Key Takeaways
- The California Air Resources Board (CARB) is actively developing, and taking public feedback on, the definitions of “doing business in California” and “total annual revenue,” which will define the scope of companies covered by California’s corporate greenhouse gas reporting (SB 253) and climate-related financial risk disclosure (SB 261) programs.
- CARB intends to publish an illustrative list of covered companies, but companies must do their own assessment of whether they are covered by SB 253 and SB 261.
- Each company covered by SB 261 must publish its initial climate-related financial risk report (Risk Report) on its website by January 1, 2026, and submit the Risk Report to CARB’s public docket.
- Each covered company will need to pay an annual fee to CARB for each corporate disclosure program that it is subject to; CARB estimates that the annual fee for the first year will be $3,106 for SB 253, and $1,403 for SB 261.
In late August 2025, the California Air Resources Board (CARB) held its second virtual public workshop to support the development of California’s corporate greenhouse gas (GHG) reporting and climate-related financial risk disclosure programs (the CA Climate Disclosure Laws). This second virtual workshop is part of CARB’s ongoing rulemaking process for Senate Bill 253 and Senate Bill 261 (codified in Health and Safety Code § 38532 and § 38533, respectively). SB 253 requires U.S. companies (other than certain exempt companies) that do business in California and have total annual revenues in excess of $1 billion to disclose Scope 1 and 2 GHG emissions annually beginning in 2026 and Scope 3 GHG emissions annually beginning in 2027. SB 261 requires U.S. companies (other than certain exempt companies) that do business in California and have total annual revenues in excess of $500 million to disclose certain information related to their climate-related financial risks, in a report due on or before January 1, 2026, and biennially thereafter.
As part of its rulemaking process and to help covered companies comply with the CA Climate Disclosure Laws, CARB has held two virtual workshops, issued a set of FAQs and recently released a checklist to help covered companies prepare for compliance with SB 261.
During the August workshop, CARB staff provided several key updates, as outlined below, and reiterated their intention to continue to engage with the public throughout the remainder of the rulemaking process. Any interested party can submit written comments to CARB to help inform CARB’s rulemaking process. Written comments submitted to CARB will be made available to the public.
Covered Companies
CARB staff proposed an alternative definition of “doing business in California” under the CA Climate Disclosure Laws. At the first public workshop, CARB staff proposed using Revenue and Taxation Code (RTC) § 23101 as the basis for the definition of “doing business in California.” At the August workshop, CARB staff stated that it considered some of the thresholds under RTC § 23101 to be too low and noted the risk of certain barriers to enforcement under that definition. Therefore, CARB staff proposed aligning the definition of “doing business in California” with the entities listed as “Active” under the California Secretary of State’s Business Search.
CARB staff also proposed an alternative definition of “total annual revenue” under the CA Climate Disclosure Laws. At the first public workshop, CARB staff proposed using the definition of “gross receipts” under RTC § 25120(f)(2) as the basis for revenue under the CA Climate Disclosure Laws. During the August workshop, CARB staff proposed to defined “total annual revenue” as “the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.” CARB staff noted that this alternative proposal would not factor in deduction of business expenses, as would the previously proposed definition of revenue.
CARB staff proposed to explicitly exempt several types of entities from the CA Climate Disclosure Laws. Specifically, CARB staff proposed exempting: 1) non-profits; 2) companies “whose only business in California is the presence of teleworking employees;” 3) government entities; and 4) any California Independent System Operator or “a business entity whose only activity within California consists of wholesale electricity transactions that occur in interstate commerce.”
CARB staff fielded a number of questions seeking clarification about the treatment of parent and subsidiary companies and encouraged participants to submit written comments to CARB stating their views. CARB staff reiterated that “[r]eports may be consolidated at the parent company level. If a subsidiary of a parent company qualifies as a reporting entity…, the subsidiary is not required to prepare a separate report.” CARB staff was also clear that CARB proposes assessing annual filing fees required by the CA Climate Disclosure Laws on an entity-by-entity basis. In other words, if a parent company has three subsidiaries that each independently meet the conditions of a covered company under the CA Climate Disclosure Laws, then annual filing fees will be assessed to each entity. CARB staff noted that it expects that a parent company may pay filing fees on behalf of its subsidiaries.
Using the proposed alternative definitions for “doing business in California” and “total annual revenue” above, CARB staff estimated that approximately 4,160 companies would be in scope for SB 261, and approximately 2,596 companies would be in scope for SB 253. CARB staff indicated that it would release a list of these covered companies in the coming weeks and intends to take public comments about the list of covered companies. CARB staff does not consider the forthcoming list to definitively identify the universe of covered companies, given that the implementing regulations are still under development and noted that covered companies (whether on the forthcoming list or not), “will be responsible for compliance, even if not initially included on staff’s list.”
Fees
Covered entities will need to pay annual fees pursuant to the CA Climate Disclosure Laws. CARB staff proposed a flat annual fee for each covered entity. To calculate the fee, CARB would divide the annual cost of program administration by the number of covered companies. Based on CARB’s projection of program costs and the number of covered entities, CARB estimated annual fees in the first year of $3,106 for SB 253, and $1,403 for SB 261. Entities subject to both CA Climate Disclosure Laws would be required to pay both fees and, as noted above, fees will be assessed on an entity-by-entity basis even if parent companies submit one consolidated report covering their covered subsidiaries.
CARB staff also outlined a proposed timeline to implement final rules for the proposed fee structure and indicated that it intends to finalize proposed in-scope definitions in tandem with the fee rules on the following projected timeline:
Deadlines
The compliance deadline for covered companies to publish their initial climate-related financial risk report (Risk Report) for SB 261 remains unchanged. Companies must publish their initial Risk Report on their website by January 1, 2026. CARB will open a public docket on December 1, 2025, where reporting companies must post the website links to their initial Risk Reports. The public docket will remain open for submissions until July 1, 2026, despite the January 1, 2026, compliance date.
CARB staff proposed a June 30, 2026, reporting deadline for scope 1 and scope 2 emissions under SB 253, and encouraged participants to submit written feedback about the feasibility of such a deadline. CARB staff intends to provide reporting templates for SB 253 compliance by the end of September 2025 and will also accept public feedback on these templates.
Climate-Related Financial Risk Reports
CARB staff also provided the following reminders and guidance about the substance of Risk Reports:
- Risk Reports may be drafted based on any one of several different acceptable frameworks, including the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) (TCFD 2017), disclosure standards published by the International Sustainability Standards Board, or a report developed in accordance with a law, regulation, or listing requirement issued by any regulated exchange, national government, or other governmental entity that is consistent with the foregoing frameworks;
- each Risk Report should state which reporting framework is being applied, discuss which recommendations and disclosures under the framework selected have been complied with and which have not, and provide a short summary of the reasons why certain recommendations and disclosures have not been complied with as well as a discussion of any plans for future disclosures;
- CARB staff does not expect GHG emissions to be included as part of the minimum reporting requirements for initial Risk Reports due by January 1, 2026 (despite the fact that GHG emissions reporting is included in certain reporting frameworks, like TCFD). However, CARB staff was clear that GHG emissions should be included in a company’s initial Risk Report if such company already reports GHG emissions and the use of such data is material to the company’s management of its climate-related risks; and
- CARB staff acknowledged public feedback received that indicated that climate scenario analysis, particularly the typical quantitative variety, can be unduly burdensome. Therefore, CARB staff stated that climate scenario analysis in initial Risk Reports may be qualitative, although it continues to encourage quantitative climate scenario analysis disclosure.
Ongoing CA Climate Laws Litigation
There is ongoing litigation challenging the CA Climate Disclosure Laws. On August 13, 2025, the U.S. District Court for the Central District of California denied the plaintiffs’ motion seeking a preliminary injunction of the CA Climate Disclosure Laws. On August 20, 2025, the plaintiffs filed a notice of appeal regarding the district court’s ruling with the U.S. Court of Appeals for the Ninth Circuit along with a motion with the district court for an injunction pending appeal. A scheduling order was previously issued for the ongoing litigation, which contemplates a trial start date in October 2026.
Conclusion
We expect that companies of all sizes and across industries will have questions as they prepare to comply with the requirements of the CA Climate Disclosure Laws. We expect CARB to release additional guidance and information about the CA Climate Disclosure Laws, and we encourage all companies that believe they might be covered by the CA Climate Disclosure Laws to pay close attention to CARB website for the latest information.
