In 2023, California passed Senate Bill 253, the Climate Corporate Data Accountability Act, and Senate Bill 261, the Climate Related Financial Risk Act.[1] SB 253 requires companies to disclose their greenhouse gas emissions—both direct and indirect—and SB 261 requires companies to disclose various risks presented by climate change. Both laws leave substantial terms undefined and empower the California Air Resources Board (the “Board” or “CARB”) to establish pertinent rules and regulations. Although SB 253 and SB 261 take effect in 2026, the Board has yet to release notices of proposed rulemaking for either statute.
On May 29, 2025, the Board held a public workshop to share its current thinking and solicit additional input. This client alert provides a summary of the statutory requirements and the Board’s likely approach to unsettled issues, which should be helpful as companies begin preparing for the 2026 compliance deadline.
SB 253. The Climate Corporate Data Accountability Act applies to any entity (“reporting entity”) with “total annual revenues in excess of one billion dollars” that “does business in California.” Cal. Health & Safety Code § 38532(b)(2) (2023). The statute does not define the term “does business in California.” SB 253 requires a reporting entity to disclose its Scope 1 and 2 emissions annually, starting in 2026, and its Scope 3 emissions annually, starting in 2027. § 38532(c)(1)(A)(i). Scope 1 emissions are all direct greenhouse gas emissions; Scope 2 emissions are indirect greenhouse gas emissions from purchased energy; and Scope 3 emissions are “indirect upstream and downstream greenhouse gas emissions…[that] may include, but are not limited to, purchased goods and services, business travel, employee commutes, and processing and use of sold products.” § 38532(b)(3)–(5), (c)(1).
SB 261. The Climate Related Financial Risk Act applies to any entity (“covered entity”) that has total annual revenues of more than five hundred million dollars and “does business in California.” § 38533(a)(4). SB 261 also fails to define the term “does business in California.” Beginning January 1, 2026, the law requires that a covered entity biennially prepare a “climate-related financial risk report” disclosing (i) climate-related financial risk, as set out in the Final Report of Recommendations of the Task Force on Climate-Related Financial Disclosures (June 2017), and (ii) “measures adopted to reduce and adapt to climate-related financial risk.” § 38533(b)(1)(A).
Delayed Implementation. On December 5, 2024, the Board released an enforcement notice, which allows reporting entities to “submit scope 1 and scope 2 emissions from ‘the reporting entity’s prior fiscal year’ that can be determined from information the reporting entity already possesses or is already collecting at the time this Notice was issued.” Cal. Air Res. Bd., Enf’t Notice (Dec. 5, 2025). The reporting entity must, however, “demonstrate good faith efforts to comply with the requirements of the law.” Id. Accordingly, companies do not need to collect new information during the current fiscal year to comply with the reporting requirements in 2026. Although the Board could extend that enforcement notice to FY 2026, there is no guarantee it will do so. Therefore, companies should assess their current data-collection practices and develop a plan for additional collection, if necessary, in FY 2026.
Board Information Solicitation. On December 16, 2024, the Board posed a series of questions to the public to help guide the rulemaking process. As illustrated by the breadth of questions, many of the most salient details of the laws still need to be finalized. The Board has not yet decided when companies should be required to report, exactly what they need to report, how they should report, to whom they should report, and who is qualified to certify those reports.
Recent Update: On May 29, 2025, CARB held an information session to offer an update on the rulemaking process and hear public comments.
Rulemaking Timeline. CARB acknowledged that the timing of the regulations remains in flux. The Board is currently in the “pre-rulemaking” phase, where it engages in informal workshops and regulatory concepts and solicits public and stakeholder input. The next phase is formal rulemaking under the California Administrative Procedure Act,[2] which is supposed to conclude within a year of the Notice of Proposed Rulemaking. CARB did not specify when it plans to issue the Notice, but it could take several months.
Substance of the Proposed Rules: CARB identified two “emerging themes” from the public comments it has received so far: (1) who will be covered and (2) what will be required.
1. CARB agreed that the regulations must establish definitions of “doing business in California” and “revenue,” and must clarify the relationship between parent and subsidiary for reporting requirements. To that end, the Board previewed “initial staff concepts” for resolving these issues.
- The contemplated definition of “doing business in California” would require a reporting entity to satisfy the criteria established in Cal. Rev. & Tax. Code 23101(a) and § 23101(b) (2012).
- Section 23101(a) provides that “‘doing business’ means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.”
- Section 23101(b) provides that a taxpayer is “doing business” if one of four conditions is met: (1) “the taxpayer is organized or commercially domiciled” in California; (2) sales “of the taxpayer in this state exceed” the inflation adjusted threshold of $735,019[3]; (3) the “real property and tangible personal property of the taxpayer in this state exceed” the inflation-adjusted threshold of $73,502 or 25 percent of the taxpayer's total real property and tangible personal property”; or (4) the “amount paid in this state by the taxpayer for compensation…exceeds” the inflation-adjusted threshold of $73,502 or 25 percent of the total compensation paid by the taxpayer.
- As this proposed definition makes clear, the statute will likely apply to companies that satisfy the revenue thresholds even if they do minimal business in the state.
- The definition of “revenue” would be defined as “gross receipts” as set forth in Cal. Rev. & Tax. Code 25120(f)(2) (2012). Gross receipts “means the gross amounts realized … on the sale or exchange of property, the performance of services, or the use of property or capital … in a transaction that produces business income, in which the income, gain, or loss is recognized under the Internal Revenue Code.” The Board is, thus, considering an expansive definition of “revenue” that does not account for expenses or depreciation.
- The definition of corporate relationships would “leverage” the cap-and-trade approach. Under the California Cap-and-Trade Program, a corporate association exists when one entity has a degree of ownership or control over another entity, and a level of ownership or control of 50% or greater requires establishment of a Corporate Association in the Cap-and-Trade Program. Code Regs. tit. 17, § 95833(a) (2021).
- The proposed definition of a parent-subsidiary relationship is significant here because disclosure “[r]eports may be consolidated at the parent level,” so that, if a subsidiary independently “qualifies as a reporting entity,” that “subsidiary is not required to prepare a separate report.” Cal. Health & Safety Code § 38532(c)(2)(A)(iii). Therefore, under a permissive rule such as the one suggested by CARB, more subsidiary reporting could be consolidated at the parent level.
2. CARB provided less clarity in terms of what disclosures will be required. Instead of “staff concepts,” CARB posed several follow-up questions:
- How can CARB support companies in making GHG disclosures more useful to investors and consumers?
- Are there modifications to existing protocols or standards that would help ensure consistent, comparable, and high-quality emissions reporting?
- What challenges do reporters face in accessing data, and how can CARB help address them?
- How can CARB improve clarity and usability of reporting requirements to meet California regulatory standards and support all reporters?
Next Steps: CARB will likely release proposed regulations later this year after receiving further input. Companies should consider providing input in response to these questions, as the Board indicated repeatedly that they are looking to engage with the business community. In the meantime, companies should assess their data collection practices and develop policies that will enable them to comply with SB 253 and SB 261 in 2026 and beyond.
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At Eimer Stahl, we advise our clients on how to navigate complicated regulatory schemes, such as the one presented by the California Climate Change Disclosure laws. Our attorneys bring a wealth of experience, with top-notch practice groups dedicated to energy law, government regulation, and complex commercial litigation. We will continue to serve our clients by monitoring the developments in this area and, when necessary, work with stakeholders to bring about the best possible outcome. Please reach out if you have questions or would like to discuss best practices for compliance.
[1] California later passed SB 219, which slightly modified the laws by, for example, deferring the deadline to propose regulations and adding a consolidation option for parents and subsidiaries (explained more below).
[2] The California Administrative Procedure Act requires agencies to complete a multi-step process, including a Standardized Regulatory Impact Assessment (SRIA); an Issue Notice of Proposed Rulemaking; a 45-day comment period; potential amendments and a second 15-day comment period; the adoption of the rules by CARB at an official Board Hearing; a Final Staff Report with comment response; a review from the Office of Administrative Law; and, finally, implementation.
[3] This includes sales by an agent or independent contractor of the entity.
