Preparing for California Climate Reporting: CARB Sheds Light on Requirements as Deadlines Approach

California’s 2024 "Climate Accountability Package" will require emissions and climate-related financial risk reporting for thousands of US companies, including multinationals with US subsidiaries, beginning in 2026.  In light of delays to the EU’s Corporate Sustainability Reporting Directive (CSRD), California’s disclosures may be the first mandatory sustainability reporting for many companies.  

California’s climate regulator has outlined new details on the timeline, fees, reporting obligations, and the regulatory path to implement the State’s landmark 2023 Climate Accountability Package and opened a three week comment period (until Sept. 11) on these proposals. On August 21, the California Air Resources Board (CARB) held its second public workshop on implementing the Climate Corporate Data Accountability Act (Senate Bill 253) and the Climate-Related Financial Risk Act (Senate Bill 261).  The session shed light on CARB’s thinking on many key issues, but also confirmed that significant uncertainty remains as the first reporting deadlines approach in 2026. 

Meanwhile, on August 13, the federal judge hearing the court challenge to the laws denied a request to enjoin the laws while litigation proceeds.  Plaintiff business groups are appealing.

Companies that do business in California should assess whether they are likely in scope under the laws, and consider engaging with the rulemaking process now, as crucial questions of applicability, scope, and timing are open for input.  If not already begun, in-scope companies should take steps internally to develop their reporting approach as deadlines will fast approach.  This update summarizes key developments.

August 21 Workshop: Key Developments

At its August workshop, CARB shared important updates and proposals for companies preparing for compliance, including:

1. Rapid rulemaking rule 

CARB is taking comment until September 11 on its latest proposals (see below) and plans to publish a proposed rule on October 14. The proposed rule will cover the fees and applicability of SB 253 and SB 261 and may cover additional topics. This publication would initiate a 45-day public comment period through December 1 (extended to the first working day after the holiday). CARB expects to consider and approve the rule at a CARB Board meeting on December 11-12. Following Board approval, the Office of Administrative Law has 30 working days to review for compliance with administrative law requirements. 

2. Deadlines 

SB 253: CARB proposed June 30, 2026 as the deadline for reporting Scope 1 and Scope 2 assured greenhouse gas (GHG) emissions.  Under SB 253, emissions data must be from the prior fiscal year (i.e., FY2025 for most companies reporting in mid-2026) and must have limited assurance.  Depending on their fiscal calendar, this may be an aggressive timeline for some companies to close their fiscal year data and complete assurance.  CARB invites comment from stakeholders on the timing of data availability and feasibility of this timeline. CARB previously published a notice of enforcement discretion permitting companies to rely on their data collection practices in place as of December 5, 2024, provided they retain all relevant data and act in good faith.

SB 261: January 1, 2026 is the statutory deadline for climate-related financial risk reports to be published to companies' websites.  CARB will open a public docket from December 1, 2025 to July 1, 2026 for companies to submit links to their reports.  CARB staff explained that the docket will be open until July to give entities more time to notify CARB of where reports are located, but CARB indicated that does not change the January 1 deadline for publication. CARB also clarified that for SB 261, companies can report on their most recent available data for year one, including FY2023/24, to alleviate data collection burdens. 

3. TCFD or IFRS S2 reports to cover all four “principles,” but with accommodation for lack of data in year one

SB 261 allows companies to choose from certain global reporting frameworks (e.g., TCFD or ISSB) to follow in preparing a report on climate-related financial risks and mitigation.[1] CARB has indicated that once selected, companies should apply their chosen framework consistently. At the August workshop, CARB clarified that they expect disclosures to include “four overriding principles” that underpin disclosures informed by TCFD 2017 and IFRS S2 reporting frameworks: governance, strategy, risk management, and metrics and targets.  In particular, CARB indicated that reports are expected to include: discussion of board oversight; climate risks and opportunities, impact of climate-related risks and opportunities on the organization’s operations, strategy, and financial planning; resilience of the organization’s strategy; the entity’s process for identifying and managing climate-related risk; and metrics and targets used to identify and manage climate-related risk. CARB explained that, for year one, they will not view Scope 1, 2, and 3 emissions or quantitative scenario analysis as requirements under SB 261.  However, CARB explained that if a company has emissions or scenario analysis data available, CARB would want it included in the report.  In general, CARB indicated its gauge for good faith is the data a company actually has available to report on in year one.

CARB’s August workshop provided additional direction on the statutory requirement in SB 261 that reports discuss any reporting gaps.  CARB’s guidance indicates that companies should identify the reporting framework used; “discuss which recommendations and disclosures have been compiled and which have not”; and “provide a short summary of the reasons why recommendations/disclosures have not been included as well as discussion of any plans for future disclosure.”

In July FAQs, CARB previously noted that only material information is required in SB 261, in line with statutory language, and cited the TCFD's parameters for determining climate-related materiality in the same way that a company determines other financial materiality.

4. Contents of SB 253 Emissions Reports

CARB staff plan to release draft GHG emissions reporting templates later in September for public comment.  CARB indicated that the templates likely will be in spreadsheet format and include an option to report actions that reduce GHG emissions (e.g., investments in renewable energy).

5. Applicability definitions - “revenue” and “doing business in California”

SB 261 and SB 253 apply to US entities that meet revenue thresholds ($500M/$1B) and do business in California.  CARB has been taking input on how to define “revenue” and “doing business in California.” Based on feedback to initial concepts presented in May, CARB has offered new proposals for each:

• Revenue:  
  • At the May workshop, CARB staff considered defining total annual revenue as gross receipts as set forth in California Revenue and Taxation Code (RTC) § 25120(f)(2), but some commenters objected that gross receipts were not suitable due to confidentiality, lack of verification, and/or overbreadth. 
  • Instead, CARB is now proposing: “Revenue is the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.”  This definition does not deduct operating costs or other business expenses.  CARB believes the definition is consistent with metrics used by major data tracking and reporting firms.
• Doing business in California: 
  • At the May workshop, CARB staff considered pointing to the RTC definition in Section 23101, which triggers on any one of several thresholds, including being domiciled in the state or exceeding California sales of $735,019 (inflation adjusted).  In the August workshop, CARB staff indicated that they are now considering only the sales and domicile thresholds, as the compensation and real property prongs were either overinclusive or unnecessary.
  • However, CARB staff are also now considering using presence in the California Secretary of State’s (SOS) Business Entity database as the trigger for establishing doing business in California. This SOS database includes, among other things, all corporations, LLCs, and LPs that have registered an agent for service of process in California.

CARB is soliciting feedback on these definitions. 

6. Public list of in-scope entities forthcoming

CARB plans to publish, in the coming weeks, a “preliminary list of covered entities” on the basis of Dunn & Bradstreet revenue data and the SOS database.  CARB indicated that it will “initiate a process to validate the preliminary list of covered entities.” Companies remain responsible for self-assessing applicability but should also review CARB’s forthcoming list to ensure they are aware of any entities identified by CARB as potentially in-scope.

7. Flat annual fees, per entity and subsidiary

CARB proposed that program costs be recovered through flat annual fees, subject to future adjustment: $3,106 per year for SB 253 entities and $1,403 per year for SB 261 entities. Fees would be calculated based on the number of covered entities (e.g., subsidiaries), regardless of whether a single consolidated report is filed.  Note: Fees for SB 261 are also proposed as annual even though reporting is biennial.

8. Assurance standards and auditor credentialing

CARB intends to specify acceptable assurance standards for SB 253 in its regulations. A list of potential standards is available in the workshop resources and includes: 

• International Standard on Sustainability Assurance (ISSA) 5000 issued by the International Auditing and Assurance Standards Board (IAASB); 
• AA1000 Assurance Standard issued by AccountAbility; 
• ISO 14060 family of standards for greenhouse gas validation and verification issued by the International Organization for Standardization (ISO); and 
• AICPA Attestation Standards (AT-C sections 105 and 205) for examination and review engagements issued by the American Institute of Certified Public Accountants (AICPA). 

Additionally, CARB indicated that it will require auditor independence similar to what it requires in its existing emissions reporting regime for large emitters. Consequently, companies should anticipate that CARB will not allow consultants to both advise on and then review/assure their “own work.”

Companies should confirm their assurance providers will qualify under CARB’s proposed credentialing framework and consider weighing in regarding acceptable assurance standards and accreditations.

Litigation update 

The U.S. Chamber of Commerce and several other business associations have sued to challenge SB 253 and SB 261. On August 13, the federal district court denied plaintiffs’ request for a preliminary injunction to block SB 253 and SB 261 from taking effect while the litigation continues. The business associations had sought preliminary relief, arguing that the laws are unconstitutional compelled speech, and that their members would suffer irrevocable harm if required to comply. The court’s ruling confirmed that both laws implicate the First Amendment. However, the court found that the laws serve sufficient government interests – including, providing reliable climate-related information to investors – and thus are unlikely to fail constitutional scrutiny.  Plaintiff business groups are appealing the denial. 

Practical Considerations for Companies

CARB is moving rapidly to develop a formal regulatory proposal, as well as accompanying guidance and reporting templates for GHG emissions.  With the trial court’s denial of a preliminary injunction, in-scope companies should prepare for California reporting compliance.  CARB has actively enforced compliance with its existing Mandatory Reporting of Greenhouse Gas Emissions (MRR) program for large emitters, including assessing financial penalties for late or incomplete reporting in the tens or hundreds of thousands of dollars.

• Assess applicability with new definitions: US companies that cross the $500M revenue threshold should assess whether they and their subsidiaries are in scope using CARB’s updated definitions (noting that multiple subsidiaries may be in scope and subject to fees, even if electing consolidated reporting), and review CARB’s preliminary entity list when available.
• Plan reporting approach for SB 261: Entities without an existing TCFD, IFRS or equivalent disclosure should conduct a gap analysis, choose a framework, and prepare to report on their climate-related governance, strategy, risk management practices, and metrics by January 1, 2026.  Those with existing reporting under applicable standards should review it for compliance with CARB’s draft disclosure requirements, particularly the requirement to discuss any gaps. 
• Engage with assurance providers for SB 253: Companies new to assured emissions will need to engage assurance providers.  Those with existing assurance for Scope 1 and 2 emissions should confirm their arrangements will align with CARB’s proposals, including regarding independence and accreditation standards, and assess the internal timelines needed to meet a June 30, 2026 deadline to complete assurance and reporting.   
• Coordinate with global reporting obligations: Global organizations subject to current or upcoming sustainability reporting requirements in multiple jurisdictions (e.g. UK, Europe, Mexico, Australia, Hong Kong, etc.) should aim for consistency in their reporting and seek efficiencies wherever possible. 
• Engage with CARB: Companies should review CARB’s proposals and consider engaging with CARB’s regulatory process directly or through trade associations, as critical definitions and deadlines are being drafted rapidly. 
• Build a record of good faith: Given the continuing regulatory uncertainty, companies should aim to build a record that demonstrates their efforts to comply, even if data or methodologies are still evolving. 

[1] The Recommendations of the Task Force on Climate Related Financial Disclosures (TCFD) and the International Financial Reporting Standards Sustainability Disclosure Standards (IFRS), as issued by the International Sustainability Standards Board (ISSB).  SB 261 also offers the option of using a report pursuant to requirements issued by any regulated exchange, national government, or other governmental entity, if “consistent” with TCFD.