California accelerates towards GHG Disclosures in advance of 2026 Deadlines with Regulatory Timeline and Litigation Win (SB 253 and SB 261)

CARB hosted a virtual workshop on Thursday, August 21, 2025 (slides here) to update the public on its efforts to implement SB 253 and 261. We previously summarized the key provisions of the laws here and the September 2024 amendments to the laws (SB 219) here. 

The August 21 workshop addressed feedback received during and after CARB’s May 29, 2025 public workshop (previously summarized here) and provided some clarity on CARB’s compressed rulemaking timeline. CARB also announced its intention to publish additional guidance for covered entities in the coming weeks. The workshop comes mere weeks after SB 253 and 261 survived a request for a preliminary injunction in a First Amendment challenge in the Central District of California, meaning implementation of the laws will continue while the legal challenge proceeds to a trial scheduled for October 2026. Given the anticipated timelines, it appears that any decision on the merits in that case will occur after the first round of disclosures are required pursuant to SB 261 (in January 2026) and SB 253 (anticipated in mid-2026).

Rulemaking timeline through the end of 2025

CARB announced its intent to meet the following milestones for the remainder of 2025:

• August 21-September 11: Informal public comment for feedback on workshop concepts.
• October 14: Notice of Proposed Rulemaking published.
• October 17-November 30: 45-day public comment period (pursuant to California Administrative Procedure Act).
• December 11-12: Public CARB Board hearing to consider—and presumably finalize—the proposed rule.

Assuming the Board approves the proposed rule, we would expect to see a final rule published shortly after the December public meeting. Doing so would allow Staff to meet their previously stated goal of finalizing regulations by the end of 2025.

Additional guidance to come

CARB is actively developing key components of the regulations and expects to publish the following guidance shortly:

• List of Potentially Covered Entities: In the coming weeks, CARB intends to publish preliminary lists of entities it believes may meet the threshold criteria triggering applicability for SB 253 and 261. CARB represents the lists have been developed by overlaying data from the California Secretary of State (SOS) Business Entity database with U.S. businesses that exceed the specified revenue thresholds for the laws (based on publicly available information). The preliminary analysis identified 4,160 entities under SB 261 and 2,596 entities under SB 253 that CARB believes may be subject to the relevant disclosure requirements. CARB apparently considered using Franchise Tax Board (FTB) data to generate or supplement the lists. However, legislative limitations on data sharing led Staff to pivot to the SOS database. These lists are intended to provide preliminary compliance notifications to entities that may be subject to the legislative reporting requirements. It is crucial to recognize that being on a list—or being excluded from a list—does not modify an entity’s compliance obligation; responsibility for compliance ultimately rests with each regulated entity, which must determine whether it meets the threshold criteria triggering disclosures.
• Development of Proposed Fee Concept: The lists are also being used to develop an initial fee concept, with CARB’s preliminary estimate that annual fees will be in the range of $3,100 (SB 253) and $1,400 (SB 261) per covered entity, per year. For more details on Staff’s proposed fee concept, see slides 20-24 of the August 21 presentation.
• Proposed Forms for Scope 1 and Scope 2 Emissions Reporting: By the end of September 2025, CARB intends to post draft templates for SB 253 Scope 1 and Scope 2 emissions reporting for public feedback. CARB is specifically seeking comments on the data fields for these templates.
• Minimum Requirements for SB 261: During the workshop, CARB discussed a list of proposed minimum requirements for the initial SB 261 report due by January 1, 2026. CARB indicated that each report prepared by January 1 should contain a statement discussing: (1) which reporting framework (e.g., TCFD 2017, IFRS, etc.) is being applied; (2) which recommendations and disclosures within the selected framework have been complied with, and which have not; and (3) why recommendations/disclosures have not been included (if applicable) as well as any plans the reporting entity has for future disclosures. With the impending reporting deadline on January 1, 2026, we expect CARB will publish final guidance on these minimum requirements soon.

Public docket open until September 11, 2025

CARB has opened a public docket, available here, to solicit feedback on concepts raised during the workshop or otherwise relevant to its efforts to prepare a proposed rule and/or guidance for SB 253 and 261. This informal comment period, which began on August 21, will close on September 11. CARB is seeking feedback on a wide range of topics, including:

• Key definitions, including “revenue” and “doing business” in California.
• Potential exemptions, including those being contemplated by CARB (see slide 18).
• The feasibility of CARB’s proposed June 30, 2026 implementation deadline for SB 253 Scope 1 and 2 reporting, especially concerning limited assurance requirements.
• How to leverage existing frameworks for assurance and the inclusion of other relevant and comprehensive assurance standards.
• What obligations foreign parent companies may have in connection with their US-based subsidiaries—although Staff reiterated that SB 253 and 261 only apply to US-based entities doing business in California.
• The scope of emissions reporting (i.e., California-only, US operations, or all operations) required and/or permitted under SB 253.

Update on definition: “Doing business” in California

As adopted by the California legislature, SB 253 and 261 apply to US-based business entities that exceed specified total annual revenue thresholds and “do business” in California. Since its prior statements on the issue at the May workshop, CARB indicated it is reconsidering its Staff concept for defining the term “doing business”:

• Original Concept (May Workshop): CARB initially proposed referring to the definition in California Revenue and Taxation Code Section 23101. This definition included "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit" and meeting specific conditions such as being organized or commercially domiciled in California, or having sales in the State exceeding inflation-adjusted thresholds (e.g., $735,019 in 2024).
• Reasons for Change: Feedback indicated that aspects of the Revenue and Taxation Code definition—namely the property and salary thresholds—may set too low a bar. Furthermore, discussions with the FTB, which administers and collects corporate tax within the State, revealed legislative limitations on data sharing, which would restrict CARB's ability to rely upon the definition in the Revenue and Tax Code to identify entities doing business within the State.
• New Staff Concept: CARB is now exploring other databases as a means to identify those doing business in California. Staff’s current focus is the SOS Business Entity database, which is publicly available and lists all entities with a designated agent for service of process in California. This may prove to be complex in practice. CARB, for example, provided little clarity on the specific factors it would use to determine whether a business entity was “doing business” using the SOS database and several public commenter expressed concerns about using mere designation of an agent for service of process as an indicator that an entity meets a material threshold (which is not necessarily indicative of a certain level of business activity within the State). CARB is seeking public comments on this revised concept.

First Amendment challenge

The U.S. and California Chambers of Commerce, American Farm Bureau Federation, Los Angeles County Business Federation, Central Valley Business Federation, and Western Growers Association (“Plaintiffs”) filed suit in the Central District Court of California against the State on January 30, 2024, alleging SB 253 and 261 violate the First Amendment, the Supremacy Clause, and the Dormant Commerce Clause. On February 3, 2025, the District Court dismissed the Supremacy and Dormant Commerce Clause claims against SB 261 with prejudice and those against SB 253 without prejudice, allowing Plaintiffs to re-assert their SB 253 claims once CARB implements its anticipated regulations. Plaintiffs then sought a preliminary injunction to delay implementation of the disclosure requirements until after a decision on the merits of their remaining First Amendment claim based upon allegations that the laws compel companies to engage in costly speech on the “controversial issue” of “climate change.”

In an August 13, 2025 decision, the District Court denied Plaintiffs’ preliminary injunction to enjoin SB 253 and 261, despite finding the challenge was ripe and proper (i.e., the challenge could proceed before implementing regulations were final and the bills are subject to First Amendment review).  

SB 253

The District Court found that SB 253 regulates commercial speech and requires reporting of only factual (not misleading) and uncontroversial information, i.e., data about GHG emissions. It determined that companies reporting emissions data need not make any statements as to responsibility for indirect emissions nor are they required to advocate for any policy position. Therefore, the District Court reviewed Plaintiffs’ challenge to SB 253 under the lower-level Zauderer scrutiny, whereby required disclosures comply with the First Amendment if the information is reasonably related to a substantial government interest.

The District Court held that Plaintiffs do not show a likelihood of success on the merits in challenging SB 253 based on the State’s dual interests in (i) providing investors with reliable information on which to make informed decisions, and (ii) reducing GHG emissions.

However, the District Court raised a potential exception to its holding, finding SB 253 may not be tailored to the State’s claimed interest in providing investors with climate-related risk information to the extent the law compels disclosure from companies that have no California investors. “If Plaintiffs were companies with no California investors and brought an as-applied challenge, then the fact that the law does not apply only to companies with investors may have proved fatal to SB 253.” (Order at 30).

SB 261

Although the District Court found that SB 261 also regulates commercial speech, it compels disclosures that are more than factual in nature because they require assessment of the risk of harm to immediate and long-term financial outcomes. As a result, the District Court reviewed this law under intermediate scrutiny by assessing whether it directly advances a substantial government interest in a manner not more extensive than necessary to serve that interest.

Even under the heightened standard of review, the District Court found the State made a sufficient showing as to the benefits of the specific disclosures required by SB 261 to achieve the objective of enabling investors to make informed judgments about the impact of climate-related risks on their economic choices. This was enough for the District Court to find Plaintiffs also do not have a likelihood of success on the merits in challenging SB 261. Notably, unlike SB 253, the State’s proclaimed interest in reducing emissions did not support SB 261 surviving First Amendment review because the State could not show these disclosures would reduce GHG emissions.

The District Court also rejected Plaintiffs’ argument that SB 261’s definition of “climate-related financial risk” is too broad and vague, finding the definition’s reference to the TCFD reporting framework provides sufficiently clear guidance to allow covered entities to comply.

Disposition of preliminary injunction as to SB 253 and SB 261

Having concluded that Plaintiffs were unlikely to succeed on the merits of their challenge, the District Court turned to the other relevant factors for evaluating a request for a preliminary injunction. Because Plaintiffs did not demonstrate the laws violate the First Amendment, the District Court found that Plaintiffs failed to show irreparable harm. Finally, the District Court held the balance of equities favored denial of Plaintiffs’ request, noting that enjoining the laws would delay advancement of public interests. As a result, the District Court declined to enjoin enforcement of SB 253 and 261 while Plaintiffs’ claims are litigated.

The broad range of expertise at Hogan Lovells US LLP – including the Environment and Natural Resources, Litigation/Consumer Products, Sustainable Finance and Investment, Corporate and Finance, and Infrastructure, Energy, Resources and Projects teams – are available to assist clients with submitting feedback to CARB during its rulemaking process and complying with GHG emissions disclosures and climate-related financial risk reports pursuant to SB 253 and 261, and can help you understand interactions with other relevant sustainability-related reporting regimes required globally.

Authored by Tom Boer, Maia Jorgensen, and Olivia Molodanof.