California climate disclosure laws: Ninth Circuit temporarily halts SB 261 and CARB provides new guidance

On November 18th, the U.S. Court of Appeals for the Ninth Circuit granted a motion for injunction on SB 261 (the "Injunction"). The Injunction, announced during the California Air Resources Board's ("CARB's") third virtual public workshop on SB 261 (the Climate-related Financial Risk Act) and SB 253 (the Climate Corporate Data Accountability Act) (the "Workshop"), prohibits CARB from enforcing SB 261 pending the appeal; it does not impact SB 253, which is still in effect. The litigation was brought by the U.S. Chamber of Commerce and other parties¹ challenging both SB 261 and SB 253 on multiple grounds, including the First Amendment.² An oral argument hearing is set for January 9, 2026, after the SB 261 statutory deadline of January 1, 2026. Timing for the court's decision on SB 261 (and SB 253) is uncertain, but the court could take months before any announcement or action.

A separate lawsuit was brought last month by a large oil and gas company in federal court challenging SB 253 and SB 261 on similar grounds. Companies in scope of the laws should monitor the two pending lawsuits.

On December 1, CARB opened a public docket for entities that may choose to voluntarily submit their SB 261 Climate-Related Financial Risk Reports. CARB also issued an Enforcement Advisory acknowledging the Injunction and stating that CARB will not enforce SB 261 against in-scope entities for failing to post and submit reports by the January 1, 2026 statutory deadline. CARB will provide an alternate date for reporting after the appeal is resolved.

During the Workshop, CARB staff communicated important updates on proposed timing, key definitions, parent/subsidiary reporting, and methods of calculating applicability. CARB is still expected to release draft regulations on the laws in the first quarter of 2026. These regulations will cover initial SB 253 deadlines for Scope 1 and 2 emissions and the fee program for both laws; subsequent rulemaking will establish other requirements (e.g., on data assurance, enforcement, deadlines beyond 2026, reporting templates). CARB may also convey additional substantive expectations for the laws in future guidance documents.

Below are the key takeaways relating to the Injunction and CARB's Workshop.

Key takeaways:

• SB 261's initial reporting deadline was set for January 1, 2026; however, that deadline is no longer in effect. Climate disclosure risks are nuanced and vary by reporting entity. In-scope entities should confer with legal counsel regarding whether to voluntarily post a SB 261 report to the CARB docket / their website. While a public SB 261 report that is consistent with an entity's other public climate disclosure may not present significant risk, for some entities, public climate disclosure can present risk. In-scope entities should consider finalizing their reports as it may be more efficient to finalize now, especially considering the possibility that the law could be reinstated on short notice. The Ninth Circuit's January 9, 2026 hearing could be rescheduled to an earlier date, or the court could make a decision based on the parties' briefs. If the law proceeds, the potential deadline for reporting is unclear.
• Revenue. The definition of "revenue" in the laws will be based on the definition of "gross receipts" in the California Revenue and Taxation Code ("RTC") Section 25120(f)(2), which can be verified through California Franchise Tax Board ("FTB") tax filings.³ There are two notable updates with respect to calculating revenue:

(1) In determining whether the revenue threshold is met, an entity should use the lesser of the entity's prior two fiscal years of revenue⁴ and
(2) If a parent company and its subsidiaries file California taxes as a unitary business, then the revenue of the subsidiaries counts towards the revenue of the parent company as part of its gross receipts. If the entities do not file as a unitary business, then revenue should be evaluated at the individual company level. To determine revenue, i.e., gross receipts, entities should reference their corporate tax filings.

• "Doing business in California." CARB's proposed definition reverts back to RTC Section 23101 but omits Sections 23101(b)(3) and (b)(4) regarding property and payroll, as CARB believes such criteria do not demonstrate a sufficient economic connection to the state. An entity is "doing business in California" if it is (a) actively engaging in any transaction for the purpose of financial or pecuniary gain or profit and (b) during any part of the reporting / taxable year, is either (i) organized or commercially domiciled in the state or (ii) have sales in the state above the inflation-adjusted thresholds of approximately $735,019 (2024) or 25% of the taxpayer's total sales.⁵ CARB noted that an entity can verify whether it meets the "doing business in California" sales criteria based on California FTB tax filings, Schedule R-1, Col(b).
• SB 253 Scope 1 and 2 Reporting Deadline. CARB is now proposing August 10, 2026 as the initial reporting deadline for Scope 1 and Scope 2 emissions. Each entity will have at least 6 months after the end of their fiscal year to submit a report. If an entity's fiscal year ends between January 1 and February 1, 2026, the entity will report data from the fiscal year ending in 2026. If the reporting entity's fiscal year ends between February 2 and December 31, 2026, the entity will report data from the fiscal year ending in 2025.

(1) The August 10, 2026 deadline aligns with the verification deadline under the California Mandatory Greenhouse Gas Reporting Regulation. Reporting will not be required to be submitted via a specific reporting template, but companies may use CARB's updated Scope 1 and 2 reporting template.

• SB 253 Assurance: Limited assurance will not be required for initial Scope 1 and 2 emissions reports due in 2026. However, CARB indicated that if entities have or were in process of obtaining limited assurance on the data, they should submit such assurance. Limited assurance for Scope 1 and 2 emissions data is expected to be required for subsequent reporting years, i.e., 2027 until 2030, and thereafter reasonable assurance is anticipated.
• SB 253 Flexible, "Give Us What You Have", "Good-Faith" Reporting (but only for the first reporting cycle): Building on CARB's December 5, 2024 Enforcement Notice, CARB continues to emphasize its minimum requirement of good-faith reporting and urges companies to "give us what you were collecting when the December 5, 2024 Enforcement Notice was issued". During the Workshop, CARB urged entities to "report what they can." Notably, CARB indicated that:
   

(1) Entities that have existing (or are developing) separate "GHG reports" or "annual reports" (including any submitted through a voluntary program or to another regulatory program) that include information on Scope 1 and 2 emissions may submit those reports to CARB for the initial SB 253 reports and
(2) Entities that were not collecting emissions data (or were not planning to collect such data) as of the date of the Enforcement Notice (i.e., December 5, 2024) are not expected to submit Scope 1 and 2 reporting data in 2026 and such entities should submit a statement on company letterhead to CARB stating that they did not submit a report and that the company was not collecting data or planning to collect data at the time the Enforcement Notice was issued. CARB will open a public docket near the first year 2026 reporting deadline, which will include these statements.

• New Exemptions. Exemptions from compliance with SB 253 and SB 261 will extend to (i) non-profit or charitable organizations, defined as tax-exempt under the Internal Revenue Code and (ii) entities whose only business in California is the presence of teleworking employees. CARB also noted that holding companies and mutual funds do not report gross receipts in their California corporate tax filings and thus would not meet the revenue thresholds for the laws.⁶
• Parent Reporting. CARB has clarified that "[p]arent companies have the option to report on behalf of in-scope subsidiaries" or, in other words, subsidiaries that are in scope of either of the laws can report at the parent level, even if the parent is not in scope of the law/s. Further, CARB has clarified that a foreign parent company that is not based in the United States (and therefore likely not subject to either law) may submit a consolidated report that provides the required reporting on behalf of any in-scope U.S.-based subsidiaries. CARB clarified in the Workshop that "[p]arent-subsidiary relationships do not determine which entities are regulated" and that [i]nclusion criteria should be assessed on an individual company basis".
   

CARB also issued updated SB 261 Guidance and updated FAQs on both laws.

This article is part of a series on the California climate disclosure laws. For more information, see our previous articles: ‘California Climate Disclosure Laws: CARB delays regulations, releases Scope 1 and 2 template, and list of covered entities,' ‘California Climate Disclosure Laws: CARB releases draft guidance on SB 261,' 'California Climate Disclosure Laws: CARB Refines Applicability, Deadlines, and Scope,' 'California Climate Disclosure Laws: CARB Affirms Reporting Deadlines, but Delays Regulations that Would Clarify Applicability,' and 'California Bills to Require Greenhouse Gas Emissions Reporting From Companies Doing Business in the State.'

_{1 The original legal challenge, Chamber of Commerce of the United States et al. v. California Air Resources Board et al., was brought in January 2024 in the U.S. District Court for the Central District of California by the U.S. Chamber of Commerce, the California Chamber of Commerce, the American Farm Bureau Federation, the Los Angeles County Business Federation, the Central Valley Business Federation, and the Western Growers Association. The appeal is Chamber of Commerce v. Sanchez, Case No. 25-5327 (9th Cir. 2025).
2 In February 2025, the U.S. District Court dismissed the plaintiffs' Supremacy Clause and Dormant Commerce Clause claims and deferred a motion for summary judgment on the First Amendment claim until after discovery.
3 CARB's proposed definition for "revenue" is "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." CARB also referenced specific line items on FTB tax filings that will determine whether an entity meets the "revenue" threshold for SB 253 and/or SB 261. See slide 21 here of CARB's Workshop presentation slide for the specific FTB line items.
4 If in one of the two prior, complete fiscal years the revenue is below the threshold for SB 261 and/or SB 253, then the entity is not in scope and does not need to report at the next applicable reporting deadline
5 "Sales" is defined in RTC Section 25120(e) or (f) and includes sales by an agent or independent contractor of the entity.
6 CARB reiterated the statutory exemptions for (i) government entities and companies that are majority-owned by government entities and (ii) entities subject to regulation by the Department of Insurance in California or that are in the insurance business in any other state.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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