California Moves Forward on Corporate Climate Disclosure Rules With CARB Approval

Key Takeaways

• Implementation Framework Approved: The California Air Resources Board adopted the California Greenhouse Gas Reporting and Climate Financial Risk Disclosure Initial Regulation to operationalize SB 253 and SB 261, as amended by SB 219.
• First SB 253 Deadline Set: Companies subject to SB 253 must submit their first Scope 1 and Scope 2 emissions report by Aug. 10, 2026. Scope 3 reporting begins in 2027.
• Revenue Threshold Clarified: Applicability will be determined using gross receipts reported to the California Franchise Tax Board, covering entities with more than $1 billion in revenue under SB 253 and more than $500 million under SB 261.
• SB 261 Enforcement Paused: Pursuant to a court order, CARB is not enforcing SB 261 at this time, and climate-related financial risk reporting remains voluntary.
• Enforcement Discretion in Year One: CARB signaled it will prioritize stakeholder engagement and apply enforcement discretion for good-faith first-year submissions.

Deep Dive

California Air Resources Board has approved a new regulation aimed at implementing two of the state’s landmark corporate climate disclosure laws, marking a significant step toward operationalizing climate-related reporting requirements for large companies doing business in California.

At its February meeting, CARB adopted the California Greenhouse Gas Reporting and Climate Financial Risk Disclosure Initial Regulation. The measure establishes how the agency will assess and collect administration and implementation fees under the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act, and sets the first-year reporting deadline under the former.

The regulation was developed to satisfy statutory requirements under Senate Bills 253 and 261, as amended by Senate Bill 219.

What the Regulation Does

The newly approved framework outlines how CARB will administer and fund the disclosure programs created by SB 253 and SB 261. Specifically, it:

• Establishes a flat-rate fee structure to cover program administration costs
• Defines key terms necessary for fee assessment and program applicability
• Sets Aug. 10, 2026, as the first-year reporting deadline under SB 253
• Clarifies how revenue thresholds will be determined

For purposes of determining whether a company meets the applicable revenue thresholds, the regulation ties eligibility to gross receipts as reported to the California Franchise Tax Board. CARB said this approach is intended to streamline verification and implementation.

The regulation applies to large U.S.-based entities doing business in California with annual revenues exceeding $500 million or $1 billion, depending on the statute.

Under SB 253, companies with more than $1 billion in annual revenue must begin reporting Scope 1 and Scope 2 greenhouse gas emissions in 2026, with Scope 3 emissions reporting beginning in 2027. For the first reporting year, CARB confirmed that companies will be required to report only Scope 1 and Scope 2 emissions.

Scope 1 emissions refer to direct greenhouse gas emissions from sources owned or controlled by an organization. Scope 2 emissions are indirect emissions associated with purchased electricity, steam, heat or cooling.

SB 261 and the Court Order

SB 261 requires U.S.-based entities with more than $500 million in annual revenue that do business in California to submit a biennial report describing their climate-related financial risks and the measures adopted to reduce and adapt to those risks.

However, pursuant to a court order, CARB is not currently enforcing SB 261, and reporting under that statute remains voluntary.

CARB has established a voluntary public docket where companies may submit climate-related financial risk reports. According to the agency, more than 120 such reports have already been voluntarily submitted and made publicly available. Submissions span a range of industries, including manufacturing, technology, healthcare, energy, transportation, finance and consumer services.

Enforcement Approach and Exemptions

CARB indicated that its priority in the early phase of implementation will be stakeholder engagement and support for compliance. The agency stated it will use enforcement discretion for good-faith first-year submissions under SB 253.

Certain entities are exempt from reporting requirements. Exempt organizations include tax-exempt non-profits and charities, government or majority government-owned entities, and California businesses regulated by the Department of Insurance or insurance businesses in other states, among other specified exemptions.

The regulation was developed through a public process that included stakeholder meetings, workshops and review of public comments.

Greenhouse gases are widely recognized as a leading contributor to climate change and are associated with environmental and public health impacts. By establishing administrative and fee structures to fund the disclosure programs, the regulation enables California to move forward with standardized climate-related reporting.

CARB Chair Lauren Sanchez said the action would provide investors and consumers with access to reliable climate-related information and align California with other jurisdictions that require climate data transparency. She noted that many businesses are already engaging early with the reporting framework.

The adopted regulation provides the operational foundation for implementing SB 253 and SB 261, which were signed into law in 2023 and amended in 2024. With the first SB 253 reporting deadline set for Aug. 10, 2026, large companies doing business in California now have a clearer timeline and framework for compliance.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.