Companies Must Prepare for Complying With California's Climate Disclosure Laws Even Though California Air Resources Board Regulations Are Not Final
The 2026 reporting deadlines are quickly approaching for California’s Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261). The California Air Resources Board (CARB), responsible for implementing SB 253 and SB 261, is working on final regulations and guidance to answer fundamental questions regarding the implementation of SB 253 and SB 261. While CARB has stated that it plans to exercise some enforcement discretion during the first reporting year for entities that can demonstrate a good-faith effort towards compliance, regulated companies will still be required to submit the required reports by the deadlines established under the regulations. The bottom line is companies must start preparing to meet reporting obligations and upcoming deadlines even though fundamental questions regarding the implementation of SB 253 and SB 261 remain subject to further rulemaking and guidance from CARB.
Identifying the Statutory Reporting Requirements
SB 253
SB 253 and SB 261 set up new statutory climate disclosure requirements. Under SB 253, companies doing business in California with total annual revenues exceeding US$1 billion are required to disclose Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions on an annual basis beginning in 2026 for fiscal year 2025 (for the first reporting year, only Scope 1 and Scope 2 emissions are required).
The GHG emissions will need third-party verification (i.e., an assurance) for Scope 1 and Scope 2 emission calculations starting in 2026 and for Scope 3 emissions calculations starting in 2027. “Limited assurance” is required for Scope 1 and Scope 2 from 2026 through 2029 with “reasonable assurance” required starting in 2030. Limited assurance of Scope 3 emissions is optional until it is required, starting in 2030; however, CARB may require limited assurance starting at an earlier date.
CARB has not adopted definitions for limited and reasonable assurances, but has asked for public input on whether it should adopt the definition of reasonable assurance in the Mandatory Reporting Regulations (MRR) framework. Under the MRR framework, reasonable assurance is a high standard, similar to the audit of financial statements, involving more extensive testing, evidence gathering, and analysis of controls to conclude positively that the information is free from material misstatement.1 The MRR does not define limited assurance; however, it is expected to be a lower level of third-party verification where that party examines a limited sample of data, makes general inquiries, and issues a negative form of conclusion—stating whether anything has come to their attention suggesting that the information may be materially misstated—providing moderate confidence in the results.
While CARB has only recently suggested a potential due date for the first reporting period under SB 253 (as discussed below), it has reiterated that reports will be due in 2026 for fiscal year 2025. CARB has indicated it plans to adopt certain implementing regulations concerning the applicability of SB 253 and associated fee structure before the end of the year. Additionally, CARB stated that it will exercise some enforcement discretion during the first reporting year of 2026. Notably, CARB referenced in its December 2024 Enforcement Notice that enforcement action would not be taken under SB 253 for companies with incomplete reporting in 2026, so long as a “good-faith effort” towards compliance and data collection and retention can be demonstrated; however, CARB has not defined or otherwise provided guidance as to what would constitute a “good-faith effort” that could serve as basis for CARB to exercise its unilateral enforcement discretion and forego enforcement action against covered entities.
SB 261
Under SB 261, companies doing business in California with total annual revenues exceeding US$500 million are required to disclose climate-related financial risks on a biennial basis. The first climate-related financial risk report required under SB 261 must be publicly available on or before 1 January 2026. CARB will open a public docket one month prior, on 1 December 2025, for covered entities to post the location of the public weblink to the entities’ climate-related financial risk report. The docket will remain open until 1 July 2026. The reports must be based on “the best available information” from either 2023–2024 or 2024–2025 fiscal years, appearing to give companies some flexibility in sourcing climate risk-related data to disclose.
In complying with reporting obligations under SB 261, covered entities are to prepare a report, which discloses its climate-related financial risk in accordance with the Task Force on Climate-related Financial Disclosures (June 2017) or an equivalent reporting framework and any measures taken to reduce and adapt to these climate-related financial risks. In frequently asked questions published by CARB in July 2025 (as discussed below), CARB defined climate-related financial risk as “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.” CARB also advised that SB 261 does not require covered entities to provide information that does not fit within this definition and that covered entities have “some flexibility” in picking a reporting framework. Similar to the circumstances with SB 253, CARB has not yet finalized its rules and guidelines for compliance, leaving covered entities with minimal direction on how to comply and avoid enforcement.
Recent Regulatory Updates
On 9 July 2025, CARB issued the “California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure Programs: Frequently Asked Questions Related to Regulatory Development and Initial Reports” (FAQs). While the FAQs do not have the force of law, the guidance document is meant to assist companies preparing these disclosures while implementing regulations and guidance are being worked on by CARB. In the FAQs, CARB acknowledges that it is still “in the informal, information-gathering stage” for implementing SB 253 and SB 261.
Additionally, on 21 August 2025, CARB held the “SB 253/261/219 Public Workshop: Regulation Development and Additional Guidance.” During the over three-hour workshop, CARB discussed or provided the following guidance and updates on SB 253 and SB 261:
CARB indicated that it is considering different definitions for revenue and “doing business in California.” With respect to the definition of revenue, CARB asked for feedback on whether it should continue considering using the gross receipts definition as set forth in California’s Revenue and Taxation Code (RTC) Section 25120(f)(2) or the following proposed definition:
Revenue is the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.
With respect to the definition of “doing business in California,” CARB indicated that it is considering additional alternatives beyond the previously proposed definition from RTC Section 23101, including one that would find a business “does business in California” if it is domiciled in the state or has a designated agent for service of process in California, based upon Secretary of State registration. CARB stated that it was also considering certain exemptions to this definition such as for nonprofit entities and entities whose only business in California was due to teleworking individuals and solicited feedback in this regard. CARB acknowledged during the workshop that additional guidance is needed on the relationship between parent entities and their subsidiaries for purposes of determining whether an entity is “doing business in California” and meets revenue thresholds and any associated reporting obligations. Finally, CARB plans to post a list of entities it believes are within the scope of the regulations within the next several weeks. CARB clarified that the list is not conclusive that an entity is within or outside of the scope of these regulations and entities need to do their own analysis regarding applicability.
With respect to SB 253, CARB proposed a deadline for Scope 1 and Scope 2 GHG emissions reporting using fiscal year 2025 data of 30 June 2026 and asked for feedback on this timing. CARB is planning to circulate draft SB 253 reporting templates by the end of September.
With respect to SB 261, CARB provided guidance in the slide deck for the workshop that is similar to the chart on page 14 of the Final Report of the Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017).2 CARB is currently drafting guidance on the minimum requirements for compliance with SB 261 and provided a number of resources for guidance on climate-related financial reporting in the slide deck used during the workshop.
Finally, CARB provided a rulemaking regulatory timeline. The public comment period is currently open and will stay open through 11 September 2025. CARB plans to issue its Notice of Proposed Rulemaking on 14 October 2025 and the comment period on the proposed rulemaking will be open from 17 October 2025 through 30 November 2025. CARB plans to hold hearings to adopt the rulemaking on 11 and 12 December 2025.
Litigation Updates
On 13 August 2025, the US District Court for the Central District of California denied the motion for a preliminary injunction filed by the US Chamber of Commerce, which sought to prevent enforcement of SB 253 and SB 261.3 The district court found that while both SB 253 and SB 261 regulate commercial speech, the plaintiffs in the case had not demonstrated likely success on the merits of its facial First Amendment challenges to either SB 253 or SB 261, and therefore, the court denied the request for a preliminary injunction. Importantly, this denial maintains the current 2026 compliance deadlines under both laws.
On 20 August 2025, the plaintiffs submitted a notice of appeal to the US Court of Appeals for the Ninth Circuit on the ruling.
Conclusion
While potentially covered entities continue to await further clarification and guidance on SB 253 and SB 261, those entities are still expected to meet the compliance deadlines. With these rapidly approaching reporting periods, entities should continue to monitor any guidance and regulations from CARB and consider whether to engage with CARB during the public comment period. The firm is positioned to help companies navigate these complex and evolving regulations and assist throughout the reporting process.
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.