California Climate Disclosure Laws: CARB Affirms Reporting Deadlines, but Delays Regulations that Would Clarify Applicability
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On May 29, 2025, the California Air Resources Board ("CARB") affirmed the statutory deadlines for disclosures under SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-related Financial Risk Act). Notably, CARB stated that it plans to issue the SB 253 implementing regulations "by the end of the year [2025]" instead of by July 1, 2025, as previously announced. The stalled regulations extend the period of uncertainty for companies trying to determine if they are subject to the laws. Gathering and auditing of emissions data can take months. Companies that may be in scope should begin preparing to comply.
On May 29, 2025, CARB held a virtual, public workshop on California's climate disclosure laws. CARB reiterated the laws' existing statutory deadlines: SB 253 Scope 1 and 2 emissions disclosures will be required sometime in 2026 (for fiscal 2025 emissions) and Scope 1, 2, and 3 emissions in 2027 (for fiscal 2026 emissions). It is unclear precisely when SB 253 reports will first be due in 2026. It is also unclear whether the SB 253 regulations issued by the end of the year will be in draft or final form. SB 261 disclosures, i.e., TCFD or an equivalent, are still due January 1, 2026. CARB has not yet determined whether it will issue regulations for SB 261 or simply guidance.
CARB repeatedly highlighted its December 2024 Enforcement Notice that no SB 253 penalties would be imposed for incomplete reporting in 2026, provided that entities demonstrate good faith efforts to comply and retain all data relevant to emissions reporting for the entity's prior fiscal year.
As an initial concept, CARB suggested that entities "do business in California" for purposes of both laws if they meet the requirements in Section 23101(a) and 23101(b) of the California Revenue and Tax Code ("RTC"), i.e., an entity must be actively engaging in a transaction for the purpose of financial or pecuniary gain or profit and (1) be organized or commercially domiciled in the state, (2) have sales in California that exceed $735,019, (3) own personal or real property in California exceeding $73,502 in value or 25 percent of the entity's personal and real property assets or (4) pay compensation in the state more than $73,502 or over 25 percent of the total compensation paid by the entity. CARB also suggested that it would incorporate Section 23101.5 of the RTC, which provides narrow exceptions for certain entities that otherwise meet one of the above thresholds (e.g., entities that have a presence in California, but transact minimal revenues within the state). CARB said it is seeking public input regarding whether this concept is overly broad, whether CARB should create exemptions for particular business sectors, and what additional clarification is needed. A workshop attendee questioned whether having a remote employee base in California qualifies as "doing business," expressing concerns that companies will eradicate remote employees in California to avoid compliance with the laws; no response was provided by CARB.
To define "total annual revenues," CARB's initial proposal draws from the definition in Section 25120(f)(2) of the RTC of "gross receipts," which definition is akin to gross worldwide revenue.1 Initial public feedback to CARB's proposal requested clarification of whether revenue thresholds include the parent company, subsidiaries or both, and whether income sources (e.g., interest, fees, dividends and investment income) should be considered revenue.
To define "corporate relationships", i.e., parent and subsidiaries, CARB proposed to use the definitions for corporate associations provided in its Cap-and-Trade regulations. Under those regulations, a corporate association exists when one entity has a degree of ownership or control over another entity or a 50% or greater level of control or ownership over an entity. Notably, CARB did not articulate how it is currently planning to apply this framework to SB 253 and SB 261, including with respect to "doing business," calculating revenue, or the scope of disclosures. CARB could potentially craft the regulations to attribute a subsidiary's revenue and/or business activity in California to the parent.
To prepare for soon-approaching compliance obligations, companies should assume the definitions in CARB's implementing regulations will not differ materially from the above-proposed definitions. Notably, the proposed definition for "doing business in California" casts a wide net, potentially including companies that have even a single office or a single employee in the state.
CARB is seeking feedback on its initial proposals, is following developments outside of California, including in the EU, with an eye to aligning disclosure requirements with other jurisdictions, and plans to hold additional workshops or stakeholder sessions this year.
A recording of the workshop can be found here.
1 Under the RTC, "gross receipts" means the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold.
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