The California Air Resources Board held an almost four hour virtual public workshop on May 29 on California’s pending climate risk and greenhouse gas emissions disclosure laws. The stated purpose of the workshop was to support the development of California’s Corporate Greenhouse Gas Reporting Program and Climate-Related Financial Risk Disclosure Program. Among other things, CARB shared initial proposals relating to scoping, addressed timing of both compliance and second-level regulation and discussed further steps in the rulemaking process. We discuss the workshop in detail in this post.
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) 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.
- The Climate‐Related Financial Risk Act (Senate Bill 261) 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 (AB 1305) 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.
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, (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.)
Key Points from the Workshop
At the workshop, CARB provided an overview of SB 253 and 261, its views on some of the open questions under those Acts and its timeline for additional rulemaking. CARB did not discuss AB 1305, which is already in effect. CARB’s materials from the workshop are available here.
Montrose Environmental also provided an overview of selected GHG emissions reporting programs, from research it was commissioned to undertake for CARB. Its slides are available here.
In addition, the Center for Impact at UCLA’s Anderson School of Management presented on its recently released 2025 State of Corporate Sustainability Disclosure report. That report provides an assessment of 2024 sustainability reporting by S&P 500 companies. The Center’s slides are available here, and the report in available here.
Timing
Proposed SB 253 Regulations Expected By Year End
As noted above, CARB has a July 1 deadline to adopt implementing regulations under SB 253. From the beginning, very few people thought that was feasible.
It was made clear during the workshop that regulations under SB 253 are still a way off. CARB indicated during the workshop that it is working to develop regulations by the end of the year. As noted in the presentation, by law, CARB will have one year to complete its final regulations once the initial proposal is published. The formal rulemaking will follow California’s Administrative Procedure Act process, including a 45 day comment period. CARB included a high-level timeline for regulatory development in its materials (see slide 13 of the CARB presentation).
CARB is explicitly required to develop regulations setting reporting requirements under SB 253. Although CARB is not required to adopt disclosure regulations under SB 261, an open question is whether it will do so or publish guidance. In the workshop materials, CARB asks how it should implement SB 261, including by regulation or guidance.
But No Delay in Reporting
Both CARB and Senator Scott Wiener – the sponsor of SB 253, who joined briefly for opening remarks – noted that the timetable for SB 253 remains in place. Scope 1 and 2 disclosures continue to first be required starting in 2026 (for fiscal 2025) and scope 3 emissions continue to first be required in 2027 (for fiscal 2026). However, CARB did not address when in 2026 the first SB 253 disclosures will be due. CARB indicated that the timelines for reporting will be addressed as part of the rulemaking process.
Don’t Sweat SB 253?
Last December, CARB published an Enforcement Notice relating to SB 253 (see this Ropes & Gray post). The Enforcement Notice describes how CARB will exercise its enforcement discretion. CARB referenced the Enforcement Notice at the workshop, including in its slides.
In the Enforcement Notice, CARB indicates that it recognizes that companies may need some lead time to implement new data collection processes to allow for fully complete scope 1 and 2 emissions reporting, to the extent they do not currently possess or collect the relevant information. Accordingly, CARB will exercise its enforcement discretion such that, for the first report due in 2026, reporting entities may submit scope 1 and 2 emissions from the reporting entity’s prior fiscal year that can be determined from information the reporting entity already possesses or is collecting at the time the Notice was issued.
The Enforcement Notice goes on to indicate that CARB will exercise enforcement discretion for the first reporting cycle on the condition that entities demonstrate good faith efforts to comply with the requirements of the law. This enforcement discretion is aimed at supporting entities actively working toward full compliance. Therefore, for the first reporting cycle, CARB will not take enforcement action against entities for incomplete reporting, as long as they make a good faith effort to retain all data relevant to GHG emissions reporting for their prior fiscal year.
The Enforcement Notice indicates that CARB will provide details on reporting for subsequent year reporting cycles as part of CARB’s rulemaking process.
Initial CARB Staff Concepts on Open Questions
Those hoping for brightline compliance guidance may have been disappointed by the workshop. However, CARB shared initial staff concepts on several questions that companies have been grappling with under SB 253 and 261.
The initial staff concepts follow from CARB’s review of stakeholder feedback received in response to CARB’s solicitation of public feedback as part of its implementation of SB 253 and 261. That solicitation closed in mid-March, after being extended due to the Los Angeles-area fires. As noted during the workshop, CARB received 261 responses from public commenters. During the workshop, CARB noted that it is still reviewing the comments received.
In the consultation, CARB solicited feedback on 29 specific questions. These were organized under five main topics, which were further divided into 13 numbered questions. The three general topic areas were applicability, standards in regulation and data reporting. There also were sections specific to each of SB 253 and 261. The consultation is discussed in more detail in this Ropes & Gray post.
The initial staff concepts communicated as part of the workshop pertain to scoping under SB 253 and 261, specifically addressing doing business in California, revenue and corporate relationships. As initial staff concepts, these positions are not final. CARB has requested feedback on a number of specific questions relating to the concepts. Accordingly, CARB’s approach may further evolve as comments inevitably roll in (which already started during the open public feedback portion of the workshop). In addition, CARB is soliciting comments on various specific aspects of the concepts.
Doing Business in California
The CARB staff believes that the California Revenue and Tax Code definition of doing business (Section 23101) is workable, with minor modification to RTC Section 23101(a) and (b). Since the thresholds generally are low, under this approach, very few companies that already expected to have to report are likely to be scoped out.
As proposed by CARB, an entity would be doing business in California for purposes of SB 253 and 261 if:
- It is actively engaging in any transaction for the purpose of financial or pecuniary gain or profit; and
- any one of the following conditions are met during any part of the reporting year:
- The entity is organized or commercially domiciled in California.
- Sales (as defined in RTC Section 25120(e) or (f)) exceed the inflation adjusted threshold of $735,019 (for 2024). For these purposes, sales of the entity would include sales by an agent or independent contractor, and sales in California would be determined using the rules for assigning sales under RTC Sections 25135 through 25137.
- The real property and tangible personal property of the entity in California exceed the lesser of the inflation adjusted threshold of $73,502 (for 2024) or 25% of the entity's real property and tangible personal property, with the value of property and the determination of whether property is in California to be determined using the rules in RTC Sections 25129 to 25131 and 25137.
- The amount paid in California for compensation (as defined in RTC Section 25120(c)) exceeds the inflation adjusted threshold of $73,502 (for 2024) or 25% of the total compensation paid by the entity. Compensation in California would be determined using the rules for assigning payroll in RTC Sections 25133 and 25137.
Revenues
The initial CARB staff concept is that revenues be defined as gross receipts as per RTC Section 25120(f)(2). (We have not included that definition in this post given its length and complexity.)
Parent/Subsidiary Relationships
The initial staff concept is to leverage the California cap-and-trade approach defining corporate relationships.
Under the California cap-and-trade program, a corporate association exists when one entity has a degree of ownership or control over another entity. Generally, a level of ownership or control of 50% or more requires establishment of a corporate association in the cap-and-trade program.
The Interplay Between SB 253 GHG Emissions Reporting and Voluntary Standards
CARB noted that, under California Office of Administrative Law Regulations, it may need to adopt more specificity for SB 253 reporting than is provided for in voluntary GHG emissions reporting frameworks, to comply with California Administrative Procedure Act clarity requirements for new regulations. CARB noted that, for example, this may be implicated where voluntary standards are permissive rather than mandatory (e.g., “should” vs. “shall” language).
However, CARB noted that as a general matter it supports interoperability and seeks to align as closely as possible with the GHG Protocol.
During the workshop, CARB specifically requested input on this topic. Presumably, the work done by Montrose Environmental also will feed into CARB’s approach.
More Workshops Are Expected
The May 29 workshop was billed as a “kickoff workshop.” CARB also noted during the session that it expects more processes like the initial workshop in the coming months.
There Also Will Be More Opportunities to Engage with CARB
As noted above, CARB is seeking feedback on the initial staff concepts it released. As also noted in the workshop materials (see CARB slides 31 through 33), CARB is seeking input on various other general questions, as well as questions specific to each of SB 253 and 261. During the workshop, CARB also reiterated numerous times that it wishes to receive any other stakeholder feedback. Given the significant focus on SB 253 and 261 from the business and consulting communities, civil society and other stakeholders, it is a certainty that CARB will not be short on feedback in the coming months and beyond.
