c) risk management and (d) metrics and targets.
  • Conduct or update a climate risk assessment, considering both transition and physical risks.
  • Integrate scenario analysis (qualitative or quantitative) into strategic planning and financial modeling.
  • Develop a disclosure and communications plan for investors and other stakeholders.

Our team is closely monitoring CARB’s regulatory developments. If you have questions about SB 253, SB 261 or California’s climate disclosure requirements and how they may apply to your company, please contact any of the authors of this Legal Update.

 

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 ¹ See our prior Legal Updates, (a) New “Climate Reporting” Laws in California – Emissions and Climate-Related Financial Risk Disclosures Required, dated September 26, 2023, and (b) California’s Climate Disclosure Laws: Navigating the Latest Updates, dated February 21, 2025 (our February 2025 Update).

² A third law was passed together with SB 253 and SB 261—AB 1305 (also known as the Voluntary Carbon Market Disclosures Act). AB 1305, which is already in effect, is not discussed in this Legal Update. For additional information on AB 1305, see our prior Legal Update, New California Anti-Greenwashing Law Goes Live on January 1, 2024 – What You Need to Know if You Make Certain “Green” Claims, dated December 7, 2023.

³ SB 219 introduced limited amendments to SB 253 and SB 261, including with respect to parent-level reporting consolidation, extension of the CARB rulemaking deadline, flexibility regarding the date in 2027 when the initial Scope 3 GHG emissions disclosures are required under SB 253, timing of filing fee payment and CARB’s use of third-party organizations. For additional information regarding SB 219, see our February 2025 Update.

⁴ There is an additional amendment—AB 154—which was presented to Governor Gavin Newsom for signature on September 24, 2025 and signed by Governor Newsom on October 11, 2025. While this bill amends both SB 253 and SB 261, it does not directly affect potentially covered entities. Rather, this bill is a budget-related bill that, among other things, streamlines the CARB rulemaking process by exempting CARB regulations under SB 253 and SB 261 from review under the California Environmental Quality Act.

⁵ CARB published a recording of the First Workshop, and the First Workshop’s related PowerPoint slides.

⁶ CARB published a recording of the Second Workshop, and the Second Workshop’s related PowerPoint slides.

⁷ For a discussion of “doing business” in California, see our prior Legal Update, Are You “Doing Business” in California?, dated March 3, 2021.

⁸ California’s Cap-and-Trade program is a market-based emissions trading system that establishes a declining cap (or limit) on total greenhouse gas emissions over time.

⁹ CARB issued an Enforcement Notice on December 5, 2024, relating to SB 253, in which CARB announced it would exercise enforcement discretion for the first reporting cycle in 2026 relating to Scope 1 and Scope 2 GHG emissions disclosures so long as covered entities demonstrate “good faith” efforts.