California Releases Initial Guidance on Corporate Climate Risk Reporting Requirements

Key Takeaways

• Reporting Requirements Incoming: Large companies doing business in California will face two new climate disclosure obligations—one for GHG emissions (section 38532) and another for financial risk (section 38533).
• Revenue Thresholds Differ: Section 38532 applies to companies with over $1B in revenue, while section 38533 applies to those over $500M.
• First Reports Due 2026: Financial risk disclosures must be published by Jan. 1, 2026. GHG emissions reports (Scope 1 and 2) are also due in 2026, with Scope 3 starting in 2027.
• Verification Timeline: Independent third-party verification begins at limited assurance in 2026 and escalates to reasonable assurance by 2030.
• Flexibility and Good Faith: CARB will consider good-faith efforts and use of existing data when evaluating early compliance.

Deep Dive

The California Air Resources Board (CARB) has published a detailed FAQ to guide companies preparing for the Climate Corporate Data Accountability Act (Health and Safety Code section 38532) and the Climate-Related Financial Risk Disclosure Program (section 38533). The document outlines early steps for compliance, reporting timelines, and public engagement opportunities, ahead of formal regulations expected later this year.

Although the FAQ doesn’t carry legal force, it’s designed to help companies begin planning for initial reporting deadlines in 2026. CARB emphasizes that further regulations may introduce additional or alternative requirements, but entities should prepare now to meet statutory obligations.

Not all companies are subject to both laws. Section 38532, focused on greenhouse gas emissions reporting, applies to companies with more than $1 billion in annual revenue that do business in California. Section 38533, which governs climate-related financial risk disclosures, applies to companies with more than $500 million in revenue. Companies meeting one or both thresholds will need to evaluate their reporting obligations based on specific criteria still being developed.

CARB is proposing to use California’s existing tax definitions to determine whether an entity is “doing business in California.” This includes thresholds for in-state sales, payroll, and property holdings. Public feedback is being solicited on these definitions and possible exemptions.

Regulatory Process and Engagement

CARB is currently in the informal, pre-rulemaking phase. So far, the process has included a public information solicitation in December 2024, an enforcement notice to reduce early uncertainty, and a public workshop in May 2025 to present early staff concepts.

The agency has committed to finalizing a regulation by the end of 2025. Additional public input opportunities are expected over the summer, and stakeholders are encouraged to participate and submit feedback via [email protected].

Under section 38532, companies must begin reporting Scope 1 and Scope 2 greenhouse gas emissions in 2026, based on the prior fiscal year. Scope 3 emissions reporting will begin in 2027. CARB will allow companies to rely on data they already possess for the initial reporting year. Third-party limited assurance will be required starting in 2026, increasing to reasonable assurance by 2030.

CARB also aims to reduce reporting burdens for companies already disclosing under other frameworks and is exploring ways to align its program with existing global standards.

Good Faith and Enforcement Discretion

Companies covered under section 38533 must publish their first climate-related financial risk report by January 1, 2026, and update it every two years. A public docket will open December 1, 2025, where entities can post the location of their reports. That docket will remain open until July 1, 2026.

Disclosures must address material climate-related financial risks, including both physical and transition risks. While the statute allows flexibility in choosing a reporting framework, CARB references the Task Force on Climate-related Financial Disclosures (TCFD) as a model. Reports are expected to be specific, complete, and decision-useful.

CARB will consider whether companies made “good faith” efforts to comply when evaluating enforcement actions. Companies submitting reports based on the best available data for fiscal year 2023/2024 or 2024/2025 will not be penalized if they demonstrate legitimate attempts to meet the new requirements.

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