New laws take effect January 1 while regulated entities still await implementing regulations from California Air Resources Board.
- Despite regulatory and legal uncertainty for thousands of businesses “doing business in California,” new disclosure regulations will start to take effect in less than five months.
California’s landmark climate disclosure laws—SB 253, the Climate Corporate Data Accountability Act, and SB 261, the Climate-Related Financial Risk Act—are moving toward enforcement, with SB 261 requiring risk reporting by January 1, 2026. On August 13, 2025, the U.S. District Court for the Central District of California declined an industry request to put the statutes on hold. That ruling leaves the laws in force while the plaintiffs’ remaining First Amendment challenge proceeds. The plaintiffs quickly appealed the ruling to the Ninth Circuit and moved for an injunction in the district court to bar enforcement of SB 253 and SB 261 during the appeal. A hearing on that motion is scheduled for September 15, 2025. In the meantime, regulated companies must continue to prepare for the quickly approaching first reporting deadlines with no regulatory guidance to date and amid continued legal uncertainty.
California Climate Disclosure Laws
By their terms, SB 253 and SB 261 extend broadly. They apply not only to California companies but also to any other U.S.-formed companies “doing business in California” – a phrase not defined in the laws and not yet clarified through regulation. SB 253 applies to companies with annual revenues over $1 billion and SB 261 to those over $500 million. Taken together, the two laws are expected to capture between 5,000 and 8,000 companies.
SB 253 will require annual public reporting of Scope 1 and Scope 2 greenhouse gas emissions beginning in 2026 on a date to be set by the California Air Resources Board (CARB). Scope 3 disclosures will be required starting sometime in 2027 as determined by CARB. SB 261 requires biennial public reporting on climate-related financial risks, with the first risk reports due by January 1, 2026. To date, however, no implementing regulations for either law have been adopted, despite an extended July 1, 2025, deadline form the Legislature for CARB to do so. Due in part to this delay in adopting implementing regulations for the laws, CARB has indicated it will exercise enforcement discretion in the first reporting year and accept Scope 1 and Scope 2 data based on existing records from prior years, provided companies make good-faith efforts to retain and prepare relevant data.
The Legal Challenge and Denied Injunction
The District Court’s August 13, 2025, ruling arose from a challenge brought by several major trade groups and business organizations, led by the U.S. and California Chambers of Commerce, seeking to invalidate the requirements of SB 253 and SB 261. The suit, which has been pending since 2024, originally advanced multiple constitutional challenges to SB 253 and SB 261, including First Amendment claims, federal preemption under the Supremacy Clause, and limits on extraterritorial regulation under the dormant Commerce Clause. In its first substantive order, the court dismissed the preemption and extraterritoriality claims—in part for lack of jurisdiction and for failure to state a claim—leaving only the First Amendment challenge intact. This challenge centers on whether the climate disclosure mandates improperly compel speech in violation of constitutional free-speech protections.
With the scope of the case narrowed, the plaintiffs moved for a preliminary injunction to block enforcement of the climate disclosure laws while the litigation proceeded on the remaining First Amendment claim. Following a July 2025 hearing, the court issued its much-anticipated opinion on August 13, 2025, denying plaintiffs’ motion for preliminary injunction. Declining to halt enforcement, on August 13, 2025, the court found the plaintiffs had not demonstrated a likelihood of success on the merits of their First Amendment challenge.
In analyzing the statutes, the court applied different standards to the two bills to assess potential infringements on First Amendment rights. SB 253’s emissions disclosures were deemed “factual and uncontroversial” commercial speech, reviewed under the deferential standard set forth in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985), which allows government-compelled commercial speech when “reasonably related” to a legitimate State interest and not “unjustified or unduly burdensome.” The District Court here found that SB 253 was not unduly burdensome and was reasonably related to California’s legitimate interests in providing investors with climate information and promoting emissions reductions. However, the State’s third asserted interest, i.e., the need for SB 253 to correct misleading environmental claims, was dismissed as unsupported on the current record.
As for SB 261, the court determined that its forward-looking climate-risk disclosures mandated more than “factual and uncontroversial” information and thus merited intermediate scrutiny. It looked to National Association of Wheat Growers v. Bonta, 85 F.4th 1263, 1282–83 (9th Cir. 2023) which allowed government-compelled disclosure of commercial speech “only if (1) it directly advances a substantial governmental interest, and (2) the restriction is not more extensive than necessary to serve that interest.” Here, the District Court concluded that the investor-information interest was a substantial enough governmental interest to uphold the law, and that the law’s specific disclosures were sufficiently narrowly tailored to achieve the goal of informing investors about the impacts of climate-related risks on their investment choices. As with SB 253, the court found that the remaining arguments would not survive intermediate scrutiny: SB 261 did not directly advance any legitimate interest in fraud-prevention and also that the state’s emissions-reduction rationale did not adequately justify SB 261 against First Amendment review.
On August 20, 2025, the plaintiffs filed their notice of appeal of the court’s order denying their Motion for Preliminary Injunction. On the same day, the plaintiffs also filed their request for an injunction barring enforcement of SB 253 and SB 261 during the pendency of their Ninth Circuit appeal, arguing that plaintiffs face imminent, irreversible First Amendment harm from compelled speech and the constitutional questions they raise merit appellate review before the laws take effect. The court set the hearing on the plaintiffs’ motion for an injunction for September 15, 2025.
Forthcoming CARB Regulations
While the First Amendment challenge to SB 253 and SB 261 continues, CARB’s long delayed rulemaking for both laws also proceeds. With SB 261’s climate risk report deadline of January 1, 2026, rapidly approaching, stakeholders have raised increasing concerns that the agency still has not proposed rules to govern the risk reporting process, and that businesses will not have adequate time or guidance to prepare compliant climate risk reports by SB 261’s January 1, 2026, deadline.
To date, regulated parties have precious few clues as to how CARB will enforce the two laws. Following its first public rulemaking workshop in May of 2025, where CARB previewed potential definitions, reporting approaches, and timelines, the agency released a set of Frequently Asked Questions in July reaffirming its commitment to enforcing the laws as scheduled. The FAQs clarify that SB 261 reports that are due by January 1, 2026, may reference either the 2023–2024 or 2024–2025 fiscal year, and that companies may begin filing them online as early as December 1, 2025. The FAQs also note that CARB’s initial staff concept for “doing business in California” is to follow the Franchise Tax Board’s framing, i.e., if an entity is actively engaging in financial transactions for profit and is either organized or commercially domiciled in California, or meets one or more of the specified sales, payroll, or real property holding thresholds in any part of a reporting year, it will be deemed “doing business in California” for the purposes of SB 253 and SB 261.
CARB’s second public workshop occurred on August 21, 2025. There, it presented draft definitions, a draft framework for fee regulation, and other clarifying information about which it requested public comment. These topics included:
Definition of Revenue: CARB is soliciting public feedback on its proposed adoption of the Franchise Tax Board definition of “revenue.” As an alternative option, CARB has proposed defining revenue as “the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.”
Parents and Subsidiaries: CARB intends to allow parent companies to report on behalf of their subsidiaries, with fees still applicable to both entities. It proposes identifying subsidiaries through commercial databases, cross-referenced with the California Secretary of State and/or the Franchise Tax Board databases.
Exempt Entities: Proposed exempt entities include non-profits, companies whose sole business in California is the presence of teleworking employees, governmental entities (as they are not formed under business entity laws), the California Independent System Operator, and businesses whose sole activity in California consists of wholesale electricity transactions in interstate commerce. CARB anticipates developing an online submission form for entities that believe they are exempt but appear on the list of covered entities.
Timelines: CARB’s proposed timeline for SB 253 and SB 261 regulations and fee implementation is as follows:
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Aug. 21–Sept. 11, 2025: Informal public comment period for feedback on workshop concepts
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End of Sept. 2025: CARB to post draft reporting templates for Scope 1 and 2 for feedback
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Oct. 14, 2025: Notice of Proposed Rulemaking
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Oct. 17–Nov. 30, 2025: 45-day APA comment period
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Dec. 11-12, 2025: CARB consideration of proposed rulemaking and public comments
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TBD: Public CARB hearing on proposed regulations
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Jan. 1, 2026: SB 253 Scope 1 & 2 reports must be posted to entity’s website
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Dec. 1, 2025–July 1, 2026: CARB public docket open for entities to post the link to their SB 253 Scope 1 and 2 reports
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TBD 2027: Scope 3 reporting
CARB staff are also proposing a June 30, 2026, implementation deadline for SB 253 Scope 1 and Scope 2 annual public reporting, with by the for public feedback. However, there is confusion regarding whether this deadline relates to public reporting or assurance requirements.
Assurance: CARB staff provided an initial concept for third-party assurance of greenhouse gas reporting. Potential standards under consideration include: International Standard on Sustainability Assurance 5000, AA1000 “AccountAbility” Assurance Standard, ISO 14060 family of standards and American Institute of Certified Public Accountants standards.
Path Forward
For businesses covered by SB 253 and/or SB 261, the message is clear: compliance timelines remain fixed and will start to take effect in less than five months, despite the lack of a regulatory framework as of the date of this writing. For companies potentially subject to these laws, it would be prudent to use the remaining months to assess their obligations; provide comments within CARB’s rulemaking process; and consult with legal, environmental and accounting advisors to evaluate and prepare for reporting of climate-related risks. Pillsbury will continue to actively monitor both the litigation and CARB’s rulemaking process and will provide updates as new developments occur.
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