Yesterday, the California Air Resources Board held its second marathon virtual public workshop on California’s pending corporate climate disclosure laws. These laws will require subject companies to publicly report on greenhouse gas emissions (SB 253) and climate risk (SB 261). At the workshop, CARB addressed the “who,” “what,” “how” and “when” of the laws. Among other things, this included new CARB proposals relating to scoping, recommendations for climate risk reporting and the due date for the first GHG emissions reports. CARB also provided initial high-level thoughts on assurance. This post provides a detailed discussion of the 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. The first disclosures are required by the beginning of 2026.
- 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 the Climate Corporate Data Accountability Act (SB 253) and Climate‐Related Financial Risk Act (SB 261) around the margins, as discussed in this post. Most notably, SB 219 amended SB 253 to (1) 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), (2) 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 (3) 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 general market convention, we use the original bill numbers instead of SB 219.)
The August 21 workshop addressed aspects of SB 253 and SB 261. The VCMDA was not discussed. The workshop lasted for approximately 3-1/2 hours. The first 40 or so minutes were devoted to CARB’s prepared remarks. The remaining time was taken up by open feedback from approximately 100 commenters and CARB’s responses.
The August workshop was CARB’s second workshop on SB 253 and SB 261. CARB also held a workshop on May 29. Among other things, at the May workshop CARB shared initial proposals relating to scoping, addressed timing of both compliance and second-level regulation and discussed further steps in the rulemaking process. That workshop is discussed in detail in this Ropes & Gray post.
Most recently, in early July, CARB published seven pages of FAQs on SB 253 and SB 261, as discussed in this Ropes & Gray post. The FAQs address CARB's regulatory development for these laws and the submission of initial reports.
Development and Implementation of Regulation (the “Who”)
At the May workshop, CARB floated initial staff concepts for how to determine whether an entity is subject to SB 253 and/or SB 261. CARB focused on three concepts: revenues, doing business in California and parent-subsidiary relationships. Based on feedback received on the initial staff concepts, CARB is now also seeking feedback on additional approaches, as discussed below. As discussed later in this post, on October 14, CARB will propose regulations under SB 253 and SB 261. The proposed regulations will include definitions of these concepts. Accordingly, as noted during the workshop, now is the time for stakeholders that wish to provide input on these concepts to “hunker down.”
Based on Dunn & Bradstreet data and businesses registered with the California Secretary of State, CARB estimates that 2,596 entities are subject to SB 253 and 4,160 are subject to SB 261. In coming weeks, CARB will post for public feedback a list of entities that it believes are subject to SB 253 and SB 261 based on these data sources.
Revenues
At the May workshop, CARB staff considered defining total annual revenues as gross receipts under California Revenue and Taxation Code Section 25120(f)(2). At the August workshop, CARB noted a lack of consensus relating to that initial staff concept. Feedback received by CARB included that (1) RTC gross receipts are not a suitable metric for gauging revenue due to data confidentiality limitations and lack of verification and (2) the definition is too expansive.
Due to the lack of consensus, CARB has proposed an alternative definition not tied to the California RTC. Under this proposal, 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.” As noted by CARB, this definition does not deduct operating costs or other business expenses. CARB also noted that it is consistent with metrics used by major data tracking and reporting services.
CARB is seeking input on both of these alternatives.
Doing Business in California
At the May workshop, CARB staff considered looking to the RTC definition of “doing business” in Section 23101.
At the August 21 workshop, CARB indicated that it is instead exploring existing databases of US-based companies that could be used to establish doing business in California. It explored using California Franchise Tax Board data, but noted there are statutory limitations on the FTB’s ability to share data with CARB. In contrast, it noted that the California Secretary of State Business Entity database is publicly available and lists any entity with a designated agent for service of process in California. At the workshop, CARB asked for input on the implications of using the Business Entity database to determine which entities are doing business in California.
CARB noted that companies subject to SB 253 and SB 261 will be responsible for compliance, even if not initially included on CARB’s list of subject companies or part of its outreach.
Parent and Subsidiary Relationships
At the May workshop, CARB noted the existing California Cap-and-Trade regulation definition of subsidiary as a possible approach.
Based on feedback received, CARB’s updated proposal is to identify subsidiaries through evaluation of commercial databases, cross-referenced with the Secretary of State database and/or the Franchise Tax Board database.
CARB also is seeking input on a process where companies may choose to self-report on parent-subsidiary relationships to avoid reporting for multiple entities that are part of the same parent company group.
Exempted Entities
Based on comments received to date, CARB has made a new proposal to exempt some companies from compliance. Based on those comments, CARB proposes the following exemptions and invites further public input:
- Non-profits;
- A company whose only business in California is the presence of teleworking employees;
- Government entities, because they are not formed under business entity laws as defined in HSC Section 38532 and Section 38533; and
- A California Independent System Operator (CAISO) or a business entity whose only activity within California consists of wholesale electricity transactions that occur in interstate commerce.
Annual Fees (the “What”)
SB 253 and SB 261 authorize CARB to assess companies an annual fee for the implementation and administration of these reporting programs. Fee amounts will be determined based on how many entities are covered by the program and its annual cost. Fees will be adjusted annually for inflation.
According to CARB, its program administration costs include a one-time cost to set up the program of $20.7 million and annual ongoing costs of implementing both SB 253 and SB 261 of $13.9 million.
Based on its ongoing costs and modeling assumptions, CARB estimates an annual fee of $3,106 for SB 253 entities and $1,403 for SB 261 entities. CARB noted at the workshop that these amounts are illustrative estimates based on current assumptions. Reporting entities with more than $1 billion in total annual revenues will be subject to both fees, since they will meet both the SB 253 and SB 261 reporting thresholds. At the workshop, CARB noted its intention is that the fee would be payable by each entity in a corporate group that has a reporting obligation.
At the workshop, CARB indicated the following timeline and process for adopting a fee regulation:
- August 21 through September 11: Public comment period for feedback on workshop concepts.
- October 14: Notice of proposed rulemaking. As earlier noted, this rulemaking also will include the scoping definitions.
- October 17 through November 30: 45-day Administrative Procedure Act comment period.
- December 11 and 12: CARB consideration of proposed rulemaking (public Board hearing).
Further Implementation Guidance (the “How” and “When”)
Guidance on Climate Risk Reporting (SB 261)
CARB provided “how” guidance on SB 261, as discussed below. At the workshop, CARB noted that this is draft guidance. It also noted that these are recommended disclosures (which appears to be consistent with earlier CARB FAQs and the text of SB 261). CARB indicated that, for the first reporting period, it is looking for good faith reporting based on the most recent best available information, which is consistent with its July FAQs.
- Each report submitted to CARB should:
- Indicate which reporting framework is being applied;
- Discuss which [TCFD or other applicable framework used] recommendations and disclosures have been compiled and which have not; and
- Provide a short summary of the reasons why recommendations/disclosures have not been included as well as a discussion of any plans for future disclosures.
- Four overriding principles underpin the climate-related risk disclosures, informed by the TCFD framework and IFRS S2: (1) governance; (2) strategy; (3) risk management; and (4) metrics and targets. These principles feed into the following CARB workshop guidance:
- Describe the reporting entity’s governance structure for identifying, assessing and managing climate-related financial risks. Details should include management oversight of climate-related risks and opportunities and should provide a description pertaining to board oversight of those climate-related risks and opportunities.
- Describe the actual and potential impacts of climate-related risks and opportunities on the reporting entity’s operations, strategy and financial planning. This includes describing:
- The climate-related risks and opportunities the reporting entity has identified over the short-, medium- and long-term;
- The impact of climate-related risks and opportunities on the reporting entity’s operations, strategy and financial planning; and
- The resilience of the reporting entity’s strategy, taking into consideration the future impacts of climate change under various climate scenarios. At the workshop, CARB indicated that scenario analysis is not part of CARB’s minimum expectations for the initial SB 261 reporting period.
- Describe how the reporting entity identifies, assesses and manages climate-related risks, including a qualitative description of the process the reporting entity uses for identifying, managing and assessing climate-related risks and how those considerations and processes are integrated into the organization’s overall risk management.
- Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. At the workshop, CARB acknowledged the metrics overlap between the TCFD framework and SB 253. It indicated that it is not viewing Scope 1, 2 and/or 3 GHG emissions disclosures as a minimum SB 261 requirement for the first reporting period.
Timing of Climate Risk Reporting (SB 261)
At the workshop, CARB received several questions on the timing of SB 261 reporting. In its July FAQs and as discussed at the workshop, CARB indicated it will establish a public docket for companies to post the link to their climate-related financial risk report. The docket will go online on December 1 and be kept open until July 1, 2026. Some commenters asked if this means companies have until July 1, 2026 to make their SB 261 disclosures. CARB indicated that the window for posting to the docket does not alter the SB 261 requirement that companies publish their climate risk report on their website by January 1, 2026.
CARB also indicated at the workshop that posting to the public docket will be mandatory. This will be addressed in CARB’s proposed regulations.
Timing and Content of Greenhouse Gas Emissions Reporting (SB 253)
CARB is proposing a June 30, 2026 initial reporting deadline for SB 253 Scope 1 and 2 data for fiscal 2025. The reporting deadline will be included in the fee regulation.
Based on the workshop, it appears CARB is contemplating a single due date, rather than a due date keyed off of fiscal year-end (i.e., six months after fiscal year-end). However, CARB appears to recognize that this approach may create compliance difficulties for many companies with a non-calendar fiscal year. At the workshop, CARB asked for feedback on the feasibility of its proposed deadline and any data availability issues. CARB also is seeking input on the timing of Scope 3 emissions disclosures, which are required starting in 2027 for fiscal 2026.
CARB will post draft reporting templates for Scope 1 and 2 emissions reporting by the end of September for public feedback. The reporting templates will provide for the option to include other actions that reduce greenhouse gases, such as investments in renewable electricity and gas. CARB is seeking feedback on the data fields to be included in the templates.
SB 253 Assurance
As noted earlier in this post, Scope 1 and 2 emissions disclosures initially will require limited assurance. Assurance requirements increase over time, moving to a reasonable assurance standard for Scope 1 and 2 and limited assurance for Scope 3.
CARB’s prepared remarks on assurance were at a high level. Assurance was not discussed by CARB in its prepared remarks at the May workshop, so this was its first meaningful public workshop discussion of assurance.
CARB describes assurance as a systematic, independent and documented process for evaluating the reporting entity’s emissions data report against CARB’s reporting procedures and methods for calculating and reporting GHG emissions. As contemplated by CARB, limited assurance involves:
- Sampling plans;
- Reviews of the reporting entity’s data management systems;
- Limited data checks;
- Limited conformance checks;
- A review of process documentation;
- A review of the log of any errors found and corrected by the reporting company; and
- A report and statement of the assurance provider’s conclusion.
CARB cited four potential audit standards at the workshop, which are based on stakeholder input received to date:
- International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements, developed by the International Auditing and Assurance Standards Board (IAASB);
- AA1000, developed by AccountAbility;
- the ISO 14060 family, developed by the International Organization for Standardization; and
- American Institute of Certified Public Accountants auditing standards.
The assurance standard will be included in CARB’s SB 253 implementing regulations. CARB indicated that it welcomes public feedback on the assurance standard.
At the workshop, CARB indicated that it will leverage existing frameworks for accreditation of assurance providers. It will not include a CARB-run scheme for accreditation of assurance providers in its regulations.
CARB also touched on assurance oversight at the workshop. It indicated that it may opt to audit assurance and reporting activities. In this context, it also noted that it retains authority to review information submitted by reporting entities and assurance providers to take enforcement action as appropriate.
Submitting Comments – A Short Window
The public docket will be open for three weeks for written feedback. Many trade associations and reporting companies will want to continue to provide feedback to and otherwise engage with CARB – on the topics covered at the workshop and otherwise – as CARB continues to move forward with developing proposed regulations (which will be published in under two months) and possibly additional FAQs and guidance.
Future Workshops
CARB alluded that there may be additional public workshops.
